Sign On
  • KeyNavigator
    Sign On Form is Loading
  • CIS Online Brokerage CIS Login

“In 2020, multifamily will continue to shine as both investor and renter demand remain strong. Multifamily assets as a whole are likely to be a favored investment class, with certain sub-markets in particular showing strong fundamentals and favored demographic trends.” according to Dan Baker, Head of Commercial Mortgage Production, KeyBank Real Estate Capital Executive Leader.

This positive viewpoint comes from panelists and KeyBank attendees at the recent National Multifamily Housing Council’s (NMHC) 2020 Annual Meeting, where they spoke about market forces shaping owner and investor behavior in the year ahead.

Key Learning Points:

  • The outlook is positive for strong multifamily deal volume.
  • Investors are less worried about a recession than they were in 2019 and are looking for deals.
  • The market has an abundance of capital, including institutional debt and equity, family offices, REITs, pension funds, foreign sovereign funds and agency lenders.
  • A younger population, increased household formation, strong job market and a leveling of supply are the tailwinds driving multifamily investment.
  • Certain geographic markets, particularly the southeast U.S. and inland western region, are poised for growth.

The Economic Overview: Recession Markers Recede

In 2019 many in the real estate industry were bracing for a recession, expecting that the country’s record-long expansion had run its course. Now several factors that were causing concern are resolved or less uncertain: the yield curve has un-inverted;1 the dislocation of the short-term lending markets was corrected by the Federal Reserve;2 and finally, the trade negotiations3 between the U.S. and other nations4 have shown progress. While a slowdown may still be ahead, it is not imminent, and investors are unlikely to curb their activity in 2020.

Capital Markets Outlook: A Bounty Awaits

At the NMHC meeting, industry experts and economists spoke to the liquidity of the market, which holds the largest amount of discretionary capital available to invest in U.S. history at $200B. They say multifamily is in favor among investors because it’s not tied to gross domestic product growth and has demographic tailwinds.

Notable key trends:

  • In the capital markets, assets under management (AUM) have doubled since 2007 (105% net appreciation), but transaction volume has been flat. Recapitalization volume has gone up dramatically.
  • Multifamily is outperforming the other asset classes in commercial real estate. One-off transactions are more robust than the market at large, and pricing outperformed every other property type.
  • Though there’s abundant capital, there’s also restraint. Supply growth has been more moderate than in previous expansions, and lending has been more disciplined. Today, two-thirds of the return on a multifamily investment is income, not capital appreciation, and fewer deals are over-leveraged.

Some important shifts are happening among capital sources. On the institutional front, operator-allocator models are increasing; investment managers are buying operating platforms, and operating platforms are becoming investment managers. Additionally, state pension funds in the U.S. are modeling after the successful Canadian pension funds, placing investments directly with operators. Foreign sovereign funds and family offices are both trying to increase their allocations to real estate, making them important capital sources. Real estate investment trusts (REITS) will continue to be an important player, after a year in which the NAREIT outperformed the S&P 500.5 And commercial mortgage-backed securities (CMBS) issuances are poised for continued growth6, having reached post-recession highs in 2019.

The government-sponsored enterprises will remain important players in the multifamily lending space. In October 2019, the Federal Housing Finance Agency (FHFA) outlined new lending rules for the agencies. According to FHFA director Mark Calabria, “These new multifamily caps eliminate loopholes [and] provide ample support for the market without crowding out private capital.”7

Rental Demand Drivers Explained

Multifamily is popular among investors because of powerful demand drivers. In 2019, apartment absorption rates in the U.S. reached a five-year high,8 and a nationwide housing crunch9 means that rental vacancy rates will continue to be low. Panelists discussed multifamily housing statistics such as:

  • Millennials are now the largest population cohort in the U.S., and they’re more likely to be renters. The homeownership rate among millennials, ages 25 to 34, is around 8 percentage points lower than it was for Gen Xers and baby boomers when they were in the same age group.10
  • Renters are remaining in their leases for longer. According to RealPage data, in 2019, 53% of expiring leases were renewed – a long-term high mark for renewal rates.11
  • U.S. rent growth sits tight – increasing 3% in 2019.12 Rents are buoyed by strong employment numbers, but constricted by concessions.
  • Affordability continues to be a concern. The Joint Center for Housing Studies of Harvard University says household growth has returned to a normal pace, but housing construction has not.13 This conflict between those who need homes and the homes available puts pressure on housing and rent costs, particularly for modest-income households in high-cost cities.

The Great (In) Migration

Amid all the good news for the multifamily market, one thing to keep in mind is that not all geographic markets are equally benefitting. Investors are actively trying to identify the cities that are most benefitting from two migration trends: people moving in from the coasts in search of affordability, and people moving into cities with higher job growth. Corporations are also moving from highly taxed states to more business-friendly locations, and people are following the jobs. The panelists discussed strong population growth in cities in the inland western region and southeastern U.S, in cities such as Austin, Charlotte, Denver, and Raleigh.14 Other markets, such as Chicago, are seeing investors pull back due to lack of transparency around tax rates.15

Conclusion: Taking Advantage of the Capital Surge

With the abundance of both capital and capital providers in the marketplace, and the steady demand for more rental housing from consumers, the multifamily market will be dynamic in 2020. For owners, operators and investors who want to be a part of the activity, making strong connections is paramount. As one of the nation's leading providers of commercial and multifamily real estate finance, KeyBank focuses on building long-term relationships with innovative thinking. Our broad financing options, real estate capital solutions and deep industry experience will help you meet your short- and long-term goals.

To learn more, reach out to your mortgage banker or relationship manager or visit


Foreman-Peck, Allie,“America’s yield curve is no longer inverted” The Economist, November 14, 2019.


Timiraos, Nick and Kruger, Daniel, “Fed Intervenes to Curb Soaring Short-Term Borrowing Costs” Wall Street Journal, September 17, 2019.


Swanson, Ana and Cochrane, Emily. “Trump Signs Trade Deal With Canada and Mexico” New York Times, January 29, 2020.


Eavis, Peter, Rappeport, Alan and Swanson, Ana. “What’s In (and Not In) the U.S.- China Trade Deal” New York Times, January 15, 2020.


NAREIT Staff. “REITs Outperform Broader Stock Market in Third Quarter” October 3, 2019.


Mattson-Teig, Beth. “CMBS Lenders Are Poised to Build Market Share in 2020” January 28, 2020.


Ackerman, Andrew “Fannie, Freddie Regulator Sets New Caps on Lending for Multifamily Properties” Wall Street Journal, September 13, 2019.


Morphy, Erika. “Multifamily Absorption Reaches 5 Year High.” GlobeSt. July 8, 2019


Coy, Peter. “America Isn’t Building Enough New Housing” Bloomberg, February 11, 2019.


Nova, Annie. “Here’s why millions of millennials are not homeowners.” CNBC, August 30, 2019


Skivjhani, Arben “Apartment Lease Renewals Continue to Climb,” RealPage, November 12, 2019.


Borland, Kelsi “US Apartment Rents Increase 3% for the Year” GlobeSt September 17, 2019


Joint Center for Housing Studies. “The State of the Nation’s Housing 2019.”


Florida, Richard, “The Fastest Growing U.S. Cities Aren’t What You Think” CityLab. August 21, 2019


Ecker, Danny. “Chicago’s Construction Boom is About to Bust” Crain’s Chicago Business January 10, 2020

KeyBank is Member FDIC.