Multifamily REITs See Strong Q2, Driven by High Demand and Solid Occupancy

A review of Multifamily REITs’ Q2 earnings by RealPage showed solid performance, driven by strong leasing demand.

Jordan B. & Han-Gwon Lung
September 04, 2024

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Good morning. Multifamily REITs reported a positive second quarter for 2024, as demand remained strong through the peak leasing season.

Today’s issue is sponsored by Wall Street Prep—elevate your real estate career with institutional-grade analysis training.

🎙️ No Cap Episode 7: Co-hosts Alex Gornik and Jack Stone talk with Vikram Raya, CEO of Viking Capital, on how he went from cardiologist to acquiring $800M+ in multifamily assets.

Market Snapshot

S&P 500

GSPC

5,528.93

Pct Chg:
-2.02%

FTSE NAREIT

FNER

821.74

Pct Chg:
-1.01%

10Y Treasury

TNX

3.816%

Pct Chg:
-0.028

SOFR

1-month

5.34%

Pct Chg:
0.0%

*Data as of 9/03/2024 market close.

EARNINGS REPORT

Multifamily REITs See Strong Q2, Driven by High Demand and Solid Occupancy

A review of Multifamily REITs’ Q2 earnings by RealPage showed solid performance, driven by strong leasing demand. Employment growth, population gains, and housing affordability challenges boosted the market.

Apartment demand remains strong: Apartment demand held firm despite economic pressures. AvalonBay credited stable jobs and income, while Camden saw strong demand in the Sun Belt from population growth. Essex noted positive migration on the West Coast, with renting now 2.8 times cheaper than owning in their markets due to high interest rates.

Hold steady: Occupancy stayed solid despite record apartment deliveries. Equity Residential hit 96.4% in Q2, while Mid-America Apartment Communities averaged 95.5%, up 20 basis points from the previous quarter. Coastal markets led the way—UDR’s key cities averaged over 97% occupancy, with Essex reporting similar rates on the East Coast.

Cutting costs: Amid rising supply and competition, REITs focused on cost control. Many implemented tech and operational efficiencies, with Equity Residential “podding” properties to share staff and streamline operations. Lower debt loads also gave REITs more flexibility, helping them navigate high interest rates better than their more leveraged peers.

➥ THE TAKEAWAY

Big picture: Despite challenges, REITs have increased their forward guidance for 2024. Strong apartment demand, reduced construction starts, and more optimistic market conditions are expected to support further growth. Transaction activity has also picked up, signifying renewed confidence in the market.

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✍️ Editor’s Picks

Recession confusion: Despite several recession indicators flashing since 2022, the US economy has yet to experience a clear downturn, underscoring the difficulty in accurate predictions.
Housing relief: A San Francisco Fed study predicts shelter inflation could drop to 2% by year-end, easing housing cost pressures and returning to pre-pandemic levels by 2025.
Tax battle: Kamala Harris proposes increasing the small business startup deduction from $5,000 to $50,000, intensifying her tax policy showdown with Donald Trump ahead of the 2024 election.
$2.5B vision: Developer Artemio De La Vega is advancing “The Central,” a 27-acre, $2.5 billion mixed-use project in East Dallas.
Secondary markets: As CRE struggles with falling valuations and rising debt costs, secondary funds like Goldman Sachs’ $3.4B fund are stepping in to buy stakes from investors looking to exit.

🏘️ MULTIFAMILY

Permit shift: Single-family home construction surged across most regions in Q2 2024 with a 17.6% growth in large metro core counties, while multifamily building activity continued to decline.
Refinancing crunch: Landlords face $1.5 trillion in commercial real estate debt maturing by 2025, with 25% at risk of refinancing challenges, particularly in multifamily properties.
Construction slowdown: Apartment construction starts dropped 41% from their 2022 peak, leading investors to bet on higher rents as supply tightens.
West Coast love: Cityview is seeing increased multifamily deal activity in markets like the Bay Area, Seattle, and Denver, driven by distressed assets and favorable pricing below replacement costs.
Airbnb appeal: Airbnb urges New York City to ease its strict short-term rental regulations, which led to an 83% drop in listings, citing the negative impact on hosts and travelers amid rising hotel prices.
Foreclosure looms: Montreal-based Frankforter Group faces foreclosure on its Generations Atlanta apartments after defaulting on a $104.4M mortgage, with the auction set for September 3.
Anaheim Hills: Salt Development is advancing a $500M plan for 500 apartments in Anaheim Hills, alongside a 46-acre nature preserve, despite local concerns over traffic and wildfire risks.

🏭 Industrial

Massive development: Legacy 75 Trade Center, a $2B industrial project, is planned for 1,560 acres in Lamar County, Georgia. It will feature 19MSF of industrial space and 900 housing units.
Savannah sale: VanTrust Real Estate sold a 637,868-square-foot industrial facility in Ellabell, Ga., near Savannah to Goldrich Kest.
Phoenix growth: Phoenix is now the top U.S. market for industrial development, with nearly 39 MSF feet under construction.

🏬 RETAIL

Beverly buy: One Cole Group purchased two retail buildings in Beverly Hills’ Golden Triangle for $39.2M, paying $3,532 PSF for fully leased storefronts housing high-end fashion brands.
Expansion: Publix continues its South Florida buying spree, acquiring two Davie shopping centers for $83M, adding to its growing portfolio of retail properties.

🏢 OFFICE

Tenant buyout: Venture Global LNG, Potomac Tower’s largest tenant, purchased the I.M. Pei-designed Arlington office tower from Brookfield for $143 million.
RTO mandates: A survey reveals that 9 in 10 companies plan to mandate a return-to-office in 2025, with many citing productivity and company culture as key reasons for the shift.