Inventory Issues, High Housing Demand Help Relaunch Red-Hot Private Equity Multifamily Investment Spree

Most private investors anticipate raising more equity in the next two years than they did in the five-year period ending in August 2022, according to a recently released Federal Reserve Bank of New York case study.

Respondents to the study, which focused on private investment tools in multifamily affordable housing, also said they plan to quintuple their investments.

Additionally, respondents with a majority of committed capital from banks are investing in affordable units for renters who earn 60% or less of the area’s median income. Among those not surprised by the survey response is New York-based Slate Property Group Managing Partner Brian Vetter. 

“We have absolutely seen a surge in investor demand for affordable housing in the last several years, and it has been and continues to be a significant growth business for us,” Vetter told Benzinga. “As with most other equity markets right now, there is a dynamic tension between the Fed’s outlook on rates and the rate outlook implied by market valuations, or in the case of this product type, seller pricing expectations. As the question of when this interest rate cycle will top and start to turn, and how quickly, is answered, I would expect volumes to pick up.”

Vetter says Slate has been active in the affordable space in New York but has recently expanded its investment into other submarkets based on need and opportunity, including the Carolinas, Southeast and Midwest. 

The New York Fed case study is based on a nonrepresentative survey of 15 investment managers who have raised a median of $300 million in equity for affordable-housing private investment vehicles since 2017 and invested a median of $169 million in affordable housing during the same period.

“Demand for affordable housing continues to outstrip supply, which is one reason why more study is needed on the impact private investment is having on both the supply of affordable units and the rents charged for them," New York Fed Director of Community Investments Jonathan Kivell said. 

Another highlight of the study was the bullish attitude of Investment managers regarding new construction projects. Respondents said they expect to increase their spending in that area more than five times in the next 12 to 24 months, with a median investment in new construction rising from $27 million to $150 million. 

According to Vetter, one of the barriers to creating more properties is the glut of office space available. He says while he supports the initiative to turn vacant offices into residential, it’s “just not that simple” with the expense of gutting a building, dealing with floor plates that aren’t meant for residential and zoning dilemmas, especially in New York. 

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With available Manhattan-based rentals almost nonexistent and averaging over $5,000 per month for studios and one-bedroom apartments, the outlook is favorable for multifamily private equity investors.

“We feel really good about the fundamentals of multifamily supply and demand in New York,” Vetter said. “The financing markets are obviously challenged, and New York is chronically undersupplied. But for private investors, it’s a great market to do business in.”

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