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An update on the multifamily investment market for the Portland metro

March 16, 2023
Authors: Tyler Johnson
Publishers: Portland Business Journal

Real estate insiders keep a keen eye on the Federal Reserve.
The multifamily market in the western US is facing several challenges, including the impact of rising interest rates and declining returns on cash investments. These factors put pressure on pricing, as buyers look for healthy returns and sellers try to balance the demand for their properties with the need to achieve a reasonable return on investment.

In this environment, it is essential for buyers and sellers to have a clear understanding of current market conditions and to price properties appropriately. With a lack of available properties for sale and high demand from buyers, prices are unlikely to drop significantly unless the Federal Reserve Board raises interest rates even more seriously. In the current market, private investors and institutions face lowering their return requirements until the Federal Reserve eases their rate increases which we anticipate will result in increased transaction velocity and a return of investment activity to the market.

Stress in New Construction
The multifamily real estate market faces challenges related to existing properties and new construction. In the case of existing properties, we expect to see some distress among sellers, although not necessarily in the traditional areas. We expect to see more stress among smaller multifamily builders facing higher interest rates and declining returns on cash investments. Developers who have built properties to a projected 4.5% cap rate and are now delivering into a 5%+ market may struggle to hold on as their construction debt increases, and they no longer have the proceeds to pay off the construction loan without bringing in more cash.

Acquisition and Asset Management
The multifamily real estate market faces several asset management challenges. Many acquisition teams are shifting to asset management as net operating income stays flat, and clients are becoming more focused on expenses and administration. Several factors, including flat rents and rising expenses, drive this increased focus on asset management. Higher taxes, cost-burdensome regulations, and rising costs for utilities and labor put pressure on their bottom line. In this environment, it is essential for owners to have a clear understanding of their expenses and to work closely with their management teams to find ways to reduce costs and improve operating margins. We will likely see many apartment management transitions over the next few months as owners seek more efficient and effective management strategies.

Big Money is Investing Mostly Outside Oregon and the West Coast
Commercial real estate in the western US, particularly in West Coast markets like Oregon, faces several legislative and quality-of-life challenges. Proposals like rent control and eviction assistance at owner expense are causing market uncertainty and making it difficult for buyers to make informed investment decisions.

Many buyers mainly target the sunbelt and southeast markets, with less regulatory uncertainty and more favorable economic conditions. However, we anticipate that the pendulum will return to markets like Oregon, provided elected leaders can address quality-of-life issues and create a more favorable environment for business investment. For this to happen, it will be necessary for the government to work closely with the real estate community to understand these concerns and to find solutions that balance the needs of residents, landlords, and investors. This may involve implementing policies addressing the root causes of quality-of-life issues, such as affordable housing, transportation, and public safety, through better resource allocation. By working together, government leaders and the real estate community can create a more stable and attractive market for investment in our community.

Tyler Johnson is a partner with HFO Investment Real Estate, which specializes in multifamily investments. He may be reached at (503) 241-5541 or by email at

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