Rising Interest Rates And Economic Uncertainty Impact Multifamily – July 2022 Round-Up

With continued inflation, rising interest rates, and looming economic recession, the multifamily investment world is both feeling the impacts and adapting to them. Multifamily real estate has historically been one of the most resilient asset classes, and in the face of economic headwinds, there are still many opportunities for investors.

Andy Hagans, Co-founder of The Alternative Investment Database joins Scott to discuss.

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Episode Highlights

  • How regulations impact the costs of multifamily development.
  • Whether or not rental rates have hit their peak, and what might be behind declines.
  • The impact of the Fed’s interest rate hikes on multifamily investment and development.
  • How demand continues to shift from owning to renting, and what this says about multifamily.
  • News about Urban Catalyst’s second OZ fund.

Today’s Guest: Andy Hagans, AltsDb

About The Multifamily Investor Podcast

The Multifamily Investor Podcast covers trends and opportunities in the multifamily real estate universe. Host Scott Hawksworth discusses passive investment offerings in the space, including direct investments, DSTs, opportunity zones, REITs, and more.

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Show Transcript

Scott Hawksworth: Hello I’m Scott Hawksworth host of the Multifamily Investor Podcast. Welcome to another episode here today and I am joined by Andy Hagans, who is the Co-founder of AltsDb, The Alternative Investment Database. Andy, welcome to the show.

Andy Hagans: Hi Scott, how you doing today.

Scott Hawksworth: Doing great trying to stay cool here. It’s a bit warm but staying cool after the holiday weekend we had.

Andy Hagans: Yeah absolutely it’s a long hot summer for investors, I guess that’s some of the links that we have prepared for today.

You know there’s so much going on in the markets, right now, and you know we do these monthly roundups I know you did it with with Jimmy last month and it’s like wow so much changes, even in 30 days it’s amazing.

Scott Hawksworth: Well it’s 100% so much does change, I mean just to to kind of recap, we have continued inflation, we have rising interest rates looming economic recession if we’re not already in it.

You know the multifamily investment world is feeling some of this pressure, some of this impact and investors are looking at.

You know, opportunities and saying okay well what’s the what’s the impact, going to be here what’s going to happen and we’re going to cover a bit of that.

Today, with some of these articles so i’ll dive into the first one, though, which really is a is about the regulatory environment. This is from Bisnow and regulations top 40% of total apartment development costs report fines.

And I think it’s important to start with this, because when you look at this landscape, a lot of folks start to.

You know there’s a lot of pressure on government officials “Oh, we need more regulations, we need more controls, we need to look at rents, we need to look at.

You know, affordability all of that, and the fact is, is that this does impact.

multifamily development and development costs and here’s i’m going to directly quote here from this article regulations at all levels of government account for more than 40%.

Of multifamily development costs, and this is, according to a new survey by the national multifamily housing Council in the National Association of homebuilders.

And that marks an 8.5 percentage point jump from a similar survey that was done by the organization’s back in 2018 which asserted that slightly more than 32% of costs were due to regulations.

So when you’re looking at it and when you’re looking at these projects, and of course we have ongoing housing needs.

very clearly a lot of these regulations have an impact, and this includes things like when we’re talking about rent controls when we’re talking about you know, requiring.

You know meeting affordability standards and just to add a point to this again from the same article.

About 48% of multifamily developers said they avoid building in jurisdictions with policies such as.

Inclusion airy zoning which that’s a lot about affordability and then at 7.5% that is a staggering number, but it makes sense when you realize.

The impact said that they would avoid building in a jurisdiction with rent control so i’ll stop there for a second Andy and i’m just kind of curious to your perspective on this.

When you look at the landscape and you look at multifamily as an asset class, and from that investor lens you know, really, what is this what is this really saying I mean it seems to say that regulations are just bad for multifamily across the board.

