From the Desk of CF Capital: December Investor Report

Hello Friends and Investors,

We hope this message finds you well and energized as we approach the close of another transformative year! Much like the years following the onset of the COVID-19 pandemic, 2024 has brought its share of challenges for commercial real estate investors. Despite a backdrop of market corrections in the multifamily sector, we’ve seen both hurdles and opportunities emerge in this dynamic landscape.

 As part of our commitment to adding value to our investor community, we’re excited to share some real-time market insights we’re closely monitoring and interacting with: 

Market Insights

Multifamily Trends in 2024
This year has brought significant shifts in multifamily fundamentals, offering both caution and optimism for 2025.

  • Cap Rates & Pricing
    Multifamily cap rates in our target markets expanded by 50–75 basis points in 2024, continuing the upward trajectory observed in 2023 (when cap rates rose by approximately 50 basis points). This adjustment reflects ongoing tightness in debt markets, higher borrowing costs, and recalibrations aligning with evolving market fundamentals. While the higher cap rates present disciplined investors with opportunities to acquire assets at more favorable pricing, transaction velocity remains subdued as sellers anticipate potential cap rate compression in 2025 if interest rates moderate.

  • Debt Market Trends
    Financing conditions remain tight, with current interest rates ranging between:

    5.25–6% for agency loans (Fannie Mae, Freddie Mac, HUD).

    7.5–8.75% for bridge loans.
    Loan terms now reflect higher equity requirements and more conservative underwriting standards.

  • Rental Demand Trends 
    Rental demand remains robust in Midwest markets, such as Louisville, which saw annual rent growth of 4.9%—one of the highest increases nationwide. However, with U.S. job growth projected to slow to 1.5 million net new jobs (half of 2023’s total), absorption may soften, potentially impacting rental activity. Source for these insights

  • Supply Pipeline 
    Multifamily completions are projected to total 574,000 units in 2024, slightly below 2023’s 40-year high. Oversupply risks are concentrated in luxury segments and Sunbelt markets, while Midwest properties and mid-tier B-Class assets remain relatively stable.

  • Operating Environment 
    National vacancy rates are forecasted to rise to 7.3% in 2024, as supply outpaces demand. However, Midwest markets demonstrate resilience due to their balanced supply-demand dynamics, underscoring the region’s appeal as a risk-mitigated investment option. 

  • Economic Drivers 
    While economic expansion is slowing, inflation is easing, and job creation is tapering. These shifts are expected to stabilize consumer confidence, favoring demand for mid-priced and budget-friendly housing segments. 

  • Investor Sentiment 
    Cautious optimism is the prevailing mood among investors, with transaction activity likely to pick up in 2025. Distressed sales remain limited, and declining interest rates could enhance capital availability for acquisitions. Additionally, new developments may face hurdles securing financing. Looking ahead, there is rising optimism tied to potential tax and regulatory reductions under the incoming administration, which could be a tailwind for the sector. 

LOOKING AHEAD

In response to these trends, we continue to dedicate significant resources to optimizing our current portfolio while actively pursuing new acquisitions. These efforts aim to capitalize on asymmetric opportunities and position us to thrive in 2025’s evolving market environment. We anticipate several exciting investment opportunities in the coming year and will keep you informed about ways to partner with us.

As always, we deeply value your partnership and trust. Should you have any questions about the market, our outlook, or your investment goals, please don’t hesitate to reach out.

Here’s to a happy and healthy holiday season for you and your loved ones!

Warm regards,
Tyler & Bryan

 
 

PS. There's no higher compliment than you referring us to your friends, family, and colleagues. We'd be honored by the opportunity to become a part of their trusted networks. Share your experience investing with CF Capital & invite others to become an investor here.

InsiderTyler Chesser