Multifamily underwriting metrics improved modestly in the second quarter, according to CBRE’s latest multifamily underwriting survey.
Both core and value-add assets saw slight improvements in underwriting assumptions with modest compression in going-in and exit cap rates. Going-in cap rates for core assets declined by 6 basis points (bps) to 4.75%, and cap rates for value-add assets decreased by 8 bps to 5.2%. Exit cap rates for core assets decreased 4 bps to 4.96%, while for value-add asset exit cap rates fell by 1 bp to 5.3%. According to CBRE, both asst classes saw the spread between going-in and exit cap rates widen in the second quarter—increasing from 19 bps to 21 bps for core assets and from 11 bps to 18 bps for value-add assets.
Buyer and seller sentiment between the two asset classes diverged in the second quarter. Buyer sentiment for core assets became more neutral, with 56% of respondents expressing positive sentiment, down from 65% in the first quarter. Value-add buyer sentiment saw a rebound from the first quarter, with 61% expressing positive sentiment in the second quarter, up from 48%. Value-add sellers expressed largely neutral sentiment.
CBRE also noted that rent growth expectations improved modestly in the second quarter, with the internal rate of return targets remaining stable across most markets. Coastal and high-demand markets, such as Boston, Los Angeles, and Seattle, led the second quarter’s sentiment recovery.
“In the second quarter, we saw a modest but meaningful improvement in underwriting metrics across both core and value-add multifamily assets,” said Travis Deese, director of multifamily research for CBRE. “While sentiment around core assets softened slightly, the rebound in value-add buyer confidence and continued cap rate compression reflect growing optimism as market fundamentals stabilize.”