What the numbers are telling us
2021 Q1's 1.1% increase brings the total debt outstanding for commercial/multifamily property to $3.93 trillion. The majority of that debt, 50%, is held in agency- and government-sponsored entity (GSE) portfolios and mortgage-backed securities (MBS), followed by banks and thrifts which hold 28%, life insurance companies with 10%, state and local government with 6%, and CMBS, CDO and other ABS issues holding 3% percent. Real estate investment trusts (REITs) in particular increased their holdings by $4.9 billion, a 5.2% increase in holdings and the largest among all other entities, a promising sign for residential REIT investors.
While certain markets are surely experiencing hardships, multifamily rental properties and investor demand as a whole has remained strong despite general uncertainty in the markets. In the Q3 2020 cap rate report by CBRE, multifamily and industrial real estate were most likely to offer above asking price for a property. It also found that 36% of markets surveyed for Class A apartments found cap rate decreases, indicating higher demand and the willingness for borrowers to earn less when buying today.
What it means for investors
The most notable takeaway from this news is the fact that REITs saw the largest increase in holdings of multifamily commercial debt, meaning the continued demand for this sector and current returns are available to everyday investors. For example, Equity Residential (NYSE: EQR), a large residential REIT, acquired two new properties in 2021 for a total of $95.7 million and $115 million respectively in new markets for the company, and Camden Property Trust (NYSE: CPT) acquired a new apartment community in Nashville, Tennessee, for $105 million.
These new acquisitions should help the companies improve their revenues through expansion while expanding their reach to new emerging markets, all of which should benefit shareholder returns. While expansion doesn't always equate to increased returns and revenues for the company, it's one way to build shareholder value, and right now, it seems the demand and financing is there to support it. It will be interesting to see how the multifamily market is impacted as moratoriums begin to expire this summer, but for now, confidence in these markets is high.