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St. Louis Q2 Multifamily Market Report: Multifamily Sales Activity Surges as Competition Intensifies

Highlights:

St. Louis Multifamily market report snapshot for Q2 2021
  • After a slower start to the year, the St. Louis multifamily market gained momentum during the second quarter. The local vacancy rate improved, and rents crept higher. New apartment deliveries have been modest to this point but are forecast to accelerate by year end.
  • Vacancy tightened during the second quarter, with the rate dropping 30 basis points to 5.2 percent. Despite the recent improvement, vacancy is 40 basis points higher than the figure one year ago.
  • Asking rents have advanced 2.4 percent year over year, ending the second quarter at $1,018 per month. Rents posted a healthy gain at the beginning of the year before the pace of growth cooled a bit in the second quarter.
  • The pace of sales activity gained momentum during the second quarter. The number of transactions that closed in the second quarter was more than double the levels recorded at the beginning of the year. As competition has intensified, prices have risen; the median price is $159,500 per unit, while cap rates have averaged 5.4 percent in 2021.

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Investors are bullish on St. Louis multifamily market as pandemic proves midwest is attractive region to invest

The number of offers on recent listings has nearly doubled compared to the last few years, which is pushing never-before-seen, aggressive terms and pricing.

While the COVID-19 pandemic rocked many commercial real estate sectors in 2020, multifamily – although not completely unscathed — has consistently remained a top performer.

This holds especially true for the large, secondary Midwest markets including St. Louis, which don’t typically experience the big swings of the primary coastal markets. The Midwest continues to boast sound fundamentals.

Markets across the Midwest reported fewer apartment delinquencies, notes Parker Stewart, NorthMarq’s managing director of Investment Sales, covering St. Louis and Midwest secondary and tertiary markets. While delinquencies increased in 2020 due to pandemic-related layoffs and furloughs, many apartment operators in St. Louis, for example, reported better collection figures compared to many other primary markets across the United States.

“Year over year, the St. Louis multifamily market recorded 2 percent rent growth and 5.5 percent vacancy, which is pretty consistent with many of the secondary markets in the Midwest,” notes Dominic Martinez, NorthMarq’s associate vice president, focusing on multifamily investment sales across the Midwest. “These are not the high-rent growth markets like Boise and Phoenix, yet they’re very stable.”

St. Louis, like many cities, is still recovering from recent job losses due to the pandemic. Year over year, total employment in St. Louis is down 4.5 percent. While the local employment market remains in recovery mode, employers are expected to continue to add workers back to payrolls in 2021, and there are companies expanding.

For example, St. Louis is a thriving hub for geospatial companies. The National Geospatial-Intelligence Agency is building a nearly $2 billion headquarters in north St. Louis. “This development is expected to be a major catalyst for job growth,” says Martinez.

Hottest St. Louis submarkets
Approximately 3,500 units were under construction at the end of the first quarter of 2021. Newer projects have leased up with minimal concessions, Stewart notes. Active submarkets include Midtown and The Grove, which are seeing strong lease-up of Class-A units. Further west, Chesterfield, St. Charles and Wentzville have seen significant upticks in multifamily development with minimal concessions during lease-up.

What’s fueling investor demand?
As noted, multifamily has held up through the COVID-19 storm compared to other asset classes, and specifically, apartments in the Midwest boast strong fundamentals compared to the primary coastal markets. Additional factors behind robust investor demand include:

  • The cost of construction is skyrocketing.
    With rising construction costs, it is much more difficult to make the numbers work for developers who were planning to break ground on apartment projects this year, Stewart explains. As a result, many stabilized Class-A property owners are hopeful fewer units will be delivered than originally planned, which would create less competition, particularly in Class-A and Class-B properties.

  • Single-family housing boom is creating a new population of renters.
    Single-family home prices have never been higher, Stewart notes. Some would-be homebuyers, many of whom are millennials, are being priced out, which is leading to more demand in the rental market.