Andy Hagans: Well, I don’t think regulations are bad for multifamily I think over regulation.

right for multifamily right, I mean if you talk to developers or sponsors I don’t think they’re hostile to regulation, but I think.

You know what i’m hearing and what I see is the hostility to just creeping continued new regulation just you know piles upon piles of new agencies new regulations.

They all add up, and you know this at 7.5% of multifamily developers, so they avoid building in jurisdictions that have rent control.

Well yeah I mean the the whole point of an investment is risk and reward so it seemed to me that developing in a little colony with rent control it’s like i’m going to take all this risk by developing a project, you know huge financial risk also a lot of time involved a huge time commitment.

And then you know if the development if the investment doesn’t work out.

i’m going to take it on the chin as an investor or as a developer, if it does work out, and this is successful.

and investment, then you know the the growth is going to be kept the reward is going to be kept, so I mean really if I could sum all this up.

Incentives matter so when you have rent control policies you’re saying to you know property developers multifamily developers.

you’re you’re not allowed to make significant or healthy profits in this locality, and so you know there’s no incentive to build here and so i’m noticing a trend if they get hop onto my little soapbox here.

Scott Hawksworth: Go a pedestal yeah go for it.

Andy Hagans: it’s a small soapbox is.

moderately sized yeah there’s a certain type of person, and I think sometimes their policy maker sometimes they’re a bureaucrat sometimes they are a politician, sometimes they are you know, an academic.

Who, on the one hand, proposes all kinds of policies and regulations on housing that add cost and complexity.

and make it harder to develop.

affordable housing, especially multifamily housing, the same person, though, on the other hand, we talking about the extreme need that the country has for affordable housing.

And for multifamily housing it’s really amazing to me that these folks never seem to connect the dots that when you create disincentives to do something you get less of it.

Scott Hawksworth: You know Andy to jump in there, this is something that I spoke about with Sharon belkin when we had an episode all about new york’s.

Good cause eviction bill, which has been tabled, but you know they may come back to something like that, because there’s.

Continued push in New York City for rent control, and this was similar to his point of you know, New York City.

does have a need for affordable housing for housing supply and so when you put these rent controls in place.

Really, your dis incentivizing that development, so, in the end, you are impacting negatively the populace who needs housing, because the folks that can give them that and develop it and improve.

You know, existing buildings revamp them what have you they are disincentives to do so 87% say actually no we wouldn’t do that because.

The Economics aren’t there, so I think that really underscores your point to that and it’s kind of an interesting balance that some of the folks with those views have that they kind of don’t see the full picture, they they you know miss the forest for the trees, so to speak, right.

Andy Hagans: yeah it’s like hey the medical doctors here he’s he’s here to heal us except he doesn’t have any medicine or a stethoscope with him he’s baseball bat, you know.

i’m sorry for the off color humor but it’s just I honestly I mean it with the housing shortage, the way it is with we’ve seen rents rise, the way they have um it’s it’s just utterly amazing to me when policymakers just don’t get it.

When want more of something.

incentivize it when you want less of something dis incentivizes you want less people to smoke cigarettes, you know tax the living, you know what out of them.

Exactly and you’ll have less of it, and so that, I mean this is what this really is is not again, not regulation, but over regulation, especially when these are you know administrative law when these are regulatory agencies just issuing laws that you know.

You know, are kind of dubious as to as to whether they were even laws that you know Congress meant to issue, but a lot of these are also on the state and local level, so they are legislated and and they are absolutely making it more expensive.

To build, but you know, and I think that the undercurrent here which the article does reference is the nimbyism.

Scott Hawksworth: I wanted to talk about that so i’m glad you brought that up.

Andy Hagans: Well, a lot of.

A lot of people don’t really want new development.

They want to.

You know, there are certain stakeholders that want to appear that they want new housing to be building and whatever city let’s say San Francisco but but they don’t actually want new housing to be built so.

You know, we could go on all day on that you know the hypocrisy of policymakers and politicians and, frankly, even sometimes the hypocrisy of voters right because.

