The multi-family real estate market in the Midwest is showing encouraging signs of recovery after a challenging 2023, according to Jack Friskney, a prominent multi-family broker at Marcus & Millichap specializing in Central and Northern Indiana and Southern Michigan markets.
Transaction volume in the commercial real estate sector fell 47% nationwide in 2023, as rising interest rates dramatically impacted deal flow. And within the commercial space, apartment transactions in 2023 fell 61% year-over-year, with a total sales volume of $119 billion. However, early 2024 has brought renewed optimism to the market, with increased listing activity and buyer engagement, particularly in metropolitan areas.
“We’ve really started to see transaction volume and listing activities increase,” Friskney notes. “I’ve seen a significant uptick in listings within the last six to nine months.” This revival comes after a period where many owners chose to wait on the sidelines due to challenging market conditions, including interest rates that reached 7-8% for many properties.
The market dynamics have shifted considerably since 2020-2021, when sub-3% interest rates created what Friskney describes as a “frothy environment” where properties typically went under contract within 30-45 days. The current environment is more nuanced, with location playing an increasingly crucial role in determining property performance.
“It’s really been more location-dependent than ever before,” Friskney explains. “Properties in the Indianapolis area get significantly more attention versus smaller towns in Indiana or Michigan.” This disparity in buyer interest has led to longer marketing periods for properties in secondary and tertiary markets, though recent weeks have seen successful closings in suburban and urban locations like Plainfield and Indianapolis, Indiana.
The buyer landscape has evolved as well, with a notable increase in syndication activity. “The biggest increase I’ve seen is in new syndicators entering the business,” Friskney observes. These groups join a diverse buyer pool that includes wealthy private individuals, family offices, and increasingly, investors from coastal markets and Chicago seeking higher yields in the Midwest.
Looking ahead, market participants anticipate gradual improvements in financing conditions, though recent Treasury rate increases have temporarily pushed borrowing costs higher. Despite these fluctuations, the fundamental outlook remains positive, supported by persistent housing undersupply and strong rental demand.
One particularly bright spot for the region is its relative affordability compared to coastal markets. “Our rent levels compared to other parts of the country are significantly below them,” Friskney notes. “I expect that gap to continue to narrow over the long-term.” This advantage has already manifested in strong rent growth, with Midwest cities like Indianapolis, Louisville, and Cincinnati ranking among the nation’s leaders in rental rate increases.
The typical transaction size in the market ranges from $1-5 million, encompassing properties from 8-10 units up to larger communities, though Friskney’s team has handled deals up to 500 units. This middle-market focus has helped maintain activity levels even during challenging periods, as these properties remain accessible to a broader range of investors.
While uncertainty around interest rates and broader economic conditions remains, the market appears to have found its footing after the disruptions of 2023. The combination of increased listing activity, strong fundamentals, and the region’s relative affordability suggests a potentially robust recovery ahead for Midwest multi-family investment.
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