Secondary Market Multifamily Opportunities: The New Normal

Watching the commercial property markets at the national level is tough: trends in one corner of a region need to be placed into context with trends in others in order to form a coherent national picture. National players such as Fannie and Freddie (the GSEs) have lending policies that provide some of that context, but these too are subject to change as regulators and Congress attempt to put the brakes on the kind of systemic risk that torched everything in 2008.

A particularly good job was done this week summing up the above while framing the multifamily property marketplace in secondary markets.  A piece at NREIOnline by Geoff Smith and Jay Thomas, a pair of Managing Directors at commercial property financiers Walker & Dunlop, put the secondary real estate markets under a microscope and managed to expose some usable insights concerning causes and effects in the multifamily sector.

Of particular interest is the role of falling oil prices.  Energy production and employment in the post-meltdown world is what first attracted capital back to secondary market apartment plays. While falling oil prices have made these plays less attractive in oil-heavy markets, the appetite for secondary markets generally has only grown, and lenders have leveraged their familiarity with the earlier plays to move out into the country’s many other opportunities at secondary population levels. An excerpt:

While the demand for mortgages against properties in secondary locations has experienced strong growth over the past four years, key aspects of its character are experiencing historic shifts. One of the best examples of this is within the central region of the country, in cities like Oklahoma City, Okla., and secondary markets throughout Texas, where the availability of capital has been very strong because of the growth of the oil and gas industries. As those employment markets have grown weaker as a result of falling oil and gas prices worldwide, the mortgage market outlook in those areas is also waning, requiring a more conservative investment approach and allowing other previously less attractive secondary markets to take center stage.


It is safe to say that the availability of debt and equity capital for secondary markets has successfully “come back,” with cap rates and acquisition prices now at or above their pre-recession levels for most commercial real estate asset classes. While at the height of the recession, between 2008 and 2011, many industry players and investors remained firmly on the sidelines of acquisition activity within the multifamily market, eventually this turned into cautious “toe dipping” back in, first in primary, then in secondary markets. This, in conjunction with low interest rates, resulted in compression of cap rates, and spurred the influx of new construction projects in non-primary markets.

Check out the entire piece here at NREIOnline.


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