Multifamily Sector Poised for Growth in 2024: Insights from Clear Investment Group's CEO Amy Rubenstein

The multifamily housing sector, traditionally a favorite among investors, faced significant challenges in the past year due to rising interest rates. As we look towards 2024, many are questioning whether a more stabilized interest-rate environment will lead to renewed interest and investment in multifamily properties, particularly in the Midwest. To gain insight into the market's future, we took a look at what Amy Rubenstein, CEO of Chicago-based Clear Investment Group, shared about her perspectives on the state of the multifamily market and her expectations for the upcoming year.

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The Current Market Landscape

Amy Rubenstein acknowledges that 2023 was a challenging year for all commercial real estate sectors, including multifamily housing. The primary hurdle was the rising interest rates, which slowed down investment activities and created uncertainty in the market. However, she notes an emerging sense of optimism in 2024. "I’ve already been feeling a bubbling up of interest," Rubenstein said. "More people are talking about new transactions, but many are still waiting for an actual interest rate drop to make a deal."

This cautious optimism is underpinned by strong fundamentals in the real estate market. Rubenstein believes that there is enough capital on the sidelines waiting for favorable conditions. "As soon as we see that first drop in interest rates, we’ll see a pick-up of sales activity," she predicts. The expectation is that a stabilized interest-rate environment will release pent-up demand, leading to increased investment and transaction volumes in the multifamily sector.

Impact of High Interest Rates and Market Resilience

Rubenstein's Clear Investment Group specializes in Class-C and workforce housing. She explains that the economic difficulties, particularly the high interest rates, have ironically benefited this segment of the market. "When you get those high interest rates, it makes renting more affordable than buying. That helps us," Rubenstein noted. Furthermore, as rents in B-class properties increase, more tenants are pushed into the C-class segment, boosting demand for Clear Investment Group’s offerings.

The Midwest, in particular, is showing strong demand for multifamily properties. Unlike some Sunbelt and Southern cities that have seen overdevelopment, the Midwest has maintained a balanced growth trajectory, leading to higher housing demand and rising rents. "Housing demand in the Midwest is higher, leading to rent increases. While other markets might see rent decreases, projections for the Midwest show increases and low vacancy rates," Rubenstein explained. This regional demand, coupled with a lack of quality affordable housing, provides Clear Investment Group with a competitive edge.

Transforming Distressed Properties

A significant part of Clear Investment Group’s strategy involves transforming struggling properties into quality workforce housing. Rubenstein outlined the common issues they encounter, such as high vacancy rates, high delinquency rates, and deteriorating conditions due to poor management. "We often see properties with high crime rates and neglected common areas. Our first step is to clean up these problems, which usually takes about two years," she said.

Improving management practices is also crucial. Rubenstein mentioned that many properties they acquire have units that are not being leased due to various reasons, including staff incompetence or the units needing repairs.

Strategic Market Selection

They assess the submarket’s stability, looking for a consistent population, diverse employment opportunities, and manageable crime levels.

"We are OK if there is crime at a property we are considering purchasing because we can clean that up. But we don’t want a lot of crime in the surrounding community itself," Rubenstein explained. This thorough evaluation ensures that the properties they invest in have a high potential for improvement and profitability.

Conclusion

The multifamily housing sector, despite recent challenges, remains a promising investment opportunity. With potential interest rate stabilization on the horizon, the market is expected to see increased activity and investment. Amy Rubenstein explains how a strategic focus on quality workforce housing and careful market selection can yield significant benefits. The multifamily sector in 2024, particularly in the Midwest, appears poised for growth, driven by robust demand and the potential for favorable economic conditions.

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