A lot of voters, when asked would say yeah we want affordable housing, but you know, by the way, just make sure it’s not near my house.

Scott Hawksworth: Right yet yeah just don’t obstruct my view with that.

That new multifamily building but yeah housing.

Andy Hagans: You know, Dr human nature sky exactly exactly and then before we leave this article, just to kind of point out some of the.

Scott Hawksworth: numbers, because this was just a very interesting survey, you know building code changes turned out to add the most expensive any category and that’s 11.1% of development costs.

And then.

For the Nimby aspect, the Nimby opposition to multifamily development.

The survey started that it adds an.

Average of 5.6% to total development costs and then this is also key as well as a delay in new housing delivery.

averaging 7.4 months so when you have this kind of opposition, not only is it more expensive to develop this housing, but then it delays it, and when you look at the landscape and we have housing needs all over the country that’s significant so again, this is something that.

Andy Hagans: You know.

Scott Hawksworth: it’s kind of industry inside baseball, but it is something that when you look at apartment development costs and you look at.

The challenges that developers do have it’s something that is a factor and it’s something to keep in mind from the investment perspective.

You know where what market is this in what conversations are being had where’s the pressure I mean, I think it was last month, I was on, I believe.

The alt db episode and we talked about Orlando specifically and how there had been rumblings about rent control there so it’s not even restricted to a New York City.

anytime we have these these rent rate increases that are quite frankly, you know incredible in depending on the market, you have this kind of pressure that builds and.

Andy Hagans: ultimately win and, quite honestly, and I think this is the next article that you’re about to bring up.

You know the market is self correcting if if policymakers would just let the invisible hand, you know do its job.

Scott Hawksworth: And with that I think that’s a perfect segue to the next article, this is from multifamily dive and.

it’s the headline is Is this the peak apartment rents hit all time high as growth slows so we’re talking about that invisible hand.

And one of the big sort of numbers, here, the rate of rent growth is decelerating nationally down 40 basis points from April and 130 points from peak growth in summer 2021 to 13.9%.

occupancy a harbinger of overall demand has also softened in some key regions, at the same time.

multifamily rents continued their meteoric rise with a $19 increase in the national average asking rent in May 2022 to an all time high of.

1680, and this is, according to the already matrix his latest report so things are going up, but we’re seeing this rent growth D celebrate nationally and.

there’s a number of factors for this, I think one you just have the general fact that you can keep raising rents, but eventually people are going to either move or be unable to pay.

Especially when you consider different types of properties different markets different job you know situations in those markets and all of that, and then you kind of have this.

This sort of aspect of you know well, maybe demand is just kind of softening a bit because of this i’m curious if you have a take on on this invisible hand as you were you were kind of tina’s up there.

Andy Hagans: Well, you know if wage growth is not keeping up with rent growth, then sooner or later rent growth is going to have to decelerate.

Right, I understand the pricing and the intersection of pricing is intersection of supply and demand right that’s how we do price discovery.

But let’s look at the consumer Scott, I mean so we’ve seen that wage growth has not been keeping pace with inflation, especially you know certain types of inflation, for instance, energy costs.

or housing prices for single family homes so wage growth, you know, has not kept pace additionally we’ve seen consumer confidence fall off a cliff in the past 60 or so days.

yeah just absolutely tank and so you know if i’m Joe or Jane consumer and my personal rate of inflation is 17% but my wages have risen 10% on a real basis i’m already poor than I was 12 months ago.

You know i’m not likely to splurge on a beautiful new apartment that’s an upgrade from Maybe my current apartment I see what you’re highlighting now on the screen i’m probably if anything.

I might be more likely to look for more affordable apartment if my you know if my rent rate is climbing by whatever 15 or 20% I might also be looking for single family home and deciding well you know that.

I need to put that dream on ice for now because housing prices are so expensive and now interest rates are going up honestly really big picture.

