Just when it seemed multifamily investment sales might be getting some traction, the market suddenly slammed on the brakes once again.

During the summer, sellers were, at last, beginning to "meet the market" in terms of transaction prices. With sellers no longer captive to the false pretense that pricing would make a quick U-turn and strengthen by the end of 2023, the pace of investment sales, anecdotally at least, appeared to be picking up.

In September, however, Treasury yields started to climb even higher. Since then, the yields have been extremely volatile while generally continuing to rise.

This renewed volatility has brought multifamily investment sales to a screeching halt. It feels like a reset to the beginning of the year, when a similar volatility in the price of capital left buyers and sellers unable to figure out what for-sale assets were worth. With the cost of debt drastically changing every day, buyers now are reluctant to commit to a price and sellers are again waiting for the market to reestablish some benchmarks.

Add it all up, and investment sales seem almost certain to remain in deep freeze through the end of the year and into early 2024.

By the Numbers
According to CoStar, quarterly multifamily investment sales volumes in the U.S. have hovered around $19 billion in 2023. For perspective, that represents a drop of about 82% from fourth-quarter 2021, according to the company's recent Multifamily National Report.

 In addition to the issues with borrowing costs, numerous factors that could affect the operating performance of apartment communities may be giving some buyers pause. Still, the long-term health of the multifamily industry appears sound. As CoStar writes in its report, "Although factors such as declining household formations, rising supply deliveries and weakening demand may present temporary obstacles, the sector has successfully emerged from similar challenges in the past."

Given the current state of play, the limited investment sales that are taking place more often involve higher-quality communities. "Through the first nine months of 2022, four- and five-star asset sales comprised just under half of all trades, while in the current year, that total climbed to about 54% of sales activity," CoStar's report says. "The reason for the upward reach is at least twofold. The first is the opportunity to acquire high-quality assets that are marked down 19% on average compared to peak pricing of $338,000 per unit. The second is a growing desire to manage risk through owning better-quality assets where unexpected capital expenses are less likely."

How Will 2024 Unfold?
With all of this being said, deal flow should improve as 2024 unfolds, assuming the Fed provides a suitable level of clarity about the potential for future interest rate hikes. (As I write this in early November, the Fed has just declined to raise rates.)

To start with, about $255 billion in multifamily loans will mature next year, according to CoStar. This should bring some properties to market as refinancing options should remain relatively unattractive.

A lot of the apartment communities purchased in 2021 and 2022 were done so with floating-rate loans. Those initial three-year terms are going to force some borrowers to sell, as they will face large rate-cap purchase requirements and extension tests. Many owners in these situations will be willing to sell their properties at a loss rather than continue to put more chunks of equity into the communities.

As a result, some great purchasing opportunities could exist in 2024 for disciplined investors.