  • Interest rates remain historically low
    The low interest rate environment means the cost of borrowing remains low, and more lenders are competing for business. For high-quality apartment deals, Freddie Mac and Fannie Mae, life insurance companies, banks and CMBS lenders are active. An abundance of debt funds and bridge lenders are also active in the space. Market interest rate levels in 3-4 percent range allow investors to push values while still generating a favorable yield.

  • Multifamily is a great hedge against inflation.
    “We’re experiencing a large inflationary period and as a result, investors are attracted to placing equity in tangible assets,” Martinez explains. “If you look at a cash-flowing asset like multifamily, which has proven to be resilient throughout this period, investors are able to hedge against inflation with rents projected to increase organically.”

  • The Biden administration’s proposed tax plan could potentially mean future increases.
    Stewart says there is a “go-now” mentality in the market due to the uncertainty of what the capital gains tax environment will look like 12 months from now, and whether that will materially impact trading. There have also been discussions that could significantly impact (or eliminate) the 1031 exchange.

    “All of these factors combined are leading to skyrocketing investor demand like we’ve never seen before for multifamily housing in St. Louis and across the Midwest,” Stewart says.

Demand increases number of investors at the table
Competition is fierce and cap rates are at all-time lows. Stewart and Martinez have more than 2,800 units listed or under contract in six states across the region and are seeing cap rates that are substantially lower than ever before.

“And specifically, over the last few months, it seems there’s almost double the number of buyers looking at deals,” Stewart notes. “On a property where maybe six months ago we had eight to 12 offers, now it’s likely 20 to 25.”

The level of competition is leading to extremely aggressive terms.

“The end result is we’re seeing terms that we’ve not seen before,” notes Martinez. Additionally, these aggressive terms are not only for newer-built deals in which investors typically feel more comfortable putting down significant dollars. “Now we’re seeing those terms across the board, regardless if it’s a brand-new deal or a 1980s-built, value-add deal in a tertiary market,” Martinez says.

For example, NorthMarq has a $14 million, value-add workforce deal under contract outside of St. Louis with seven figures of nonrefundable earnest money. The buyer is a private family office from the coast. There was no due diligence on the offer and no contingencies on the nonrefundable earnest money.

It’s largely sophisticated private capital pursuing apartment deals in St. Louis and across the Midwest.

“While local investors continue to review investment opportunities, we’re seeing more national buyers than ever before,” Stewart says. “Buyers have been looking to come into the Midwest over the last several years. However, with the stability these middle markets have displayed throughout the COVID-19 pandemic, there’s that much more demand. Plus, the yield continues to consistently be more attractive than a primary market like Dallas or Phoenix.”

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St. Louis Q1 Multifamily Market Report: Class A Property Sales Dominate to Start 2021

Highlights:

St. Louis Multifamily market report snapshot for Q1 2021
  • Multifamily property conditions in St. Louis softened a bit at the start of 2021, and the local labor market will likely require a few more quarters to return to full employment. Even as vacancy has inched higher, rents are posting modest gains.
  • Vacancy reached 5.5 percent during the first quarter, 90 basis points higher than one year ago. The pace of new construction has been consistent in recent years, but absorption is lagging earlier periods.
  • Area asking rents have increased 1.9 percent year over year, finishing the first quarter at $1,015 per month. Rents posted their strongest gains in the past four quarters at the start of 2021, setting the stage for additional increases.
  • The pace of sales to start 2021 closely tracked levels from one year earlier. There was a change in the mix of properties that sold, however, with activity concentrated in Class A projects. The median price reached $225,100 per unit, while properties traded with cap rates between 5 percent and 5.5 percent.

