Shorting Multi-Family

Aside form buying CDS contracts on multi-family loan pools, are there any other ways to short the MF housing market?

Recently traveled to Baltimore, Minneapolis, and Charlotte. Found myself astounded at the amount of MF property that has gone up in the past few years and more importantly, is set to go up in the next year. Sure, the lending market isn't what it was, but this bubble seems rather obvious.

The amount of demand is quite cyclical and I cannot fathom a scenario in which MF developers all perform well given the turn in housing and the value of rent vs. buying right now.

Most REITs or multi-family builders don't seem to be exclusive to that type of property from what I gather.


For an average joe investor, the only option I see is shorting multifamily stocks. However, I'd take a hard look at multifamily construction highs over the past few decades. The equity out there is more cautious than you'd think, and development returns, which are getting squeezed, are limited. Apartment starts were actually higher at various points in the 90s and 00s. This is not that crazy - So far, absorption and rent growth have been fine.

But it depends on the market. San Jose, Seattle, and DC (govt job cutbacks) are mentioned as vulnerable to possible overbuildilng.

Best Response

Cap rates for multifamily here in Houston is about 5.5%, they have to rise. Valuations are through the roof and even though this is one of the hottest RE markets, the number of cranes I see everyday when going to work is just insane. I am seeing multiple multifamily projects go up and they are doing this by tearing down empty offices and houses. There isn't much room to develop new properties so you have to demolish. There are entire sections that are just apartments. I agree multifamily in the long run has to take a hit when it gets too saturated, but thats a long way off. Occupancy rates are still 95%+ in most good markets. Cost of debt is still cheap especially in the perm market. While valuations are high, they might get hit somewhat when interest rates officially rise. The perfect time to short will be when you start seeing occupancy and rent growth flatline and interest rates creep up. Anyways those are just my two cents.


The MF market has a long way to go yet. You will know when your time is when projects start to get killed at the city planning level. In the areas I have visited those are not even on the horizon. You have to look at this from a big picture. Cities are often far more cautious about approving large MF developments than even the investors or developers are. Cities can't just walk away from the continuing costs associated with the services that have to be supplied to these developments. Make friends on the zoning and future planning commissions. These people will know when the bubble has reached it's peak.

Follow the shit your fellow monkeys say @shitWSOsaysLife is hard, it's even harder when you're stupid - John Wayne

I've seen listings locally with cap rates below interest rates, with little upside on rents. Even if actual transactions close the gap, to me that screams bubble.

I think what a lot of people are missing here is that the cap compression for multi family is due to a flight to quality, not speculative value appreciation. Its the same reason the 10 Yr Treasury is trading at a real return close to 0. While these very low cap rates leave little wiggle room, investors right now are not buying them for the same reason we saw low cap rates in 2007. These are not pop and flips, large funds need to put capital in something other than office right now and are willing to pay the premium demanded in multi family due to its percived safety.

In full disclosure my firm just bought a 400+ unit complex on the west coast for a 4.5% cap.

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