Despite Market Challenges, Multifamily Real Estate Shines: '50% Of Our Loans This Year,' Says Industry Expert

The Benzinga 2024 Real Estate Summit brought together industry leaders to explore the latest trends, challenges, and opportunities in the real estate market.

One of the main highlights was the multifamily real estate market, which is holding strong despite facing several obstacles. Jon Gitman, a partner at BridgeInvest, shared why this segment is still robust and what that means for investors. The discussion also touched on the struggling office market, rising debt costs, and the regulatory hurdles in the residential market.

Multifamily Market Remains Strong

Gitman highlighted the resilience of the multifamily real estate market during the summit. Despite various challenges, transaction volumes in this market are notably high. “Historically, in the last three years, we’ve done about 20 to 30 percent of our loans in the multifamily market. But it’s 50 percent this year, and what we have under LOI is 90 percent,” Gitman said.

He also pointed out that properties purchased in 2021 and early 2022 at low cap rates are now under financial strain due to rising debt costs. “People were actively buying multifamily properties for 2%, 3%, 4% cap rates. Now, the debt for those assets costs 6% or more. Many people are underwater no matter how well they’ve executed their business plan, especially if they borrowed short-term debt,” he explained.

Office Real Estate Under Pressure

In contrast, the office real estate market faces significant stress. According to Gitman, around 20% of office loans maturing this year have defaulted. “The biggest news in the market is the office market. Twenty percent of office loans that matured this year went into default. That’s pretty dramatic,” he stated.

However, this challenging environment is creating opportunities for debt investors. “From the debt perspective, we like it because we’re seeing lower purchase prices than before, making it attractive for us to lend. We feel that we will have a good investment on our end,” Gitman added.

Long-Term Demand for Housing

Multifamily properties continue to attract investors due to the long-term demand for housing. The U.S. has been under-housed for decades, and recent supply growth has not been sufficient to meet this demand.

“There has been a lot of supply growth, meaning a lot of new construction over the last few years, which is one of the reasons for the short-term concern. However, the long-term demand remains robust,” Gitman said.

Regulatory Concerns in Residential Real Estate

The discussion also touched on potential regulation in the residential real estate market. With the rise of short-term rentals like Airbnb, some markets are seeing increased political and policy pushback. Gitman mentioned Miami Beach, which has passed legislation prohibiting Airbnb, although enforcement remains a challenge.

Positive Outlook for Commercial Real Estate

As for commercial real estate, Gitman noted that while the office market is struggling, other segments like industrial, retail, and hotels are performing well. “There are occupations across all those assets. Retail and industrial occupancies are well over 90% across the board. The hotel sector, while different, is also performing well,” he explained.

What’s Next?

Looking ahead, Gitman expressed optimism about the commercial real estate market. “Transaction volume is starting to increase in sales and new acquisitions. Sellers are becoming realistic about market pricing. When you combine that with attractive fundamentals, you should be very bullish on investing in commercial real estate over the next few years,” he concluded.

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Image: Unsplash/ Tierra Mallorca