How tf is anyone buying multi right now?

Best as I can tell, some of it is due to these family offices. I am on the AM side and at least 50% of the final offers we have gotten over the past 6 months are from family offices that don't have a ton of true multi experience. And we have been transacting quite a bit.

But hey, I'll sell deals at 2-caps all day long.

Rents are increasing at double digit rates, and if you’re not forecasting that you’re a chump

Personally speaking, my rent went up 15% in October which luckily I can afford; however, there are numerous people in my complex (suburban apartments, Midwest, 20min outside of Tier 3 city) that are leaving as they either cannot afford or do not want to pay the astronomical rent increases - some moving in with family/girlfriend, others finding different options (lower quality/smaller apt etc).  Vacancies seem to be rising in my complex but that's obviously very antidotal - for my own sake, I'm hoping some of these property managers realize they only can increase rents so much before people start leaving & getting new tenants becomes harder.

EDIT: Just checked the going rent rates for my apartment complex.  They are down $100-200 a month just in the last couple months and the same exact unit is now ~$100 cheaper than I am currently paying.

People have efficient capital bruh. Dont be jealous. 

It is extremely competitive out there but here are a few things that I have been seeing in the market. 

1) Large Loss to Lease has resulted in a lower cap rates. It will be interesting to see what happens once we collapse the loss to lease and we do not see the incredible rent growth we’ve seen recently YOY. 

2) Adding rocket fuel to that is the bridge funds are lending at high leverage at rates that are competitive with the agency along with funding the cap ex budget. They are essentially paying you for the large LTL you have on your books.

3) Capital Allocation - Where else are you going to put your money into today that makes you feel confident you can get to your returns? Even at a 8-12% IRR it’s tough to replicate those returns in a steady asset class. 

What else is there to buy besides industrial? Office is f*cked. Hotels are f*cked. Retail has been f*cked. Multi / industrial / life science = ride the wave.

While I’ve learned no one knows anything. I’ll take a stab here…pricing will get better once the large institutions can invest in office/hotel again (and maybe retail though even before the pandemic many institutions stayed away). Some of the Capital which should be going to office and hotel (and retail) will get reallocated and pricing should get better. 

Work at a merchant builder selling institutional deals at pretty absurd cap rates.  Story we keep getting told is they're making the numbers work with huge rent growth in the first 3 or 4 years. 

Somewhat relevant to the discussion, I was thinking late at night one night of what would happen to multifamily if mortgage rates increased drastically. Like 7% interest rates drastically and what environment that would entail. Honestly, in a scenario like that, inflation could be in the teens, so cap rates may not necessarily follow upward (or upward as much). These large multifamily funds would be holding cash and would probably be even more motivated to invest in the space (and quickly). Rent growth would continue and so a 4 cap today could be a 5+ the very next year. 
 

These are the things I think about when I’m in bed late at night. Reminds me of that meme of the guy in bed with his chick laying next to him.

Easy. Just assume the Green Street rent growths are conservative. 16-20% IRR bby!

There is more money than ever and not enough places to put it. Simple economics. The demand for multifamily is high, thus prices are high.  

Capping YR 2 proforma rents, burning off all loss to lease & sprinkling in exit cap compression. U/W is fun.

"Ideally" inflation means more money so people use money to buy assets raising their value, yields are low, so companies must pay more money for leases and payroll, so people have more money, so companies can raise rents, so relative cap rates may stay same or rise, but value increases because of higher NOI. So will companies pay people more money, if they don't then they are doing to ruin their own business cycle.

Something I genuinely worry about is the hot potato game that the value-add folks play in. Owner A renovates 10% of units and jacks up rents 20%, implying that you can do that same across the whole property. Owner B buys it on that basis, but in reality only renovated 10-30% of the units, increasing the rents 15-20% before marketing as a building that is 20-40% renovated. On a microeconomics scale, it can work...but what happens when an entire metropolitan area experiences this kind of hot potato passing. Not to mention, this strategy almost entirely removes an entire subset of the asset class for people who can't afford nicer apartments. If your HH income is $33k, rents going from 750 to 900 is a huge deal. Historically, Americans moved west and south. Where tf are you gonna go now to find a cheap place to live?