Multifamily Executive
February, 2024
Founded in 2004, Odyssey Properties Group holds a $1 billion-plus portfolio of approximately 7,300 multifamily units across 13 states, including California, Florida, Texas, and Washington. MFE caught up with principal and founder Derek Graham to discuss rent trends, transaction activity, and his outlook for the year ahead.
What is Odyssey’s outlook for the multifamily sector in 2024?
We are cautiously optimistic about 2024; overall, multifamily fundamentals remain resilient, even with economic uncertainties. Owners will be faced with imminent debt maturities, extremely expensive interest rate cap replacements, and vulnerabilities derived from poor capital structure. We anticipate that these challenges will contribute to an uptick in transaction volume in 2024, because owners who purchased with floating debt in 2021 or 2022 have to overcome these challenges to stay in the game. There are a lot of inexperienced and undercapitalized owners out there, and missed underwriting assumptions, such as those for insurance, property taxes, payroll, or rent growth, can put a property at risk. This creates a tremendous opportunity for savvy investors to step in and acquire new assets.
What did your transaction activity look like in 2023? What are you anticipating in 2024?
We did not transact in 2023 as interest rate volatility caused a meaningful gap between buyer and seller price expectations. We believe 2024 will be different, as rates begin to stabilize and sellers become more willing to meet the market as they face maturing debt, costly interest rate cap replacements, an inability to refinance, and various liquidity issues.
With so much new supply coming online, what are you anticipating in terms of leasing and rents?
In markets with high supply, such as Austin, Texas, and Phoenix, we anticipate seeing flat or declining rents, sustained concessions, and lower occupancies. In contrast, elsewhere in the country, we expect to see more modest and normalized rent growth, a reduction in concessions, and healthy occupancy, specifically in markets with lower supply, such as most of the Midwest.
What markets are performing stronger, and which ones are lagging?
Because 2023 was a record year for apartment deliveries in the Sun Belt, occupancies and rent growth lagged. In contrast, the Midwest outperformed because of the healthy balance of supply and demand. We anticipate this trend will continue, as the Midwest continues to attract residents searching for affordability and job opportunities, and relatively less supply will be coming online.
What factors are contributing to stronger/weaker rent growth and stability between markets?
Housing demand is always directly impacted by the overall state of the economy, employment rates, population growth, and demographic shifts. The pendulum shifts of supply and demand are the critical factor in terms of rent growth, as well as stability between markets.
Is there anything you plan to do differently at your organization or properties this year spurred by the events of 2023?
We don’t anticipate making any major strategic shifts this year. We will continue to evaluate opportunities to acquire distressed properties in high-growth markets, as they arise.
What concerns you most for 2024?
While most economists do not anticipate a U.S. recession in 2024 and the Fed has signaled there will be rate cuts, a recession is still an area of potential concern.
We are also paying close attention to how markets respond to another year of record supply, particularly in regions like the Sun Belt, where supply is outpacing the current levels of absorption.
What bright spots do you see for the industry this year?
We believe 2024 will offer a unique opportunity to buy multifamily assets at significant discounts to recent highs. While there are short-term challenges, such as record supply in many markets, we continue to like the sector’s long-term outlook. The ongoing housing shortage and consistent demand for apartments remains a tailwind for multifamily long term.
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