Is anyone seeing multifamily cap rate expansion yet in secondary markets?
I'm still getting seeing multifamily deals in secondary or even tertiary markets asking for cap rates in the 5% range, while freddie and fannie rates are trending toward 6% for 7 figure deals.

Is anyone seeing prices come down, or is it too soon? Or is the demand for multi-family so high that the cap rates are below interest rates now?
[{"id": "ipl3mwx", "text": "Nope, prices are still staggeringly high, considering what you mentioned.", "replies": [], "depth": 1}, {"id": "ipl4c01", "text": "This is the biggest issue right now. Brokers are going off 2021 sales and not understanding that rates are going up another 125bps this year per Jerome Powell. Something has got to give.", "replies": [{"id": "ipl7shw", "text": "Not brokers; it\u2019s sellers. They can\u2019t accept they missed the boat and still want 2021 prices. Brokers are just trying to make any deal they can happen because they know the party is over.", "replies": [{"id": "ipl8i44", "text": "Agreed. Brokers are there to provide advice to sellers though. Spoke to one the other day. Wanted to sell an entitled property at site plan approval for $51k a door. The closest comp was $30k, however, this was an \u201copportunity zone.\u201d Well uhhhhh have you turned on the news lately??? All gains are being erased, $3-4T of op zone money is gone now!!!", "replies": [{"id": "ipn8f12", "text": "You can lead a thirsty horse to water.. can\u2019t make them drink.", "replies": [], "depth": 4}, {"id": "ipo9av5", "text": "What has changed with op zones?", "replies": [], "depth": 4}], "depth": 3}, {"id": "iplo6ts", "text": "Also, sellers are mostly only testing the market, the feedback being that no one is within 25% of their ask results in them just yanking it. The actual transaction volume is pretty low.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ipl4npp", "text": "Even with 25% down, with the current interest rates, if you buy a property today, it\u2019s an automatic loss.  You would make more money in a savings account.\n\nA broker just sent me a listing for a dollar general highlighting it has 13 years left on the lease.  With a loan it\u2019s cashflow negative during the entire 13 years.  Where do I sign up\u2026.", "replies": [{"id": "ipl4yfu", "text": "I was sent a built-for-rent deal in a DC suburb earlier this week. 80 some townhouses for $50MM. Barely a 5-cap. In a rural area. Crazy shit.", "replies": [{"id": "iplu53o", "text": "Sometimes I feel like I am taking crazy pills when I see these deals. Glad I am not the only one.", "replies": [], "depth": 3}, {"id": "iplzan5", "text": "Lmao I\u2019m in DC area as well and it\u2019s downright depressing looking for deals. I started my company 6 years ago and have yet to buy something inside the beltway.\n\nI\u2019m honestly at the point where I\u2019d love to figure out a way to scale a core plus babysitting fee machine rather than grind away hoping to get promotes.", "replies": [{"id": "ipmxo5r", "text": "Funny, I\u2019ve had similar thoughts throughout the summer. Pivoting from value-add merchant builds to long term core and core+. That said, in my case it does require me seeking out LPs with longer time horizons", "replies": [{"id": "ipn5q1i", "text": "Same,  but I am envious of the people I know who who have either started or gotten in early to those GPs. I have a friend who got in early to a firm doing that for healthcare and finding and capitalizing deals is just so much less stressful than the knife fights you have to go through for value add.", "replies": [], "depth": 5}], "depth": 4}, {"id": "ipnt7fz", "text": "Loled at this and totally agree. On the ground up development side and the consistent fighting with the contractors just doesn't seem worth it.", "replies": [], "depth": 4}], "depth": 3}, {"id": "ipmaq7f", "text": "DC suburb.  Townhouses.  Rural area.\n\nThese things don\u2019t jive.  Where are you talking about?", "replies": [{"id": "ipmslbs", "text": "Yeah, I don't get it either.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "ipm77kc", "text": "New investors were doing the same thing with SFH rentals. They would buy an expensive home, rent it out, and make -$100/month to start. For some of them, appreciation and/or rent increases eventually turned it into a good deal for them, but they were lucky to buy into a hot market. \n\nThese days I\u2019d be leery of something that isn\u2019t cashflowing on day 1 unless I felt pretty confident there was value add in some manner.", "replies": [{"id": "ipmb4ip", "text": "I was around in 2005-8 and that\u2019s what many people did then. I was cash flowing negative $150 a month on my properties, but with appreciation and future rent increases I will be fine.  \n\nWell\u2026 the prices plummeted and rents were stagnant.  I had worthless assets.  I said never again.  Any future property I buy needs to cash flow, and any appreciation is gravy, but never count on appreciation.", "replies": [{"id": "ipntaw1", "text": "Yup! Words of wisdom", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "ipmm9z9", "text": "&gt;Even with 25% down, with the current interest rates, if you buy a property today, it\u2019s an automatic loss.  You would make more money in a savings account.\n\nIf you are paying with a mortgage, you are not using \"Cap rate\" in the specific context. For investors paying with a mortgage, the \"cash on cash\" return is the best calculation at the actual return.\n\nIf you are financing 75% - you will have a cash on cash return higher multiple than a cap rate if paying cash for a building. In the end, it is all based off cash flow.", "replies": [], "depth": 2}, {"id": "ipnr3fo", "text": "How are you getting a 75% LTV/LTC loan in this market without paying through the nose for it?  All deals require more equity, lower hurdle rates, and better management/business plan than 12 months ago. \n\nThe good news is the jokers who were only betting on cap rate compression are gone\u2026", "replies": [], "depth": 2}], "depth": 1}, {"id": "ipl66sl", "text": "Glad to see I'm not crazy for thinking these deals are terrible. Looks like only cash buyers would be able to make a profit, if any, on them", "replies": [{"id": "iprw7px", "text": "Dude, V=i/r\n\nIf NOI is selling at $25, then geez, that is a home run.", "replies": [], "depth": 2}], "depth": 1}, {"id": "iplaptz", "text": "Yes, institutional product in major growth markets (Phoenix, Tampa, Atlanta, charlotte) was trading in the low 3 cap range (tax adjusted) in February. Now it\u2019s in the low 4 range. Still going in at negative leverage but for value add deals it\u2019s all about how quickly you can dig yourself out.\n\nGiven the Fed\u2019s recent announcement I think we are due for another expansion on cap rates.", "replies": [], "depth": 1}, {"id": "iplb2g0", "text": "This is how the market turns. Sellers are clinging to yesterday. Brokers are as well, but know it's wishful thinking. Now is when a whole lot of nothing happens. If rates stay or continue to rise, then we should see price declines which can accelerate if demand dries up because buyer's don't want to catch a falling knife.", "replies": [{"id": "ipm7g5h", "text": "Yep. It\u2019ll take 1-2 years though, unless there\u2019s some catalyst. I\u2019m fine sitting and waiting right now.", "replies": [], "depth": 2}, {"id": "ipn7vze", "text": "So what your saying is it\u2019s a great time to be a young broker who\u2019s just starting to develop his/her book of business? \n\n/s", "replies": [{"id": "ipnc7of", "text": "If it's any consolation, a broker is most valued in a down market. The flat, quiet part when the market is turning is tough. In an upswinging market any goofball can slap a price on a deal and hook a buyer.", "replies": [{"id": "ipod1rx", "text": "A lot like fishing.. moving tides are when good things happen.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "iplew17", "text": "New construction MF in Austin are still closing at low 4% cap rates.", "replies": [{"id": "ipllv01", "text": "Which is about a 50 bps expansion from the peak", "replies": [], "depth": 2}], "depth": 1}, {"id": "ipllmo8", "text": "Add to the mix, astute lenders just aren't buying even moderately hyped valuations, so even if a deal gets under contract at the highest price in the bid pool, there is uncertainty with loan sizing and a mismatch on value expectations.\n\nOne lender outright had no interest in deals purchased within the last two years that have not achieved a significant capital spend and proven follow-on revenues to justify a large sale price jump.\n\nOne of my Fannie lenders has started sizing on T6 income (2022) vs T3 income (2021) even with upward trended movement in revenues.\n\nAll this points to veering away from market based valuations and retreating to fundamentals. (Thankfully)\n\nThings are still volatile so I'd save some headache and leave enough timing to get underwriter cleared soft quotes before bidding where possible.", "replies": [], "depth": 1}, {"id": "iplpxzv", "text": "A lot of institutional investors out there who are looking to hold forever and don\u2019t care if they\u2019re at negative leverage today because they\u2019re banking on long term rent growth and value appreciation.