Reality Check Coming For Investors Waiting For Big Multifamily Discounts
Since the September interest rate cut, the commercial real estate industry has been abuzz with optimism about an impending rebound from the turbulence it has endured since rate hikes began in 2022.
And although that rebound is expected to materialize, multifamily owners and managers at Bisnow’s West Coast Multifamily Annual Conference on Nov. 13 cautioned against expecting too much recovery too soon.
Buyers that are waiting for fire sales on distressed properties and sellers that are holding out for peak prices need to leave those ideas in the past, as do real estate professionals waiting for a return to historically low interest rates, panelists said at the event.
“I think everyone was chasing below replacement costs, and thought they were going to get a ton of opportunities in ‘24,” Intracorp Homes EVP Brent Harrison said.
“But there really haven't been that many transactions of those deals,” Harrison said.
The phenomenon has played out nationwide as funds waiting to deploy stockpiled cash on a deluge of distressed assets are largely still waiting.
On the seller side, some panelists said they saw signs of the persistent bid-ask gap closing, at least on some transactions, and saw the potential for transactions to pick up if more sellers can lower their expectations. The return of alignment in price discovery is a sign that some in the market have received their reality check.
“One good sign that we saw recently was a little bit of capitulation on the part of some owners,” Universe Holdings Chief Operating Officer Scott Kurzban said, referring to owners lowering their expectations on offering prices.
“I think that that's usually a healthy sign that somebody is finally realizing that they're not going to get the rosy numbers they may have hoped for when they went into it,” Kurzban said.
This shift is perhaps a contributor to the uptick in sales volume compared to last year. In the first three quarters of this year, the Los Angeles multifamily market surpassed $4B in sales volume, beating 2023’s year-to-date total of just under $3B.
Panelists didn’t specifically say what is motivating these sales and could lead to more of them in the future, but nationally, discussion of a looming wall of multifamily maturities has garnered significant attention. At its peak in October 2025, $5.4B of multifamily loans are expected to come due.
While some industry professionals were still waiting to see whether interest rate cuts would work their way to CRE and offer some relief on the development and financing side, at least one other panelist said the industry would be better off resetting its expectations and getting used to making deals happen in a higher rate environment.
“I started my career at Morgan Stanley in 2000, and during that time we were lending at 5.5% to 6.5% rates, and I don't think that, in and of itself, is the fundamental issue,” Greystone Senior Managing Director Eliav Dan said.
“The issue is that we have been the benefactors of this insanely low interest rate environment for so long that I think it's really skewed the thesis, right?”
The LA-area multifamily market has seen its construction pipeline empty, in part due to those hard-to-adjust-to interest rates. Some panelists anticipated that in the next year or so, the appetite for new development could be boosted if transactions don’t pick up.
