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Capital Market Outlook Brighter After Volatile Period

April 12, 2024

From a capital markets perspective, 2023 ended on a high note, with a general sense of optimism flooding the markets to close out the year. It was only a few months ago that, following its December meeting, the Fed had effectively declared an end to its most aggressive rate hiking cycle in more than four decades by signaling three rate cuts were on the horizon in 2024.

The Fed’s message subsequently sent markets into a frenzy–in a good way. The bond market rallied dramatically with 5- and 10-year yields settling in the 3.75 percent range, the Dow Jones and S&P 500 hit record highs, and markets began pricing in six rate cuts in 2024–twice the amount indicated by the Fed’s Dot Plot.
The overwhelmingly positive sentiment was certainly welcomed after a dismal 18-month period. However, needless to say, the markets got ahead of themselves. To start 2024, market odds of a March rate cut were hovering in the 80 to 90 percent range on any given day. Fast forward to today. We didn’t see a cut in March. We likely won’t see one in May or June, which means July is the probable best-case scenario.

So, what happens now? We are, yet again, in a period marked by high uncertainty and volatility, which is being fueled by renewed concerns regarding inflation and the resilient economy. The market knows rate cuts are coming eventually, but investors can’t just wait around for that time to come before making moves. And, honestly, they shouldn’t!

Our team is always of the mindset that volatility creates phenomenal opportunities, and the present is no exception to that rule. Newly constructed assets coming out of lease-up are frequently trading below replacement cost and stabilized assets are trading in the high-5 to low-6 percent cap range in most markets, among many other trends. However you look at it, pricing is down more than 30 percent from the peak, so we firmly believe that buyers in these uncertain times will be rewarded.
As one of the most active multifamily capital markets teams in the country, we can confidently say that there is no shortage of debt capital available to help deals get done during this challenging environment. The below is an update of how we’re seeing the various capital sources differentiate themselves and close deals to start the year.

Attractive lease-up and near-stab programs are helping the agencies differentiate themselves and win most financings secured by newly constructed assets trading below replacement cost. These programs are largely available for either repeat or “select” sponsors so long as stabilization can be supported within 4 to 6 months. This means that occupancy should be at or near the 80 percent level at closing.
The agencies are capturing most of the market share as fixed rate spreads continue to improve, with most pricing shaking out in the mid-100’s range without factoring in rate buy downs.

Interest rate buydowns remain popular with the ability to reduce spreads by 29-38 basis points on 5-year deals, 26-34 basis points on 7-year deals and 25-26 basis points on 10-year deals. Borrowers benefit by being able to increase proceeds well in excess of the buydown amount as a result of sizing loan proceeds to the lower all-in rate.

Flexible prepayment structure pricing has come off ~25-30 basis points off its peak. The adders are fluctuating regularly, but flexible prepayment options are attractive once again now that the adders are back in-line with early 2023 levels.

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About Institutional Property Advisors (IPA)

Institutional Property Advisors (IPA) is a division of Marcus & Millichap (NYSE: MMI), a leading commercial real estate services firm in North America. IPA’s combination of real estate investment and capital markets expertise, industry-leading technology, and acclaimed research offer customized solutions for the acquisition, disposition and financing of institutional properties and portfolios. For more information, please visit

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