Cushman and Wakefield’s March 31 Capital Report Summary

Cushman and Wakefield’s report presents a picture of major markets on the rebound with cap rates moving quickly in favor of sellers. Additionally, C&W reports that spreads are narrowing somewhat as well. At the same time, C&W points to a growing spread in cap rate disparity between 1st tier and 2nd tier markets. Is this the true view of developments? How do investors avail themselves of opportunity given these points.

First, C&W may be overstating the good news and ignoring some of the facts involved here. The banking information available presents a different picture of the multifamily market than this statement. Perhaps this position focuses on too narrow a set of the available for sale assets.

Second, the growing spread in the 2nd tier markets may represent a particularly good opportunity to acquire especially strong assets for cash flow focused value investors.

Third, the REO market in the multifamily space has yet to reach peak volume anticipated. Investors should move with caution until the impact of this growing volume of assets is better understood.

Finally, availability and reliability of traditional bank debt remains strained. Putting together deals on a traditional debt and equity basis remains a struggle. Perhaps the very large REITs and funds don’t face this obstacle, but smaller investors have not seen a clear stabilization in the bank debt market. And, why should they? Our estimation is that even healthy banks must lend reluctantly until they understand where values are really going to stabilize. So, IRREIA sees an environment where cash deals gain premium return positions and deals relying on debt (unless seller provided) are likely to continue to struggle.

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