And I know we’re talking about this over you know the next couple articles that we’re discussing today what I see is a market that is entering a new phase of price discovery.

Because we’ve seen consumer confidence tank.

Now we’ve seen you know sales volume in the real estate market has also taken a nosedive and so those two things usually preceded.

change a price adjustment, but we haven’t really seen that much of a price adjustment and and I would call that.

Maybe a little bit of stubbornness, you know, like it like it takes takes a little bit of time for the new.

The new price to settle for for the for the market to discover that new price, essentially for sellers to face reality that you know, maybe the price from a year ago in that gogo market is not the new reality, but they don’t get to that new price right away, it takes a little bit of time.

Scott Hawksworth: Right, you know I actually read the quote from this article that I have highlighted here, this is.

record numbers are never sustainable, this is Jay parsons Vice President head of economics and industry principles for real page and he told multifamily dive this.

Going into this year we expected to see rent growth levels moderate in the second half of 2022 but six or seven months ago we didn’t know exactly why that would be.

there’s some signs that inflation is having an impact on the broader economy, and I think what we’re going to see is just what we’ve reached.

A point where we can’t keep growing at these levels, and so I think that that really does tie into what you’re saying is that.

That there is going to be this adjustment in this this period of price discovery, where you know renters are looking out there and saying okay.

Am I going to stay, you know renters in class a class B apartments are seeing larger increases, then those and classy.

And among those who chose to remain in their units class a and class B renters paid about a 12% premium on their rent to renew their leases in May.

And then, while class C renewal rates rose 7.9% so automatically you have folks and we’re renting in these classes and class B properties.

were really taking a significant increase and at some point folks are going to look at that and maybe they’ll say you know what maybe I.

You know the the job isn’t my wages aren’t increasing as much maybe there’s another place, I can live that still nearby or an easy commute.

But it’s maybe not as nice it doesn’t have all the amenities, I want, but i’m at an option, where I can move now and so i’m going to go there.

You know, people will respond, and I think you’re you’re right Andy and when you’re talking about maybe there’s that period of denial like no, we can do this, but then eventually as folks look at.

The cost of gas, they look at the costs of of really everything food going to the store they’ll they’ll start to think yeah where Can I make a cut and, of course, one of the things that.

When we talk about multifamily is how resilient, it is because people need homes so they’ll never say well actually i’m just not going to have a home anymore, but maybe there will be.

more of a pullback as they start looking across the landscape and saying well if i’m going to be renting.

For the next several years, maybe I need to to lower those those costs for me, and I can do that by going down the street at maybe a an older value add property that looks nice rather than this brand new construction class a property right.

Andy Hagans: yeah, and I mean when I mentioned price discovery what I really mean is price discovery in the single family home market.

Scott Hawksworth: Oh yeah.

Andy Hagans: As well as in the multifamily asset market, so I think that’s where you see the volume has slowed down and.

You know, sellers may want a certain price, but then the buyer for that same mass oh that’s a single family home or a multi family asset.

You know their interest rate has gone up you know if you know, for their debt financing and so there’s just that.

That mismatch I think between what buyers are willing to pay right now, and the price that sellers want to sell out, but I do, I agree with you that multifamily is resilient because.

Putting price discovery aside or any repricing aside, we still have a nationwide housing shortage so there’s still this insatiable demand for multifamily housing, so I think you know as long as as an investor.

Either you know if you’re actively owning real estate or you’re invested with a fund that is using leverage responsibly, you know, ideally, using fixed rate debt not floating rate debt.

And not being over leveraged the resiliency of multifamily is going to enable you know most sponsors to survive this environment just fine, but you know you probably will see some.

On the edges, who took on too much debt, who, who quite frankly overpaid for assets, you know or just I guess you could say got unlucky and bought at the peak.

And so, of rent prices, you know if the rent growth slows down or in some localities you know if you even see a decline or stay flat for a little bit while interest rates rise you they can be in trouble, quite frankly.

