Inexperienced Multifamily Investors Could Damage Sector via GlobeSt.com

With the multifamily market being touted as both white-hot and a safe bet, a new trend is emerging in this industry sector: Small groups of investors who are inexperienced in owning and operating multifamily properties are outbidding savvier investors for these assets and driving up prices in the market. While this is good news for sellers—and who could blame them for shaking hands with the highest bidder?—CRE experts say it may not ultimately bode well for these investors and the market five years down the road, when rents haven’t risen appreciably enough to cover operating costs and mortgage payments, and these owners are forced to sell at a loss.

GlobeSt.com has discovered that, while this trend is evident all over the country, it is mostly manifesting itself in the under-$20-million category, where institutional investors tend not to play and independent private investors can get a toehold. “We’re not necessarily experiencing that directly because it’s not the size space we are aggressively playing in,” Jay Koster, president of the capital markets group at Jones Lang LaSalle, tells GlobeSt.com. “But it’s not surprising; multifamily continues to be viewed as a great current yield real estate investment opportunity matched with strong overall housing and demographic trends, coupled with the fact that it might get the best inflation protection going forward. Some of these drivers are finding themselves factors in the private-capital world.”

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