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Multifamily Investment Trends and Forecasts: Q&A with Cushman & Wakefield’s Susan Tjarksen

Multifamily assets have long been an anchor for many investment portfolios. The question is whether this will continue in today’s uncertain environment and into the future. The upcoming Connect Midwest: Multifamily & Adaptive Reuse Trends conference will offer in-depth insights about the multifamily sector.

Connect CRE recently spoke with one of the event’s presenters, Cushman & Wakefield’s Susan Tjarksen, to get a better understanding about what’s happening with multifamily investments and financing.


Connect CRE: Is the multifamily sector still the darling of investors?

Susan Tjarksen: From a demand standpoint, definitely. Here’s why. As a planet, and as a country, we’re still severely under-housed. There’s not enough housing units for the number of people who need and want them. This is driving high occupancy and good rental rates.

Second, even in a downturn, apartments operate the best out of any asset class. There is ongoing demand. A shorter-term lease means landlords can mark it to market more quickly.

On the other hand, deal flow has slowed. Everyone has pulled back. In Q4 2022, people decided not to do deals until the first of the year; they assumed inflation would be under control and interest rates would be stable, which didn’t quite happen.

Right now, financing is almost impossible to get for development deals. When it comes to buying existing product, you can’t get the debt ratios you once could. A couple of years ago, you could get 80% financing to buy an apartment building. Today you’re lucky to get 60%. You need to bring more cash to any deal. This crushes returns on investment.

Added to that, getting deals to the table requires a lot of creative financing, like seller carry-back financing. There’s still money for deals, but they have to be solid deals that make economic sense for the buyer.

Having said that, there’s a lot of dry powder out there. There’s a year and a half of pent-up money that wants to get back into the market. Even if cap rates aren’t expanding and interest rates don’t increase, money should still be coaxed from the sidelines by the end of the year.

Connect CRE: What class of multifamily are investors demanding?

Susan Tjarksen: Across Chicagoland, Class C product has higher occupancies and rent growth than Class A. These days it’s expensive to buy a house, especially for the lower-middle-class cohort. Because of this, they’re staying in apartments longer than they’d normally would.

This is changing investor preference. At one time, people would buy Class C properties, put money into them and charge higher rents. Because of downward pressure on rent these days, value-add might not be the best strategy. So about half of the investors who are buying Class C want to reposition it. The other half just want to own and operate it.

Class C also does really well in recessions. Downturns typically mean that renters can’t afford higher rates; they’re not earning as much. So they trade down in apartment class. And in a downturn, you can only get rid of only so many bus drivers, teachers and nurses. They’re still employed, and they’re the primary renters of the older apartment buildings.

The newer Class A product tends to be more challenged during recessions. Renters are, by and large, white-collar and in middle management, and these are jobs that tend to be cut during economic downturns.

Connect CRE: What’s your outlook for the remainder of the year?

Susan Tjarksen: Nationally, we’ll see capital being put back to work in Q4 of this year. I think we’ll see some starting to contemplate development too, especially in Q1 of 2024; people will start looking for land again. We’ll see rent growth of 3%, which is positive. I know people will look at this and think this is bad, but that double-digit rent growth of 2021 and early 2022 was just not sustainable.

I also think in 2024 we’ll see urban development of multifamily. More people will come back to work or continue on a hybrid schedule of two or three days a week in the office. The days of at-home suburban living are coming to an end. People will want to live closer to where they work to lessen their commute times.


Meet Susan Tjarksen and other experts at the upcoming Connect Midwest: Multifamily and Adaptive Reuse Trends, which takes place June 13, 2023, at the W Chicago City Center. Click here for more information and to register.

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Inside The Story

Cushman & Wakefield's Susan Tjarken

About Amy Wolff Sorter

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