How Does Inflation Affect Multifamily?

Jul 2021

Bayou Oaks, Sarasota, Florida

Hope you had a relaxing weekend!  This is the time of year when I’m especially thankful for the pool – I love spending a few minutes relaxing outside with the family at the end of a busy day.  Not sure about you, but I know it’s a blessing to enjoy the things we have.  I never want to forget that our life is a gift and how we choose to live it is our choice.

Last week was a busy one as usual.  I’ve got a brief deal update and a market update below before digging into the topic of my email.


The sad news from last week – we lost our Nashville deal.  Outbid again.  We really pushed this one and were even willing to go with bridge debt to get it done but the numbers just weren’t enough to get us to the top of the pile.  It’s always frustrating to lose a deal, which has been happening a lot lately, but it also means we’re out there making offers and sticking to our underwriting.  We’re not done in Nashville.  Took us 4 years to get a deal in Houston and Charlotte and now we’re there.  Persistence.  

We put a slight pause on our Houston deal after our unit walk revealed a little more work than we had anticipated.  We had a good conversation with our seller last week to discuss this increase, and they are working with us to adjust the purchase price and make it a win-win for both sides.  Not very often that you get to deal with a reasonable seller; it also helps that we did our homework, and they know we’re not just making stuff up.  We upped our CAPEX budget based on our findings and are now budgeting over $2MM to get the job done right.  As you know, I’m not one to put “lipstick on a pig” – I want it done right.  We’ve had several vendors looking at the various pieces of the puzzle that need addressing, and at this point I feel very comfortable that we can continue to move forward.  While most of the work is not cosmetic in nature, this property is going to look great when we’re done.  I’ll have more on the details, how we assessed the needs, and the full backstory when we get further along in the process.


We’re days away from the CDC eviction moratorium expiring.  That means it’s just about time to get back to business as usual.  I haven’t calculated how much rent we’ve lost over the past year, but if I did it would be a painful number.  We are thankful that we’ve been collecting a decent amount of rental assistance back payments, finally, to help fill some of the gap.  I reviewed one aged receivables last week and it still boggles my mind that folks have been living in their apartments for a year without paying rent – no payment plan, no partial payments, no nothing.


Many of you have asked me if I’m worried about inflation. Yes, I am, kind of.  Here’s the deal – when there’s inflation you want to be invested in hard assets.  Quality hard assets – like gold.  They tend to weather the inflationary storm pretty well.  But they may not provide current cash flow – or you may need to sell when they’re down.  That would be painful.  The catch is owning cash flowing hard assets that aren’t over-leveraged.  They weather the storm and come out looking great!  That sounds a lot like Multifamily!  And there’s a massive shortage in housing so we’ve got two things going for us.  If inflation kicks in, the cost of construction gets higher, which continues to put a lid on new development.

I’m more concerned about jobs and wage growth.  If wage growth can’t keep up with rent growth, the affordability crisis, at some point, becomes a rent crisis.  I don’t think we’re there at a scale that would cause fundamental issues, but I would like to see some sustained wage growth in excess of inflation – and we really need to see the bulk of this growth at the lower to mid-end of the scale.  These are our renters.  Chairman Powell, thankfully, has also stated this as one of his top goals.  And, of course, multifamily is driven by jobs so clearly we need the economy to continue to grow and thrive in general with positive job creation.  Based on past actions that the Fed and Congress have taken, I highly doubt they will do something to ruin this.  Bad tax policy, COULD, so we have to keep a close eye on that.  Businesses MUST continue to be incentivized to invest and grow!

With that backdrop, we continue to believe multifamily is a great investment.  Obviously the experience of your sponsor/operator is paramount, but the fundamentals continue to look solid.  Invest responsibly. Invest often.