\n\nBeyond that there are still plenty of private investors who are underwriting stupid high rent growth and are willing to risk the initial loss.\n\nYou\u2019ll see some cap rate expansion in the coming months but I\u2019m willing to bet larger multifamily and industrial product continues to trade at prices where any leverage will be negative leverage until rates come back down.", "replies": [{"id": "iply54e", "text": "I'll take the opposite side of that trade.....  Just because they are institutional buyers doesn't mean they like to light money on fire.  It will be slower to correct, but it will correct none the less.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ipm40wt", "text": "This is anecdotal but I was talking with some debt guys yesterday and who are using this rule of thumb: every 50bps fed increase corresponds to a 20bps cap rate increase.", "replies": [], "depth": 1}, {"id": "ipm6p5g", "text": "Do you have any idea how many existing wealthy became ultra wealthy buying apartment buildings for cash in the 1930s?\n\nWhat is not widely known in the CRE world as most tend to be ignorant of economics is we are returning to a Bretton Woods System.  You can read the amended Bretton Woods Agreement Act of 1945 (March 27, 2020) for yourself.\n\nThere is probably $100 trillion of foreign held USD that have to be repatriated now. \n\nToday, cash is kind.", "replies": [{"id": "ipnbd8e", "text": "And the sage Dalio was crying cash is trash just a few months ago.\n\nHe sold some books though.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ipmfqud", "text": "5s?! I\u2019m still seeing mid 3s. Bonkers. How long can people justify underwriting 20% lease trade outs Yoy with a straight face.", "replies": [], "depth": 1}, {"id": "ipmslvn", "text": "I\u2019m trying to sell in a tertiary market and not getting much action. We could lower the price but I\u2019m inclined to just hold another 18-24 months instead.", "replies": [{"id": "ipn97jc", "text": "The market is about to go reallll quiet except for those who need to sell due to circumstance or tax balancing.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ipn79g2", "text": "If bonds are paying 4% why does it make since you buy and borrow money for a property at 4% the deals didn\u2019t even make since when interest rates were at all time low", "replies": [], "depth": 1}, {"id": "ipnyce4", "text": "Sellers are refusing to read the interest rate hike memo", "replies": [], "depth": 1}, {"id": "ipoebz8", "text": "We\u2019ve seen 50bps cap rate expansion for brokered deals in sunbelt markets. They have to guide pricing to a 4 cap tax adjusted to get groups to look at it and the buyer will ultimately close sun 4. To me the inflection point on big time cap rate expansion will be when rent rolls have done their full post Covid mark to market. You can sell a deal at a 4 cap now if there\u2019s a path to a 5 cap y1 and positive leverage y2, but I firmly believe lease trade outs will be a thing of the past this time next year and good sponsors will be creating value the old school way via actually putting capital into their shitty 80s deals", "replies": [], "depth": 1}, {"id": "ipofsrm", "text": "The asking prices are built in with wiggle room right now. The actual sale price will ultimately be lower than the ask right now. Good time to retrade deals once under contract too\u2026", "replies": [], "depth": 1}, {"id": "ipoxqd6", "text": "The Chicago suburban multi family is where I\u2019m buying.  It seems on Reddit everyone is trying to buy in the hottest markets.  Good luck if you are but those deals will never cash flow/make money unless you are lucky/come across a great deal.", "replies": [{"id": "ipoxu88", "text": "&gt; unless your lucky/come\n\n*you're\n\n *Learn the difference [here](https://www.wattpad.com/66707294-grammar-guide-there-they%27re-their-you%27re-your-to).*\n*** \n ^(Greetings, I am a language corrector bot. To make me ignore further mistakes from you in the future, reply `!optout` to this comment.)", "replies": [], "depth": 2}], "depth": 1}, {"id": "itiw15r", "text": "I work in multi-family sales. We\u2019re starting to pricing come down on some deals. One seller came down to $9.5M from $12.5M this year. Another went from $30M to $26M.\n\nFor the most part though, it\u2019s still very difficult to bridge the pricing gap between buyers and sellers. It\u2019s almost like sellers are in denial about the fact we\u2019re now in a buyers market.", "replies": [], "depth": 1}]