Scott Hawksworth: You know and and I think a piece to consider here as well, and something that i’ve interviewed a number of folks and there’s always this sort of discussion of when you’re looking at individual markets.

Are some of these markets can they be overbuilt are they on the way to being overbuilt and that.

That actually does drive a lot of decision making, when developers are out there, trying to determine okay well, where are we going to target.

You know there’s i’ve talked to folks who say actually I kind of shy away from phoenix and some of these Sunbelt markets because i’m concerned about.

them being overbuilt and this article also kind of speaks to that you know, while prices continue to rise, new units will soon be ready to meet demand and likely impact apartment operators pricing power.

So nearly 12 years after the most recent trough in US apartment construction volume, which was approximately 100,000 units in late 2010.

Construction activity has risen by more than seven fold with 760,000 new units under construction, as of the first quarter of 2022.

Is the largest construction volume ever recorded in the US and when complete will increase the housing inventory by 4.1% now that’s not going to solve our housing issue.

there’s so much more demand than we have supply, but where that can have an impact is on certain markets so.

This article here went to site markets with the most apartments under construction and you look phoenix Austin Texas, these are two metros that we’ve talked a lot about on the show and.

They are still you know the the.

The investment thesis for those markets is still sound, but I think when we’re talking about just pure rent growth and looking at supply it’s one of those things to keep in mind as as this article CITES, you know, are we at the peak it’s something to consider.

Andy Hagans: Absolutely.

Scott Hawksworth: Okay let’s let’s move on, because you were you were you were talking some.

really important elements when we’re talking about the interest rates, and we know that interest rates have been rising the Fed has signaled that they’re going to continue.

To be open to that, and this is from multi housing news how the latest rate hike impacts multifamily and there’s a lot of great information in this article and great perspectives.

You know a lot of folks out there, you know, the first quote here cash flowing multifamily and industrial assets won’t be as severely impacted.

Which that was from Richard ortiz co founder and managing principal at Hudson realty capital.

And he said, these are also property types, to continue to see significant rental rate grow so a lot of thought of well, we are having these rent rate increases.

This impact isn’t going to be a significant but and i’ve had this conversation with a number of folks when it comes to leverage there is that impact, when you have those floating interest rates, as opposed to fixed and you know that is really impacting things, I think.

right here, you know.

Further he’s concerned about the low CAP rate environment, particularly in multifamily and industrial and properties, with negative leverage where the cost of the debt.

is greater than the unlimited cash on cash yield and duly said, it has created a dynamic where buyers are determining if they will accept lower years yields and or sellers.

will accept lower prices, so I think you kind of have this.

This sort of double whammy of we’ve had this CAP rate compression over the last 18 months and really longer depending on who you talk to, and when you look at the landscape and then you have these rising interest rates.

Now, impacting specific assets and the the underwriting of those assets Andy i’m curious if you could kind of expand on that and and run with it, because you were talking about about that a bit ago there.

Andy Hagans: yeah I mean that’s the price discovery.

Right, where you had these very low CAP rates, we also had low interest rates, the year ago, so you had low interest rate very low interest rates and you had very low.

CAP rates when interest rates go up in the Fed at not only have they gone up, but the Fed is signal that they’re going to continue to go up.

Well, the CAP rates are going to have to adjust right or you’re going to see this negative leverage but, like, I said that doesn’t happen right away right, you have sticky prices, you have sellers that are you know, maybe have their fingers crossed.

Scott Hawksworth: And in our home right saying okay.

Andy Hagans: yeah hoping to exit at a certain number.

But, but I think that prices are going to have to adjust and, frankly, I do think that CAP rates are beginning to move a little bit already and I mean as as interest rates increase, they have to I mean if you look at other asset classes.

Especially you know the massive losses that investors have taken, and you know the public equities market.

Scott Hawksworth: mm hmm.

