Small Multifamily Investment Snapshot — Q4 2022
The small multifamily sector remains in a resilient position, even as it faces cyclical challenges from a high-interest rate environment. The combination of a rent-by-necessity tenant base and declining access to affordable homeownership should continue to strengthen tenant demand.
Balance sheet asset valuations are likely to show some sensitivity to higher interest rates. If Treasurys remain elevated, cap rates will need to rise to restore sufficient risk premiums. However, thanks to the strength of the labor market, renters have maintained their ability to pay their rent.
As long as property-level cash flows remain stable, the scope of distress within the small multifamily sector should remain limited. While the year ahead may present challenges, the small multifamily sector boasts stabilizing fundamentals that should allow it to absorb business cycle headwinds.
Access more key highlights in our Small Multifamily Investment Trends Report.
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