Here’s how multifamily investors are navigating high 10-year Treasury yield
Innovation and creative solutions can be lifelines amid uncertainty
As a multifamily housing investor, chances are you keep your finger on the pulse of the U.S. Treasury yields. Savvy investors know these benchmarks can impact financing interest rates, sending borrowing costs up when yields rise, affecting your pro forma, and potentially straining cash flow.
At the same time, investor confidence tends to rise in tandem with higher yields, leaving many with a sense of optimism and chomping at the bit to add to their investment portfolios. If you’re among them, you can choose to pursue a variety of options. In fact, navigating the reality of today’s 10-year high Treasury yield has sent investors like you in search of exactly that.
Overall, the trajectory of the 10-year Treasury yield is a mirror of economic sentiment, but paired with the lending environment and even sometimes oversupply of multifamily housing in areas, it leads to mixed signals for investors. And data from CoStar reflects that reality, with momentum in multifamily transaction volume slowing in the third quarter of 2024 as fixed-rate borrowing costs rose along with the rising treasury yield.
This slowdown, according to the real estate data group, is sandwiched by an 18% rise in multifamily transaction volume in the third quarter and an uptick in the fourth quarter. So, when volumes decline, where are these investors going and what are they doing? Let’s examine how some multifamily investors are making the most of these economic realities.
When the 10-year Treasury yield is high, safe havens beckon
As the 10-year Treasury yield is high, investors are driven toward safe-haven investments. That migration is even greater as investors eye the new administration’s proposed policy changes and await potential ripple effects on inflation, leading to some market volatility. Here are some solutions investors are eyeing as they seek ways to hedge their real estate investments.
Distressed assets and high-quality assets bought at significant discounts.
Renting remains the most affordable choice for many Americans, as inventory for single-family homes lags behind demand, driving up prices. The result: high-quality multifamily housing remains in demand. Investors who focus on strong fundraising efforts will be well positioned to seize opportunities with an attractive entry point, with the likelihood of desirable returns. Unfortunately for some investors, prolonged high interest rates can leave them with underwater properties and entering foreclosure, resulting in additional distressed assets.
Leveraging 1031 exchanges.
Some private investors are leveraging 1031 exchanges to move into out-of-state markets that promise a more favorable environment. A 1031 exchange is a real estate transaction that allows investors to defer capital gains taxes by reinvesting into a like-kind property.
Some investors have been able to move into markets with less regulatory burden, more modern assets, and higher returns. The Midwest remains an appealing market for investors as supply growth is moderate compared to markets on the coasts and other high-growth areas, which helps secure low vacancy rates and fewer risks associated with oversupply.
Focusing on operational efficiencies.
By integrating operations, multifamily housing investors are seeking to reduce costs. This may include buying in bulk or streamlining accounts payable and receivables with emerging technologies.
Ready to make some moves in multifamily housing or other real estate sectors?
There’s no need to face the complexities and volatilities of the commercial real estate market alone. Whether you’re planning to remodel for greater operational efficiencies, build new to capture demand for industrial space, or reinvent distressed assets to capture market share, the design-build experts at DBS Group are here to help. Contact us today to get started, and together, we’ll work to prepare your assets for whatever market shifts come our way.