Andy Hagans: um it’s like where is all this money going to come from that’s going to continue to bid up assets and where we see these very, very narrow CAP rates, I guess, I don’t quite.

understand the thesis here that the CAP rates won’t move at all as interest rates continue to rise, I think I think all assets.

On global mark, I mean really literally every single asset in global markets is being repriced right now, as it should be.

And maybe when we get some more certainty on inflation, maybe with the Federal Reserve is able to tame inflation in the United States.

Then there’ll be a little more certainty, and you know people will be a little more confident when pricing assets, but but right now I think we’re in a time of uncertainty.

Where we don’t know how much longer higher inflation will be sustained, but we do know that interest rates are higher than they were a year ago, we know the Fed is signal that they’re going to continue.

To increase those interest rates and really even in the last week or two the Fed is signal that their primary concern is not avoiding the recession.

Their primary concern is taming inflation, because sustained higher inflation is worse in the feds view and, in my view, is worse than you know, a run of the mill everyday type of recession.

Right, and so you know.

Some of these folks saying that you know that they don’t think that we’re going to see CAP rates move very much.

I don’t really understand that perspective Scott, I think that maybe is not quite realistic or.

You know I may also have the perspective and i’ve had a lot of sponsors on the show on the Alternative Investment podcast in the last couple weeks, I always ask them, you know what they think about the macro economy, you know whether we’re.

In a recession, the consensus is is that we’re already in a recession, and I mean even the consumer appears to think that, in a certain point if if three quarters of consumers already believe that we’re in a recession, then we are in a recession, because.

Scott Hawksworth: right because they’re gonna start behaving like we’re in a recession as well.

Exactly.:

Scott Hawksworth: yeah I think that’s I think that’s spot on and then, when you look at this, you know i’ve i’ve talked to a number of sponsors and.

Really, the impact of these rising interest rates, you know it doesn’t it isn’t so backbreaking to multifamily and we’ll talk about this in a.

In a minute here but it’s also a good thing for multifamily in the sense that for single family homes if it’s harder for folks to buy them be that first first time homebuyers what have you.

Then they are going to rent for longer, and there are going to be looking at rents so there’s that side, but then the other side, really is just a matter of.

being more conservative in their underwriting and and as as folks are looking at these assets.

they’re there again they’re saying Okay, well, we have we know what the interest rates are now we know what how we’re trying to stabilize we know how we’re tackling debt, we need to be more conservative because clearly.

Interest rates are going to continue to increase, clearly we have this landscape of economic uncertainty and if we’re going to do right by our investors we’re going to go in with a more conservative viewpoint and and that ties to cap rates as well.

You know folks that are doing it right aren’t going to assume that actually yes CAP rates are going to remain as they are compressed further they’re thinking yeah we’re going to see some expansion and we’re going to build that in.

Andy Hagans: yeah I mean this this show Scott your show is targeted towards investors right passive investors.

So if assets are repriced downward and you’re going to be a net saber net investor let’s say over the next three to five years that’s a great thing.

You know, because 18 months ago, you were probably overpaying for an asset, whereas now you know going forward you’re more likely to be paying a reasonable price and that’s where a lot of the money is made as an investor’s on the buying side is not paying not overpaying for good assets.

So I think this is probably in a lot of ways, good news for investors, because the valuations that we saw let’s say a year ago they just didn’t seem sustainable.

Scott Hawksworth: 100% 100% and and that’s that’s what i’ve seen and and you know from that side too, there are lots of.

You know folks out there, looking at some of these assets and saying you know, unless there is some you know special tax abatement or something about this property I don’t feel comfortable.

You know, buying this at this price, and so I think that really, really does impact things, and this can be a good time.

for investors and kind of pursuant to that I want to move on to our next article here, which is from john burns real estate consulting.

And this is talking about demand shifting from owning to renting so we’ve been kind of talking about some of the impacts here.

