Midwest Multifamily | Investment Highlights

Market Pulse Q3 2024

The US Federal Reserve met last week with an update on the federal monetary policy and stated that raising the federal funds rate since March of 2022.

Since the start of 2020 (approximately 4.5 years ago), the amount of USD in circulation has risen by approximately 30.74%. Comparing this to historical data, we can observe the time it took for a similar ~30.74% increase in the past.

• Period 1 - February 1998 - October 2001 3.67 Years

• Period 2 - October 2001 - February 2007 5.34 Years

• Period 3- February 2007 - November 2011 4.75 Years

• Period 4- November 2011- August 2015 3.75 Years

• Period 5 - August 2015 - January 2020 4.42 Years

• Current Period: January 2020 - July 2024 4.5 Years

The average for this calculation over this period is 4.41 years.

The chart below sourced from the Federal Reserve Economic Data demonstrates that the most substantial increase over the past 4.5 years occurred from January 2020 to January 2023 where there was an increase of approximately 28%. Since then, the percentage change has significantly decreased, indicating that the adjustment to the federal monetary policy is effectively achieving its intended purpose.

Remaining 2024 Fed Meetings: September 17-18*, November 6-7, December 17-18

Labor Market

The Fed has kept a close eye on the labor market throughout their recent hiking cycle. An imbalance in the weak supply of workers versus the strong demand for labor as the economy emerged from the pandemic drove wages and inflation higher. The “Great Resignation” that took place during the pandemic has almost fully reversed, with the labor force participation rate nearing 2019 levels. The demand for workers is off the pandemic level highs as the labor market becomes more balanced. (Berkadia) The unemployment rate reported at the July meeting was 4.3%, up from 4.1% in June 2024.

Mortgage Bankers Association - Multifamily Loan Delinquency

In the second quarter of 2024, the overall stability of multifamily loans improved slightly. Specifically, 97.0% of outstanding loan balances were current or less than 30 days late, up from 96.8% in the first quarter. The delinquency rate for multifamily loans decreased to 1.1% from 1.2%. This indicates a stable and improving situation for multifamily properties compared to other, property types, such as office properties, which saw an increase in delinquency rates. Link to article.

Office Exposure

The office sector continues to show signs of distress as loan delinquency continues to rise. Retail and Lodging delinquency rates have declined since April 2020.

The below image sourced from the TreppWire Podcast (Link to Episode) shows some metrics associated with office exposure for a handful of institutional banks. It is important to note that the ACL (Allowance for Credit Losses) coverage ratio for office loans is approximately 5x higher than multifamily to account for the ongoing occupancy risk of the office sector.

Kalamazoo, Michigan Market Brief

In Southwest Michigan, Kalamazoo's economy has traditionally revolved around manufacturing, education, and healthcare/pharmaceuticals. Stryker, a Fortune 500 company, is based here. Other big names like Bosch, Bronson Healthcare, General Mills, and Whirlpool (in nearby Benton Harbor) also contribute to the growth of the local economy.

The Kalamazoo Promise

Launched in 2005, the Kalamazoo Promise is a public program that is available to anyone who attends the Kalamazoo public school system for at least four years and graduates. The program promises to pay the tuition at any in-state public community college or university.

The Promise is supported by a group of anonymous donors, mainly believed to include members of the Stryker (Stryker Corporation) and Upjohn (Upjohn Company) families. There are also rumors that Hall of Fame shortstop Derek Jeter, who grew up in Kalamazoo, is involved. (More info on Jeter's public donations here) Over the past 19 years, this program has awarded more than $215 million.

Top 3 Multifamily Developments - Kalamazoo MSA

#1 - Tall Timbers - 180 Luxury Apartments in Portage, MI . Expected completion: Q1 2025.

Property Website

#2 Abbey 42: - 344 Apartments with luxury amenities in Kalamazoo, MI. Q4 2023 completion

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#3 Authentix Kalamazoo- 240 Luxury Apartments

Property Website

If you're interested in learning more about multifamily investing in the Midwest, feel free to reach out to your trusted Berkadia advisor. Click here to schedule a call with me.

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