Corporate Landlords Selling Properties?

The big news in 2023 was about corporate landlords and billion dollar-sized investment firms buying up rental houses and condos.

Fast forward to late 2023, and there are signs these mega-sized firms are selling off some multifamily properties due to high financing costs and a rental market that is cooling.

After buying from Main Street, they may be looking to unload properties back to you. Will there be bargains for small landlords? Can anyone finance successfully with mortgage rates at 8%? Wall Street buyers are flush with cash and seemingly can avoid the high financing rates.

If this is a selloff, it might mean they believe the market is downward in 2024. Of course, many investment firms are doing well with their well-selected portfolios in the best cities.  Once the multifamily new construction release is absorbed and the FED rate eases, their portfolio might be the best place to be invested.

CBRE forecasts that delivery of a near-record 716,000 new multifamily housing units over the next two years will push the sector’s overall vacancy rate above equilibrium from 4.6% to a peak of 5.2% by year-end — CBRE report.

In CBRE’s most recent investor class report, investors said they are still into multifamily and would invest in the US South markets. Yet that region is experiencing rapidly falling rent prices.

Investors in their year-end 2022 survey cited 4 top market concerns: rising interest rates, credit availability, fear of a recession and persistent inflation.

CBRE expects a moderate recession to begin in early 2024 as tight monetary policy slows the economy. That suggests much lower rent prices in the next 4 to 6 months.

Rising Rates and Falling Rents

As shown in this Rent.com chart, asking rent growth has retracted strongly.  Only in the northeast has rent growth stayed strong.

Asking rents last 3 years USA. Screenshot courtesy of Rent.com

Big Investor Stock Prices

The stock prices of these investment companies are just one indicator of rental estate trends, but perhaps it is telling.

Zillow and Redfin’s performance has been serious as home sales have plummeted to the lows not seen since the 1970s. It looks like sales will fall even further. And public corporate landlords too are seeing their stock prices fall this year. Here in these many price charts, you can see an ominous trend. Inevitably, an incredible buying opportunity will be presented to some landlords.

Redfin Stock Price 2023. Screenshot courtesy of Google.

Zillow Stock Price 2023. Screenshot courtesy of Google.

The Large rental property firms are seeing share values fall quickly, even with strong occupancy and high rent prices. Is it just the new construction glut?

Avalon Bay Communities Stock Price 2023. Screenshot courtesy of Google.

Mid America Apartment Communities Stock Price 2023. Screenshot courtesy of Google.

Invitations Homes, the largest residential rental landlord. Stock Price 2023. Screenshot courtesy of Google.

Will Home Prices Drop Significantly?

Will home prices fall further than rent prices? Currently, in some cities such as San Diego, rent prices are falling while home prices and mortgage rates are rising.

Rent.com’s data shows rents are falling fastest in economically strong states such as Texas -1.1% mo.), Florida (-3.35 mo).  In New York (-2.2 mo.), Massachusetts (-3.23 mo.), and in pandemic destination states (Tennessee: -2.24%) they are receding.

Across the sunbelt and southern region, rent prices are down. Montana’s asking rent prices are down -15% year over year. However, YoY, New York rents are still up 11.28%). Median rent prices in the NY/New Jersey region rose 1% in September.

Cities with the highest decrease in asking rents were Austin (-14.3%), Portland OR (-12.8%), Las Vegas (-12%), and Oklahoma City (-9%).
Okay, there is something happening, but the real question is whether the FED will continue with higher for longer, and thus put increasing pressure on these companies who are highly leveraged.

„Despite the pause, Fed officials have signaled that rates may have to remain higher for longer than markets had initially expected if inflation is to sustainably return to the central bank’s 2% target“ — CNBC report.

We’ll see in the coming months whether there are buying opportunities as the economy cools.

If you’re going to retain your tenants, growing service and benefits may be the right choice.  See more on tenant retention, long-term leases, and keeping tenants happy. It costs much more to create a new customer than keeping the ones you have.

 * opinions/findings expressed in this post are those of the author and may not be those of ManageCasa, its partners and affiliates.

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