Anyone sitting on their hands right now?
Current acquisition analyst at an operator right now. We don’t have issues but the deals are slow moving. Any other people with 3-5 YOE not doing much now? There’s just no work for me to do. I’m reading through past deals and doing market research all day.
Yes
I mean my rule of thumb in acquisitions is when there is nothing to do… keep sourcing until you find something that makes sense. It’s hard to make deals pencil right now but you miss all the shots you don’t take.
Its really bad out there. I think everyone was expecting some sort of rebound late Q4, but then this tariff crisis, stock market volatility, rate spike, etc. has now made things worse.
Haven't done anything material at work in over a month
What's slow on the acquisitions side? Are sellers and buyers not agreeing on price? It seems valuations are much lower, therefore it seems like this would be the best opportunity to buy if you're planning on a long term hold.
Are buyers hesitant to do deals at 40-60% leverage instead of 55-65%+ because of the equity needed to raise and today's cost of debt?
Genuinely asking, because I'm not on the acquisitions side and have not been for 5 years.
Think for the groups that have the low cost of capital or all cash, the deal flow is not there to be materially busy outside of select portfolio m&a with major yield levers to make sense of going in price as 1 metric that will be scrutinized - seeing a lot of core plus / value add sellers that want core pricing still and aggregating these deals one off is not worth it to many groups that are pressured to make big plays
That makes sense. Transaction volumes are down. But it's kind of funny.
Here's the transaction volume of multifamily over the last few years:
2021: $332B
2022: $384B
2023: $120B
2024: $146B
So last year was less than half of 2022.
I'm not sure how long you've been in the industry, but I would guess since you're a third year associate that it's less than 7 years. Here's the volume from 2018 and 2019.
2018: $172.6B
2019: $122B
What I'm saying is, this might be normal.
So its a mix of a couple things. When rates starting rising in 2022, most of the acquisitions folks felt it was temporary. JPOW called it temporary with a plan to bring back down over time. So people were still active in the market. Fast forward, rates are still elevated and now the Fed has actually pretty much stated this could be the stabilized rate going forward. The 10 YRs has also stayed above 4% as well. Previously when it spike to over 4%, investors were saying it was only temporary, well now 3 years in, its still near the same level. Keep in mind treasuries are an indication of the risk free rate. So if the risk free rate is 4%, the multifamily cap rates should be more than 5% (yes I get it theres rent growth), but they caps still need to be much higher assuming even strong rent growth.
I talked about this before, if the 10 year stays in the Mid 4s for a much more elevated period, transaction activity will be worse than it is now. Investors will then become complacent that this is the new norm and it makes sense to buy these and stay liquid. It also means that debt pricing would be elevated making deals go negative leverage. So to get back to your point, valuations are lower, but thats on the assumption rates/UST will decline. If they don't then valuations need to come down further. Simply look at this way, the lender is supposed to have less risk than the equity owners of the building, therefore equity owners get compensated with a higher return. Except right now, the lenders are getting a priority security interest at a 65% LTV for a 8-9% yield, whereas the CoC for equity investors is less than 3%-4% for taking on considerable more risk.
Great insight
Great clarity.
There is still such a large demand for housing across the country. Are there any incentives the government can provide / policy decisions to aid developers who normally wouldn't find this environment viable?
Very slow - and by the looks of it everyone else is pretty slow as well.
Would it be worth it to look for another job at this point or ride it out?
If everyone else is slow what is getting a different job going to do? Unless you meant outside of real estate, in which case that's a different question. You should not base your career decisions on some market volatility, be in real estate because you like real estate of be somewhere else because you like that better.
There's still deals being done so I meant to a different firm with better capitalization.
Many are having a terrible time, but some companies seem to be doing just fine.
When people had free money fund raising was easier, but would you not want to be at a firm that can fund raise during the bad times? Why the hostility?
Know people who just got laid off in the last few weeks at well known NYC firms. Wouldn't look to leave now, not a great time.
Which major firms? I havent heard anything.
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