Welcome back to another blog post. Today we are taking a look at a KKR and other institutions buying up multifamily properties accross the nation.

KKR recently just closed on 5,200 apartment units for $2.1 billion. They just bought this from Lennar’s apartment developer Quarterra.

Ok, lets break this down and ask questions from both perspectives. Why did KKR buy 5,200 apartment units that span accross the nation? Why is Lennar willing to sell its apartment builfings.

First, why sell? Lennar wants to shave down their portfolio of luxury apartments as these assets have not perfromed well in cities that are seeing high levels of supply (Just like what we mentioned in the previous blog). High supply in some of these sunbelt cities has created flat rent growth for more than a year. Also, according to MSCI Real Assets, “apartment-building prices were down more than 20% in May from their July 2022 peak.” With this information it is easier to understand that Lennar wants to take their loss on the asset and move on.

Second, why buy? KKR, Blackstone, and other institutions are buying up multifamily real estate in bunches recently. KKR bought 5,200 units and Blackstone bought 7,000 units marking an interesting turning point. Both firms are starting to see a bottom coming in the multifamily market. They are starting to see rents tick up slightly and asset values become more stable. The real target for multifamily investors is to find properties that have a motivated seller. Whether this is because the property is debt distressed, high vacancy, or other factors; the common theme between KKR and Blackstone is the motivation from the seller. To drive this point home, “investors have raised many billions of dollars with aspirations to buy more troubled properties” (WSJ.com).

Does this mean that the multifamily bottom is in? I think that it is certainly a good sign. My opinion is that we are at the bottom or close to it. Even though there is a massive amount of multifamily properties that are distressed, there is a ton of capital on the sidelines waiting to pick-up these buildings for a good price as seen with KKR and Blackstone. Also, one thing to note is that oversupply in these sunbelt markets will only last so long. I think that the over supply will be shortlived and that we could be right back to equilibrium.

Ok, that’s it for today.

Thank you,

The Nest Journal

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