But then when you kind of look at where that demand is more and more the demand is shifting to renting because of a number of factors and one of the big ones i’m pulling this up the national cost of owning versus renting a single family started host.

Andy Hagans: Scott, if I could just pause you right there.

Scott Hawksworth: yeah go ahead.

Andy Hagans: I guess I got to apologize to the audio only listeners, because this visual you really got to look at it and and see this graph where you know it’s from.

Scott Hawksworth: April 2012 2000 to April.

Andy Hagans: 2222 and it’s showing the homeownership premium, so the monthly mortgage payment for a single family starter home versus monthly rent for I assume basically the same.

You look on the far right, which is our current you know, the most recent month April 2022 and it’s like a hockey stick and.

Blind graph it’s the highest you know it’s the highest.

line on the entire graph is is the most recent data, where the homeownership premium is the largest Scott, I mean two part question.

doesn’t that line in the line graph look like a bubbles you and then number two isn’t that the type of line or bubble use, you see, shortly before assets get repriced before single family homes are going to need to get repriced.

Scott Hawksworth: yeah so so for Question one absolutely that line looks like a bubble to me just having conversations with folks and in my life when we talk about real estate prices and housing it’s doesn’t it seems like it didn’t matter what the market was prices were going gangbusters.

Andy Hagans: out of control and, by the way, by the way, a year ago, you had cheap debt, so you know, even if, even if someone did buy a house, a year ago, and even if they arguably paid.

Maybe what looks like too high, of a price they may have a dirt cheap mortgage on that and it, you know might end up just fine for them.

Scott Hawksworth: But it’s a bit might, but then there’s other aspects of when demand was.

out of control and prices were rising you had so much competition, for you know we’re talking about single family homes here, but for.

The single family homes that you’d have well, if you want an inspection you’re not going to get this home so you’d have folks saying okay we’re coming in over asking and we’re going to say no.

right away.

Inspection no contingencies, and then that kind of factors into you know, including payments ongoing maintenance some things that you may not have seen.

That all kind of built into the expense of home ownership that we see is this this this hockey stick right here, and then you know to your second question.

That absolutely is a signal, where okay there’s going to be some kind of correction here, but overall.

I think the impact is is there’s a lot more demand for renting because if you look at those costs and you look at where wages are and and all of it there’s it’s it’s almost like well why would I.

Andy Hagans: Well, that was more expensive Alphabetically that spread, but again, you know, looking at the visual.

That spread just doesn’t make sense, it looks like a temporary aberration, and so, with interest rates, you know mortgage rates having increased substantially and they’ll probably continue to increase.

that’s a big factor Scott, because just.

The interest just the interest you know, part of a monthly payment for a homeowner that has substantially increased which really means there’s less budget to pay for the non interest component of that payment.

So something’s got to give right either either rent prices will narrow that gap.

or home single family home prices will fall to narrow that gap, but that narrow that gap, I can tell you, sooner or later that gap is going to narrow and with interest rates, increasing the way they are, and they’re likely to increase a little bit further.

You know I wouldn’t bet on the single family home prices continuing you know continuing on their trajectory that they’ve had in the past few years.

Scott Hawksworth: One would think something has got to give and I think that’s just an important backdrop to consider, especially for investors.

When you look at this own verse rent aspect and you look at especially folks who might be first time homebuyers the landscape they’re entering in right now and that’s where.

You know, in my thesis when I talk about multifamily I think that is where multifamily whether it is new construction, whether it is.

You know, a value add deal, whether it be class a class B class C can fill such a need, because the numbers currently don’t match up and they may change but but right now, a lot of homebuyers are simply priced out and it creates the demand for renting.

Andy Hagans: Absolutely.

Scott Hawksworth: So, moving on to our last article here one of the talk about some of our friends here at urban catalyst and this is from the opportunity zones database our partners here and urban catalysts second oC fund hits 100 million in funding.

Just an incredible achievement there, and you know of course we’re big fans of opportunities zones here and their second nosy fun.

furthers construction of new ground up projects in downtown San Jose.

