Brennen Degner Interviewed by REBusiness on How Multifamily Sales Volume Have Been Slipping Across the State
June 14, 2023
MULTIFAMILY SALES VOLUME SLIPS ACROSS TEXAS
Despite the property type’s status as a preferred product among commercial investors, the fallout from greater economic disruption is working its way through the system.
By Taylor Williams
The first half of 2023 has seen muted multifamily investment sales activity in major Texas markets. The impact of inflation and interest rate hikes has negatively affected the market, resulting in reduced deal volume. In the first quarter, the number of multifamily transactions declined compared to the previous year in Dallas, Houston, and Austin. While prices in Dallas decreased, both Houston and Austin saw price increases per unit. The overall commercial deal volume in the US also experienced a significant decrease. Sellers are less motivated to transact in the short term, leading to a wide bid-ask spread and tightened borrowing standards. However, experts anticipate that as market realities become more evident and pain points manifest, deal volume may increase in the second half of the year. Owners facing loan maturities and seeking refinancing options may choose to list their properties. Bridge loans have been in high demand, providing flexibility to investors in light of interest rate fluctuations. Sellers who have owned properties for several years and experienced significant rent growth may decide to sell and capitalize on profitable opportunities. Attractive debt structures could also incentivize sellers to enter the market.
Of course, investment strategies can and do vary tremendously from group to group, and some investors are taking a more cautious approach when it comes to negative leverage. Brennen Degner, CEO of DB Capital, a Denver- based multifamily investment firm that is active in Texas, elaborates. “If the expectation is for future market rent growth alone to pull us out of negative leverage, then we won’t do the deal,” he says. “If there is a value-add business plan where we see a clear opportunity to generate positive leverage through revenue generation that is more than just expectations of rent growth, then we can get comfortable with negative leverage.