Is Now the Time to Invest in Multi-Family Development?

Due to the pandemic, you've likely been cautious the last few years, and rightfully so. Now is a great time to think ahead and plan for your next big development opportunity. Many investment and commercial real estate experts believe multi-family developments may be a great opportunity.

The Multi-Family Market Sees Strong Growth

Multi-family and retail real estate markets have, for the most part, recovered from the early days of the pandemic. According to Forbes, the multi-family market is seeing strong growth with low vacancies, steady rental rates, and robust development over the next year. Many investors in the real estate development industry agree. "Multi-family vacancies hit 4.7% in the third quarter of 2021, reverting back to levels seen at the end of 2019," said Victor Calanog, Head of CRE Economics for Moody's Analytics.

The same Forbes article mentions that recent data puts the sales volume of market-rate apartments at $46.6 billion in the first half of 2021, which is up by 35% from a year ago. This is on pace with the average growth rate for the past five years.

Not All Areas Are Being Affected Equally

The future of offices is still largely unknown. More and more employers are letting their employees move away from busy cities to work remotely in the locale of their choice. Apartments in secondary markets or further from major cities benefit from this remote work trend since employees no longer need to be near their physical office location. Over the past year, many people moved to Nashville, TN, Austin, TX, and other hot spots in the Central U.S. Data from the Federal Reserve Bank of Cleveland shows:

• 391,720 New York residents moved to regions more than 150 miles away (+14.3% over Q2 2017 to Q1 2020).
• 248,700 residents of Los Angeles did the same (+7.4%).

While New York City and San Francisco saw their highest out-migration rates in a decade from 2019 to 2020, The Brookings Institution tells us that Phoenix, Austin, Houston, Kansas City, Nashville, Milwaukee, and Tampa all registered positive in-migration growth. This means that if you're located in or near one of the areas experiencing a large influx of people, the demand for multi-family residences is even higher.

An already limited supply of housing for middle-class people has proven challenging. There aren't enough single-family homes for all of these people, many of whom are young professionals and young families. One reason for this is that Baby Boomers are staying put in their homes much longer than generations past. This has led to an exciting need for multi-family residences to be developed.

Incentives Driving Multi-Family Development

There is even more exciting news for development teams. Municipalities are increasingly incentivizing multi-family construction! Quite a few cities in regions that desperately need more multi-family residences understand their current gaps. They are committing resources to development.

This assistance may come in property tax abatements, public funds, or even disaster relief money. Public participation means rent restrictions and other measures to ensure affordability and availability to working-class renters, which many developers like.

There are also private loans created specifically to incentivize this avenue of development. Fannie Mae's Multifamily Tax-Exempt Bond Program permanent loan and Fannie Mae's Healthy Housing Rewards™ initiative have helped fund the redevelopment of affordable rental communities across the country, allowing commercial real estate developers to have easy access to the funds they need for their projects. This program provides financial incentives for borrowers who incorporate health-promoting design features, healthy practices, or resident services in their newly constructed multi-family affordable rental properties. Development teams incorporating features that encourage physical activity, healthy eating, and improved air quality may be eligible for below-market-rate pricing. This includes anything from playgrounds to community gardens to tobacco-free policies.

Gaining access to the necessary funds is a constant source of stress for development teams. Developing your next project in this high-need area could do away with that. You may find it's much easier to qualify for these loans and get repayment terms you're happy with.

Real Estate Development Software Helps Bring Projects to Fruition

Northspyre is a proactive intelligence platform that empowers real estate development teams to achieve easier, more predictable outcomes on complex projects — like developing massive multi-family communities. With our real estate development software, every decision is backed by data. This makes it more likely that you'll reach the end of your project on time and under budget.