And this is by funding a property that will feature 389 units of multifamily apartments and approximately 511,000 square footage of offices and.

This is actually after their their first fund, which in December 2020 they close their first oC Fund after completing 130 $1 million raise so.

A lot of development happening and urban catalyst there among the best in the business at this and and clearly.

You know, there are there is this attraction to Opportunity zones funds and tied to multifamily because we have this housing, need I had Eric hayden on.

A previous episode here of multifamily investor and we discussed California we’ve talked a lot about California on the show before and there’s a lot of folks that say Oh well, you know.

kind of getting back to those regulations that we were talking about at the beginning Andy oh is California really a great place.

To to invest Well, yes, especially if you have a developer and you’re investing with a sponsor who knows the market and is still feeling the need, because when we talk about housing shortages.

California really leads the pack with their their really incredible housing shortage end desperate need they have.

For new units and an urban callous, of course, is is leading the charge there I just think that’s an important thing to kind of highlight that there is so much activity still happening.

With this an opportunity zones and then the other thing I wanted to highlight Andy is that our partners at opportunities zones database are having a pitch day.

This is July 28 2022 and that’s the o’s oC pitch day summer 2022 and there’s many funds going to be presenting.

At this pitch day it’s an all day event and all day virtual event and urban catalyst will also be there, so when we talk about multifamily and we look at opportunities on specifically an opportunity zones.

You know, as a rapper these funds have so many residential components to it, I believe the last statistic, I came across was over 60%.

Of oC funds have a residential real estate component and multifamily is obviously a huge part of that so.

Clearly, this is one of the areas where there’s just a lot of attractive investment and attractive opportunity, no pun intended for multifamily and for folks that are interested in investing in multifamily and maybe seeing some some tax benefits from that.

Andy Hagans: yeah I mean I know Jimmy I can send our partner in the founder of opportunity db.

he’s always said multifamily consistently is the most popular segment within the opportunities zones space, and so, of course, you know you mentioned urban catalysts their fund fund to.

It is a diversified funds, so it includes office, but it also includes multi family.

You know, and in certain places in California it’s not necessarily easy to build multifamily so pretty cool that they’re building 389 units in downtown San Jose and I know this fund, especially popular with lps live in California and not necessarily worried about getting that K one.

State of California, but I know there’s a lot of lps.

nationwide.:

Andy Hagans: And you know i’ve seen eric’s pitch before and frankly it’s one of the best in the.

World it’s a really.

really good presentation and it’s worth watching just just because a lot of information, a little bit different each time you watch it so even though i’ve attended the past few pitch days I plan to attend this one.

You know, see the updates on presentations i’ve seen but also you know there’s usually several new funds, who are presenting and there’s also some panels with Q amp a.

And all for the low low price of $999 per ticket no i’m kidding.

Free for investors so sorry said to include that shameless little plug for our sister site opportunity db if you go to Opportunity db calm.

right on the top there you can click oC pitch day and get that free registration link and Scott i’m guessing you’ll also throw that in the show notes for us.

Scott Hawksworth: Yeah Andy absolutely really looking forward to that pitch day i’ll be in attendance as well because there’s going to be so many fantastic funds presenting there and so many great opportunities for investors and certainly as part of the opportunities zones tax rapper which we’re all passionate about.

And you know I think to kind of tie it all back together to what we were talking about there is yes, this uncertain economic landscape, when you think about multifamily rising interest rates, inflation.

But at the end of the day, it is one of the most resilient asset classes out there, and you see how.

It doesn’t matter, there is still this demand for housing and whether it’s developers or sponsors they’re really approaching it.

And and kind of considering how to develop and really take advantage of it and then present those opportunities, so I think it’s gonna be interesting to see where it all goes from here.

Andy Hagans: Absolutely.

Scott Hawksworth: Thanks Andy.

Andy Hagans: Thanks Scott.