Who Will Pick Up REIT Slack?

We have been speculating for months as to when the city’s current “apartment boom” will end; with more than 6,000 units being developed and another 6,000 due to start construction after the first of the year, it is more a matter of “when” than “if.” Most real estate experts agree that as more developments deliver and REIT purchases begin to cool off that we will see a dramatic correction in pricing. It’s simple economics – supply will overtake demand, and this will lead to a decrease in pricing unless more buyers unexpectedly enter the market or current buyers decide to invest more capital.

REITs have been very active buyers in the multi-family market since 2009; in fact, REITs have been responsible for about 40% of the newer apartment buildings purchased this year alone. Unfortunately, these REITs are gradually seeing smaller and smaller returns on their investments, and they are expected to finish this fiscal year with a -1% return. Most real estate experts agree that REITs will begin to act more cautiously with their investments, which will help drive pricing down.

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