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Freddie Mac Expects Conditions to Improve for Multifamily in '23

A recent report from Freddie Mac suggests that the multifamily real estate industry is "on track for a healthy 2023", boosted by a stronger second half of the year.

Improving Conditions Lead to Increasing Demand

Freddie Mac's 2023 Multifamily Outlook expects demand to increase later in the year with moderate rent growth and increasing demand later as consumer confidence returns. One caveat in their forecast - their assumptions are based on a "soft landing" or mild recession. A more severe recession would have a bigger impact on the job market, negatively impacting consumer confidence and household formations, but so far demand seems to be normalizing in the New Year.

The report reiterates what we're already seeing in terms of seller behavior in the markets, stating: "borrowers are not as pressured to sell properties at a lower price point and may wait for more favorable investment opportunities."

There Is Seller Activity, But It's Harder to Find

On whole, sellers appear to be looking for some clear direction and easing. That's not to say deals aren't out there; we are seeing activity in the market, especially with institutional activity, but sellers are often moving deals very quietly. A lot of deals we're seeing are coming from strong relationships that we've built over time.

Underwriting Deals Requires Flexibility

In terms of underwriting, cap rates have been slow to respond to the higher rates. We expect there to be some increasing volatility as rates stay higher in the near term, impacting not only owners that need to refinance or sell, but also on the buy side. We've shifted our underwriting strategy to account for shifting markets and protect the downside, but we expect that more volatility will bring more opportunities for nimble buyers.

New Supply Could Impact Vacancies in Some Markets

There are a lot of variable in play, of course, and one of them is the amount of new units expected to come online this year.

Freddie Mac states: "the areas with the highest levels of new supply are most likely to have the largest increases in vacancy rates in 2023"

There is a lot of concentration of units in markets like Austin however; overall vacancy rates are expected to reman below long term averages. With our focus on Class B assets, we also think the new units could provide more value as we improve our assets and can bring better amenities to the market and grow rents but remain below the market rates of newly constructed units.

The expectation from Freddie Mac is that "predominately smaller southwestern and Florida markets" will outperform. This is, generally, what we're expecting as well; as we recently covered in our market outlook.

Key Takeaways:

• For 2023 multifamily fundamentals shouldn't fall off a cliff. There will be challenges, and 2023 could start slowly but rebound in the second half of the year.

• Multifamily construction levels remain extremely high, which could put additional pressure on specific markets.

• Freddie Mac expects the best performing markets to be predominately smaller southwestern and Florida markets, while bottom performing markets could be a geographically diverse mix of small and large markets that will see high levels of new supply.

• Cap rate spreads have compressed, putting upward pressure on cap rates. The resulting downward pressure on valuations has been met with some resistance from sellers, but there are deals on the market.

Despite facing a lot of the same headwinds we saw in 2022, and with a lot of new supply coming online this year, there's a good chance conditions will improve in 2023 and move into very positive territory beyond that. We'll continue to keep our deal flow active and find assets that fit our business model, focusing on the markets where we believe there's the best opportunity.

Stay tuned for more developments from Blue Lake Capital. Until then, Be Bold, Be Great and Keep Pushing Forward!


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About Ellie Perlman

Ellie Perlman is the founder of Blue Lake Capital, a commercial real estate investment firm specializing in multifamily investing throughout the United States. At Blue Lake Capital, Ellie partners with both institutional and individual investors to grow their wealth by achieving double-digit returns by investing alongside her in exclusive multifamily deals they usually don't have access to.

A defining factor of Blue Lake Capital’s strategy is founded in utilizing machine learning/artificial intelligence throughout the course of all acquisitions and asset management. This advanced technology enables the company to produce accurate and data-driven forecasting for all assets on a market, property, and even tenant basis. In doing so, Blue Lake is able to lead commercial investments with the full capabilities of today’s technology.

Ellie is the host of REady2Scale, a podcast that highlights the assets, processes, and strategies for the multiple approaches to successful real estate investing.

She started her career as a commercial real estate lawyer, leading real estate transactions for one of Israel’s leading development companies. Later, as a property manager for Israel’s largest energy company, she oversaw properties worth over $100MM. Additionally, Ellie is an experienced entrepreneur who helped build and scale companies by improving their business operations.

Ellie holds a Masters in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.

You can read more about Blue Lake Capital and Ellie Perlman at


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