Interest Rates & Net Migration - Q1 2025
As we wrap up another fiscal quarter, we’re excited to share a few key market insights, updates on our growing portfolio, and some noteworthy reads that have caught our attention. Read on for our latest updates and perspectives.
Capital Markets Update:
With elevated interest rates, loan maturities, and stagnant growth in 2024, multifamily investors adopted the mantra “Survive till ‘25”. It’s now 2025 (spoiler: we survived!) and the multifamily market as a whole appears to be cautiously optimistic. That said, investment activity is off to a slow start in 2025 as this year will likely be a key turning point for commercial real estate. Investors are closely watching interest rate movements combined with and an unsettling $84.3B in multifamily loan maturities. It’s estimated that approximately 10% of multifamily loans maturing this year are underwater meaning the outstanding loan balances exceed the properties’ current market value.
Speaking of rates, it appears that Powell plans to maintain a steady course to start the year. When asked about rate cuts in Q1 of 2025, he responded that he “…[is] not in a hurry to adjust our policy stance.” Based on the latest dot plot, there’s a strong consensus that that federal funds rate is expected to be cut 50 bps in 2025 and set to stabilize between 3.75-4.00 percent. Lower rates encourage transactions, which help boost the economy. Additionally, lower rates may bail out numerous operators who have been negatively impacted by increased rates beginning in 2022 and are currently struggling with property valuations and debt service payments.
As we look ahead to 2025, CBRE forecasts that multifamily property rents are expected to increase 2.8% and occupancy is expected to increase from 93.9% to 93.8% primarily due to the record number of completions in 2024. Developers delivered over 675K apartment units in 2024, but completions are expected to fall 36% back in line with the 10-year average to approximately 430K completions.
“If you build it, they will come” (name that movie). While primary and secondary markets will dominate apartments deliveries in 2025, our beloved Ashville, NC is set to lead the nation’s tertiary markets by increasing its apartment inventory by over 13%. Unlike Field of Dreams, the Carolinas are the opposite, “they are coming, build faster.” The graph below displays net migration – IE, where the population is moving. These 5 states saw the biggest net domestic migration INCREASE between July 2023 and July 2024:
Texas —> +85,267
North Carolina —> +82,288
South Carolina —> +68,043
Florida —> +64,017
Tennessee —> +48,476
From a high level, we believe that the Carolinas are uniquely positioned for investors to capitalize on the massive influx of population and capital investment resulting in strong demand and property appreciation. Consequently, we are working hard to capture this economic wave of growth for our investors.
510 Capital - Portfolio Highlights
First, we are excited to announce our purchase of the Lakeshore Apartments in Hendersonville, NC. With an attractive basis and a reasonable & honest business plan, we expect to deliver appropriate risk adjusted returns for our investors!
The winter season is notorious for sluggish leasing activity and increased vacancy. This season we are focused on renewals and rent collections, and we’re happy to say that our portfolio is stabilized at 96% occupancy and collections are consistent. There’s something to be said for “boring” real estate investing – both Ryan and I value our sleep!
Notable Reads
Ryan’s Pick:
· The Gap and the Gain by Dan Sullivan. This was the most impactful book I read last year. As Entrepreneurs especially, it is so easy to focus on the next goal or challenge. While this is great and a big factor of our success, we need to also take time to look back and appreciate the growth and progress we have already made and find contentment in that.
Luke’s Pick:
· Same as Ever by Morgan Housel. I found this book extremely entertaining and deeply insightful on how human behavior and economic cycles repeat in ways that shape financial markets. This book takes the principal that “there’s nothing new under the sun” and combines it with engaging storytelling resulting in timeless financial and economic principles.