Arbor Large Multifamily Investment Report Highlights Tech

Arbor Realty Trust’s “2019 Top U.S. Markets for Large Multifamily Investment report” takes an in-depth look at how the landscape for large multifamily investment has evolved over the past year and where demand growth is forecasted. Click here for the report’s findings.

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The Boston multifamily market is thriving, with robust lending and investment volume, as well as a strong pipeline of multifamily development. Real estate players are showing an increasing interest in non-gateway metros like Orlando, Austin and Nashville — and investing in bigger multifamily projects there. Despite worries about its (slightly) declining population, New York continues to be a top market, with every sign of it remaining the largest, most vigorous multifamily market in the nation.

These were some of the conclusions highlighted in the 2019 edition of Top U.S. Markets for Large Multifamily Investment Report, published by Arbor Realty Trust in conjunction with Chandan Economics. These findings are based on an analysis of a three-tier opportunity matrix, which classifies the top 50 U.S. metros by such factors as population, density, and existing multifamily lending activity.

Boston Has Its Moment

Boston topped the Tier 1 group of the Arbor Large Multifamily Opportunity Index, with the city lagging only New York in new multifamily structure permits in the 12 months ending in June 2019. However, when controlled for population, new multifamily permits in Boston far outpace New York in terms of new housing units and multifamily structures.

The report found that high employment growth is driving multifamily activity in the leading Tier 2 and Tier 3 cities, Seattle and Orlando, respectively. As of July 2019, Seattle’s year-over-year employment growth reached 3.3 percent, while Orlando’s, at 3.8 percent, was the nation’s best. In both cases, a significant portion of the existing labor force or newcomers are working in science, technology, engineering, arts and design, or mathematics (STEAM) occupations.

Smaller Cities Are Supporting Larger Projects

As part of the report, Arbor and Chandan tracked trends in large multifamily lending, which they define as loans above $15 million for the purposes of the report. They found a trend toward larger multifamily properties, those requiring $50 million or more in financing, not only in Tier 1 metros but also in Tier 3 markets.

Given the size and preeminence of the Tier 1 gateway markets, an increase in this large loan activity is not surprising. Their inventory and population require outsized multifamily lending. The shift to larger loans in Tier 3 markets tells a different story. Here again, an in-migration of high-income STEAM workers is driving demand for larger, higher-end developments. Of the top 10 cities with the fastest-growing population of STEAM renters, Nashville, Omaha, and Kansas City, all Tier 3 cities, are leading the pack.

New York Remains a Hot Spot for Investment

New York City has an almost 400-year history of periodic reinvention — and its emergence in the 21st century as a center for technology and finance is just the latest in a long line of transformations. The authors of the report cite Savills’ Tech Cities Index, which ranked New York as the top tech city not just in the United States but in the world.

This trend has contributed to a surge in apartment demand that has cumulatively added to New York’s vast stock of multifamily housing. Not surprisingly, New York once again captured the highest share of large multifamily lending of any U.S. metropolitan area in the year ending June 2019. Tight unemployment and sustained wage growth outweigh the city’s slight decline in population.

Tech Marks the Spot

The biggest takeaway from this report is that the presence of a thriving tech industry has become a key determinant of multifamily activity and is differentiating prime cities for multifamily investment from the less-attractive metros. As the report documents, an influx of STEAM workers distinguishes the leaders in all three tiers of the Arbor Large Multifamily Opportunity Index, it is responsible for the emergence of larger investments in the smaller, Tier 3 cities, and it has reinvigorated the New York market. In essence, the report concludes that where there is tech, there is multifamily demand.