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St. Louis Q4 Multifamily Market Report: Cap Rates Compress, Sales Activity Picks Up to Close 2020

Highlights:

St. Louis Multifamily market report snapshot for Q4 2020
  • Operating conditions in the St. Louis multifamily market were steady throughout nearly all of 2020 before cooling in the fourth quarter. The outlook for 2021 calls for economic recovery, which should support the local apartment market.
  • Apartment vacancy rose 50 basis points in 2020, with the rate ending the year at 5.1 percent. The rate had tightened in the two previous years.
    Rents inched higher in 2020, despite higher vacancy. Asking rents gained 0.5 percent in 2020, reaching $997 per month. Prior to 2020, asking rents had been advancing at a pace of approximately 4.6 percent per year.
  • Developers delivered approximately 200 units during the fourth quarter and more than 1,000 units for the year. Deliveries have averaged 1,600 units per year since 2015.
  • Sales of multifamily buildings picked up at the end of 2020. Prices rose and cap rates compressed; the median price reached $55,100 per unit in 2020, while cap rates averaged 5.6 percent.

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NorthMarq expands Investment Sales platform into St. Louis, Midwest secondary markets

MINNEAPOLIS, MINNESOTA (January 13, 2021) — NorthMarq’s multifamily investment sales platform, which grew into 15 offices through YE 2020, adds new market-leading investment sales experts in the company’s St. Louis debt & equity office today.

Parker Stewart joins the company as managing director – Investment Sales to cover St. Louis and Midwest secondary and tertiary markets. Dominic Martinez, associate vice president, and Alex Malzone, senior associate, also come to NorthMarq to focus on multifamily investment sales across the Midwest. They will partner with NorthMarq’s existing debt and equity team led by Jeff Chaney and David Garfinkel, managing directors – debt and equity, in St. Louis, along with the company’s other Midwest debt and equity experts in Chicago, Kansas City, Omaha, and Minneapolis.

Trevor Koskovich, president-Investment Sales, leads the business expansion, which added six new offices to-date in 2020. “We look for energetic professionals who are interested in building the platform and being part of the excitement of this quickly growing business. When we found Parker and Dominic, we knew they would be the perfect complement to our strong debt and equity operation in St. Louis and across the Midwest,” he said.

Both Stewart and Martinez are graduates of the University of Missouri-Columbia and natives of the St. Louis area. Stewart brings his previous experience with Berkadia, where he completed the sale of over 7,500 units and $750,000,000 in total consideration, within seven states across the region. Martinez, who will focus on the evaluation, advising, marketing, and sale of multifamily assets throughout the Midwest, has completed the sale of over 3,500 units and $300,000,000 in total consideration. He graduated with a master’s degree in accounting and has his CPA designation.

“I am very excited to join NorthMarq and continue the explosive growth of the investment sales group nationwide. The ability to leverage Northmarq’s exceptional local, regional, and national relationships formed over the last 60 years will serve as a strong catalyst for future growth and will give us a competitive advantage in the investment sales marketplace,” said Stewart. “In addition, Jeff and David have built a dominant mortgage banking team in St. Louis, and we look forward to partnering with them to offer our clients a full range of capital market services.”

The St. Louis office will offer investment sales coverage in conjunction with the other NorthMarq offices across the country to market multifamily assets and help clients identify the best financing structure. The NorthMarq platform now includes teams in 16 states, with more 60 investment sales professionals.

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NorthMarq’s St. Louis office presents Epic Empowerment and Room at the Inn with 2020 Community Grants

MINNEAPOLIS, MINNESOTA (December 1, 2020) — NorthMarq’s St. Louis office presented 2020 Community Involvement Grants to two local St. Louis-based non-profits Epic Empowerment and Room at the Inn.

Epic Empowerment, an organization whose mission is to end the cycle of poverty for children and families through its pillars of Housing, Food, Education and Employment, was nominated by David Garfinkel, senior vice president/managing director- St. Louis, to receive one of NorthMarq’s Community Involvement grants.

Epic Empowerment’s grant will support the organization’s emphasis to help children who are experiencing homelessness and poverty via Epic Empowerment’s chapter, Safe Kids MO. The chapter addresses the needs of the more than 4,000 children living in unstable conditions outside the home in Franklin County by providing emergency housing, food and nutritional assistance, and employment. During its existence, Safe Kids MO has delivered more than 260,000 meals to families in need.

