CHICAGO, IL – Like all commercial real estate sectors, the multifamily market has seen sales slow since the Federal Reserve Board started increasing its benchmark interest rate. But are there signs that sales activity might pick up next year? There might be.

We spoke with Jeremy Morton, director with Chicago-based multifamily brokerage Interra Realty, about what the second half of 2023 might hold for the multifamily sector.

Let’s start with the big question: How have higher interest rates impacted the multifamily sector?
Jeremy Morton: The interest rates have a direct effect on pricing and how buyers underwrite buildings. Sales activity has tightened. It’s more important than ever for buyers to have a good relationship with lenders, whether those lenders are local or national.

I did a handful of valuations in the spring in which interest rates were almost a point lower than where they are today. Those were brought to market and we slowly saw the interest rates tick up. Obviously, that has a correlation on pricing. There is a gap between buyer values and seller expectations. That’s why multifamily sales were slower in July and early August.

From what I understand, though, you have seen signs that we might see at least a small increase in sales activity in the coming months.
Morton: It is deal-specific. But in the last few weeks, we have seen an uptick in buyers interested in seeing buildings for sale and writing offers. That also has to do with sellers correcting their expectations. We have seen a few price reductions in listings in the last month. Buyers are active. It’s all about bridging the gap on the pricing.

We are still putting deals together. But things are moving a little slower. In terms of financing, it is taking more time to get everything lined up. No one is just slamming the financing together. Everyone is spending more time and due diligence on the front end, which is the key to getting deals done.

Activity is still solid, but there is a little more hesitation, a little more going over deals with a fine-tooth comb. Instead of touring a building and making an offer that afternoon, buyers might spend a solid week reviewing the deal with brokers and lenders, checking the numbers.

Read the complete interview at RE Journals.