Recently, headlines from business media have painted a bleak picture of the commercial real estate sector, with terms like “tsunami” and “crash” being used to describe what some claim is an impending crisis.
At Countrywide, we closely monitor these narratives, and while several economic challenges are converging—lingering effects from the pandemic, rising interest rates, supply chain disruptions, and tightened credit conditions—the reality for multifamily real estate is far more nuanced. Unlike firms that acquired assets at peak prices using variable-rate debt, Countrywide focuses on ground-up development and conservative underwriting, putting us in a strong position to navigate today’s environment.
Let’s unpack some of the most common headlines and look at the reality behind them.
THE HEADLINE: High Interest Rates Make It Impossible to Pencil a Deal Right Now…
THE TRUTH: Countrywide Has a Competitive Edge
There’s no denying that the current interest rate environment is challenging, with higher borrowing costs, reduced lending activity, and less favorable loan terms making some projects harder to pencil out. However, Countrywide has a significant advantage: in-house general contracting.
For instance, one of our 2023 projects experienced an interest rate hike that added $750,000 in costs. By leveraging our in-house contracting expertise and capitalizing on a slowdown in construction activity, we were able to create more bidding competition among subcontractors, securing $1.6 million in savings. This more than offset the increased borrowing costs, allowing us to deliver a financially sound project.
THE HEADLINE: Apartments Are Being Overbuilt…
THE TRUTH: The Oversupply Narrative is Overstated
Recent reports of multifamily overbuilding fail to capture the bigger picture. While construction activity increased between 2021 and early 2023, experts estimate the U.S. is still nearly four million housing units short of demand—a figure that is projected to grow to 6.5 million by 2030.
Moreover, multifamily construction groundbreaks in 2023 have dropped to pre-pandemic levels, according to RealPage. This means any temporary oversupply in some markets will be short-lived. At Countrywide, we remain bullish on multifamily development. Projects we’re funding today will begin welcoming residents in 18 to 30 months, perfectly timed for the next wave of multifamily investment activity.
THE HEADLINE: Rent Prices Are Plummeting…
THE TRUTH: Asking Rents Nationwide Are Holding Steady
While rent growth has cooled from its 2021 highs, rental rates remain strong in most U.S. markets. According to RealPage, asking rents nationwide have risen every month so far in 2023. Yardi’s July 2023 report highlighted a $7 increase in average U.S. multifamily asking rents ($1,726 across 140 markets).
At Countrywide, we underwrite our projects conservatively, typically modeling 2-3% annual rent growth. Even so, last year our portfolio outperformed expectations, achieving an impressive 11% rent growth across multiple markets. These results underscore the strength and stability of multifamily real estate.
THE HEADLINE: There’s a Lack of Demand for Multifamily…
THE TRUTH: Multifamily Demand is Resilient
High home prices and rising mortgage rates are driving the largest buy-versus-rent gap since 2006, according to CBS News. The National Multifamily Housing Council (NMHC) reports that owning a home costs an average of $1,176 more per month than renting from a professionally managed apartment complex.
This affordability gap makes renting a more attractive option for many households. Nationwide, occupancy rates for market-rate apartments remain strong at 95%, and Countrywide’s properties align with these trends, maintaining high occupancy and steady demand.
Why Multifamily Remains a Strong Investment Option
Despite the noise in the media, the fundamentals of the multifamily market remain strong:
- Steady Demand: High homeownership costs continue to push households toward rentals.
- Solid Occupancy Rates: National averages of 95% demonstrate the ongoing resilience of multifamily properties.
- Controlled Growth: While rent growth has normalized, it remains stable and aligned with conservative projections.
- Strategic Timing: Multifamily developments initiated today will come online just as the market is poised for renewed activity.
At Countrywide, we leverage our vertically integrated model—combining investment, development, construction, and property management—to deliver high-quality multifamily properties while navigating market challenges. With a proven track record of success, our team is committed to providing stable, long-term investment opportunities with the potential for attractive returns.
Important Disclaimer
No Offer of Securities: This material is for informational purposes only and does not constitute an offer to sell or a solicitation to buy any investment. Such offers are made exclusively through a confidential Private Placement Memorandum. Access to information about investments with Countrywide is limited to accredited investors under the Securities Act of 1933 or those with sufficient financial sophistication to evaluate the merits and risks of such investments. Investment outcomes vary, and past success does not guarantee future results.
