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Bay Area Multifamily a Long-Term Play, Experts Say
October 30, 2023
Is it “Stay Alive Until ‘25” or “Take Your Licks Until ‘26”?
Bay Area multifamily developers, owners and investors at the Marcus & Millichap/IPA NorCal Multifamily Forum said they weren’t sure exactly when the apartment market would recover from the hits it has taken over the last three years. But many said that with rents largely back to pre-pandemic levels, plus the lack of housing affordability, near-zero apartment construction starts and low unemployment rates, the Bay Area apartment market is still a good long-term investment — emphasis on the long-term.
“We’re in the fourth inning of this market cycle,” said Angela Biggs, senior vice president of investment at Grosvenor, an assessment with which many of her fellow owner-operator panelists agreed.
At the forum, held , held Oct. 26 at the Foster City Crowne Plaza hotel, Marcus & Millichap CEO Hessam Nadji declared Bay Area apartments “an absolute diamond in the rough,” a statement that he said would have seemed impossible a few years ago.
“No one ever thought of the Bay Area as a value play because it was always leading in price appreciation in every metric,” he said. “It has been overlooked.”
A few investors have “started taking a very cautious view of investments in San Francisco and some have crossed it off their lists,” according to Frank Liu, managing director at Canyon Partners Real Estate, an investment firm with $24 billion in assets under its management.
“You really have to get paid for the risk of doing deals here right now,” he said, adding that Canyon is still funding mezzanine loans in the low- to mid-teen range, and construction loans as well.
Peter Casey of San Francisco-based real estate investment firm Hamilton Zanze referenced what sounded like the Veritas default when he called limited institutional interest in a “large portfolio, local Bay Area operator, all San Francisco multifamily, downtown and various neighborhoods” an “interesting data point.” He said he spoke to 60 capital partners around the globe about the portfolio and heard almost entirely negative feedback.
“There was one group that had the capability of writing a $300 million equity check to take that deal down,” he said. “Everyone else — I go to New York money, I go to international money — all of them say, ‘Unfortunately San Francisco is tarnished for XYZ reason or valuation is off because of XYZ reason.’”
“Blessing in disguise”
John Sebree, director of Marcus & Millichap’s National Multi-Housing Group, said that the capital situation was challenging, but could be worse. He was one of many panelists to compare and contrast the current market with the financial crisis of 2007-2008.
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Bay Area multifamily developers, owners and investors at the Marcus & Millichap/IPA NorCal Multifamily Forum said they weren’t sure exactly when the apartment market would recover from the hits it has taken over the last three years. But many said that with rents largely back to pre-pandemic levels, plus the lack of housing affordability, near-zero apartment construction starts and low unemployment rates, the Bay Area apartment market is still a good long-term investment — emphasis on the long-term.
“We’re in the fourth inning of this market cycle,” said Angela Biggs, senior vice president of investment at Grosvenor, an assessment with which many of her fellow owner-operator panelists agreed.
At the forum, held , held Oct. 26 at the Foster City Crowne Plaza hotel, Marcus & Millichap CEO Hessam Nadji declared Bay Area apartments “an absolute diamond in the rough,” a statement that he said would have seemed impossible a few years ago.
“No one ever thought of the Bay Area as a value play because it was always leading in price appreciation in every metric,” he said. “It has been overlooked.”
A few investors have “started taking a very cautious view of investments in San Francisco and some have crossed it off their lists,” according to Frank Liu, managing director at Canyon Partners Real Estate, an investment firm with $24 billion in assets under its management.
“You really have to get paid for the risk of doing deals here right now,” he said, adding that Canyon is still funding mezzanine loans in the low- to mid-teen range, and construction loans as well.
Peter Casey of San Francisco-based real estate investment firm Hamilton Zanze referenced what sounded like the Veritas default when he called limited institutional interest in a “large portfolio, local Bay Area operator, all San Francisco multifamily, downtown and various neighborhoods” an “interesting data point.” He said he spoke to 60 capital partners around the globe about the portfolio and heard almost entirely negative feedback.
“There was one group that had the capability of writing a $300 million equity check to take that deal down,” he said. “Everyone else — I go to New York money, I go to international money — all of them say, ‘Unfortunately San Francisco is tarnished for XYZ reason or valuation is off because of XYZ reason.’”
“Blessing in disguise”
John Sebree, director of Marcus & Millichap’s National Multi-Housing Group, said that the capital situation was challenging, but could be worse. He was one of many panelists to compare and contrast the current market with the financial crisis of 2007-2008.
