A ‘Kairos’ Moment for Multifamily?

Theologian and author Robert McAfee Brown wrote about two different Greek words relating to time. Chronos describes a particular point in time, e.g., today at 4 p.m. or August 15th at noon. Then there is kairos, a very different kind of time. Kairos refers to the right, critical, or opportune moment. A kairos moment is one that is abundant with opportunities.

The most significant opportunities are often found during times of fear and uncertainty.

Rising rates have taken their toll on all commercial real estate sectors, including multifamily housing. Increased borrowing costs and reduced leverage levels have led to higher cap rates. Bridge loans are maturing and interest rate caps are expiring, forcing owners to refinance or sell below their initial purchase price. A wave of new supply is coming online over the next twelve months. 

Multifamily sales volume in the first quarter was at its lowest level since 2014, as market participants are busy grappling with higher rates and uncertain about the future. This uncertainty has impacted liquidity, reduced competition, and ultimately created opportunities.

Source: Newmark Research, MSCI Real Capital Analytics

Herein lies the “kairos moment.”

Our research-driven opinion is that the current challenges in multifamily are temporary and related to changes in interest rates. The fundamentals driving long-term performance remain sound. The wave of new supply will diminish after 2025. New construction permits and starts have fallen over 50% from their peak in 2022, as capitalizing development deals remains extremely challenging given where base rates are today. These supply/demand dynamics, as well as the structural shortage of housing and high cost of homeownership, make us optimistic about future rent growth.

A true “kairos moment” requires those of us in its environment to gain conviction and make a decision. To capitalize on the opportunity before the window closes.

Understanding the Risks of Sound-Bite Investing

With the proliferation of information, it is easy to get caught up in the momentary panic or excitement. However, successful investing requires a long-term perspective. It is crucial to understand the risks associated with making decisions based on incomplete information and to instead focus on thorough research and analysis. If one were to only pay attention to the news headlines, they may be fearful about investing in commercial real estate:

  • “Property Fraud Allegations Snowball as Commercial Real-Estate Values Fall” (WSJ, 7/9/2024)
  • “A Really Bad Sign for Commercial Real Estate” (BBG, 5/23/2024)
  • “Pimco Warns of More Regional Bank Failures on Property Pain” (BBG, 6/11/2024)

Like its political counterpart, sound-bite investing is a knee-jerk reaction to fragmented information, often leading to ill-informed decisions. In an age where media snippets dictate public perception, investors find themselves waiting for the media’s ‘all clear’ signal – a signal that is typically outdated by the time it arrives. This hesitation causes many to miss out on substantial opportunities that lie beneath the surface of the sensational headlines.

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The Power of Contrarian Thinking

Warren Buffett, a paragon of investment wisdom, famously advises investors to ” . . . be fearful when others are greedy and be greedy when others are fearful.” This contrarian approach has often guided astute investors through tumultuous waters to the harbor of success.

The current marketplace presents a unique time – a kairos moment, as Buffett would likely agree, where the potential for outsized gains is ripe for those who act early. 

Just don’t hold your breath waiting for the media’s ‘all clear’ signal. It doesn’t work that way.

Contrarian thinking isn’t merely about swimming against the current; it’s the courage to trust your well-founded analysis even amidst widespread doubt. As Buffett said:

“Someone is sitting in the shade today because someone planted a tree a long time ago.”

This willingness to invest for the future, even when the path seems unconventional, can lead to significant rewards when the market eventually recognizes the opportunity that was previously overlooked.

Blackstone, KKR, and Brookfield are three of the most sophisticated real estate investment firms in the world, and their success has been built on seeing trends and being first movers. These firms are seizing the kairos moment, all making large bets on multifamily:

Diligence Over Hype

The importance of due diligence cannot be overstated. In a world where everyone has an opinion, it’s the facts that count. Look beyond the headlines and hype to the real data and track records that tell the true story of investment opportunities. As a guiding force for individuals, family offices, and institutions investing in multifamily real estate, we emphasize the importance of vetting sponsors rigorously. Pay close attention to what the sponsor does, not just what they claim. A track record of conservatism is easy to profess but not universally upheld.

Now, more than ever, looking beyond the noise and analyzing the fundamentals is critical. Opportunities abound for those willing to delve deeper, and the rewards can be significant for those who arrive with insight rather than follow the crowd.

While challenging, the current investment landscape is laden with potential for those who dare to move against the tide of fear. Do your due diligence and let prudence, not panic, guide your investment decisions. Embrace Buffett’s philosophy, and the current environment might well reveal itself to be your own kairos moment.

Choosing the Right Partners

Your investment partners play a critical role in your success. Choose those who have demonstrated a commitment to conservative, strategic, and profitable investing. Here is an informative video, hosted by one of 37th Parallel’s Managing Partners, that will help you establish a framework for evaluating sponsors, ensuring your investment goals align with their strategy.

Passive Investor’s Guide to Multifamily Real Estate

Written By:
Don Duncan
Principal, Investor Relations
[email protected]
415.302.4138

How can we help?

Whether you’re an experienced investor or new to direct multifamily investing, we’re here to help.

We look forward to hearing from you.