“What attracted me to this organization is that they trying to end the cycle of homelessness, poverty, and hunger for children. Todays’ kids are tomorrow’s future and we need to do all we can to help kids, whenever possible,” said Garfinkel.

The St. Louis office’s second grant was presented to Room at the Inn, after being nominated by Jeff Chaney, senior vice president/managing director. The non-profit organization provides immediate, temporary shelter to homeless women and families in the St. Louis region. In addition, the non-profit works with clients to create an individualized plan to return to self-sufficiency, which includes monitoring and referrals to other human services agencies.

“We are very grateful for the donation we received today from NorthMarq via the sponsorship of Jeff Chaney,” said David S. Weber, executive director. “Our goal is to place our clients into permanent housing within 45-60 days. Our shelter model is very unique in that we partner with 50+ interfaith congregations who house our clients each night at their facility. Our clients have a safe and clean place to sleep, are served dinner and breakfast, and then brought back to our shelter for programming until 5 pm when the process begins again…365 nights per year.”

In the third year of NorthMarq’s Community Involvement Grant program, the company has awarded grants to 18 non-profits in 16 cities. The program solicits nominations from each local office, and had an increase of 20 percent from 2019, with a total of 18 non-profits focused on affordable housing and reducing homelessness receiving these grants in 2020.

L to R: Jeff Chaney presented David Weber, executive director and Cindy Warren, volunteer coordinator at Room at the Inn with a community giving grant.
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NorthMarq ranks first among St. Louis’ largest commercial lenders

The St. Louis Business Journal recently released its list of largest commercial lenders. The lenders were ranked by local commercial loans outstanding as of December 31, 2019. The NorthMarq office, consisting of Managing Directors David Garfinkel and Jeff Chaney, and Vice President Dan Baker received the top tanking, beating out 30 other companies. Click here to view the story.

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David Garfinkel recognized in Midwest Real Estate News Magazine 2019 Hall of Fame

ST. LOUIS, MISSOURI (January 31, 2020) – Midwest Real Estate News released its list of inductees for the Commercial Real Estate 2019 Hall of Fame. David Garfinkel, senior vice president/managing director of NorthMarq’s St. Louis office earned a spot in the class of 2019 alongside a select group of real estate professionals who have impacted both their industry and community.

During his 32-year career in commercial real estate, Garfinkel has arranged more than $2.75 billion in loan production. For this reason, several life insurance companies have recognized him as top producer throughout his career. He consistently ranks among the top-10 in production at NorthMarq.

“I love what I do, as every day is different and every deal is different,” Garfinkel said. “I might work on loans for five different property types every day. However, what I love most about this business is the people. I’ve developed long-term relationships and friendships with many of my clients, my lenders and my colleagues within NorthMarq and the real estate industry.”

Check out David Garfinkel’s Hall of Fame listing.

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David Garfinkel celebrates 20 years with the company

David Garfinkel in our St. Louis office celebrates 20 years with the company this month. Thanks for being part of the team, David!

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NorthMarq Capital recognized as #1 Largest Commercial Lender by St. Louis Business Journal

ST. LOUIS (January 7, 2019) – NorthMarq Capital was ranked by St. Louis Business Journal as first of 25 in the 2018 Largest Commercial Lenders listing, which was determined by local commercial loan volume as of December 31, 2017.

Click here to view the rankings.

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Jeffrey Chaney inducted into 2015 Commercial Real Estate Hall of Fame

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Jeffrey Chaney

Jeffrey Chaney, managing director and senior vice president of NorthMarq Capital’s St. Louis regional office, has been inducted into the Midwest Real Estate News 2015 Commercial Real Estate Hall of Fame.

The 2015 inductees featured in the December/January edition represent the most important players from all facets of the commercial real estate industry.

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