What Is a 1031 Exchange?
A 1031 exchange represents a simple, strategic method for selling one qualifying property and the subsequent acquisition of another qualifying property within a short statutory time period. Because the entire 1031 exchange transaction is treated as an exchange and not a simple sale, the taxpayer is able to qualify for a deferred gain treatment.
How Can I Benefit?
Because the 1031 exchange is treated as an exchange and not a sale, there are potential, significant tax benefits.
How Can Marcus & Millichap Help?
We offer the expertise needed to help you smoothly execute your 1031 exchange. With tight timelines and strict rules to follow, you need a partner who will provide you with the most investment property options and who can assure flawless execution.
Multifamily Investment Forecast
National Report, 2019
National Multifamily Index (NMI)
- Minneapolis-St. Paul climbed two spots to head this year’s Index. It is the only Midwest market to break into the top 20. San Diego also inched up two notches on solid rent growth to claim second place.
- Neighboring Florida metros Orlando (#6) and Tampa-St. Petersburg (#12) registered the largest advances in this year’s NMI, leaping 11 and nine places, respectively.
- Accelerated job creation in 2018 drove the unemployment rate of young adults between 20 to 34 years old to a 48-year low of 4.5 percent. With two-thirds of this age group living in rentals, they are a dominant force supporting apartment demand, and the strong job market has empowered more of them to move out on their own.
- The monthly payment on a median-priced home increased by $175 last year to nearly $1,700 per month, dramatically widening the disparity between a mortgage payment and the average monthly rent. This widening payment gap, together with tighter underwriting, has restrained young adults’ migration into homeownership, reducing the under-age 35 homeownership rate to 37 percent, down from the peak of 43 percent in 2007. This confluence of factors will likely carry into 2019, sustaining young adults’ preference for rental housing.
- Though consumption and corporate investment will support economic growth in 2019, trade imbalances and a likely weaker housing market will weigh on momentum. Job creation, facing an ultra-tight labor market, will dip to the 2 million range, but wage growth should push above 3 percent.
National Apartment Overview
- As new households are formed next year, much of the rental demand will center on apartments that serve the traditional workforce: Class B and C properties.
- New inventory largely caters to more affluent renters. As a result, Class A vacancy is expected to rise to 5.8 percent while Class B apartment vacancy remains relatively stable at 4.7 percent. The most affordable segment of the market, Class C apartments, faces strong demand and vacancy
for these rentals is expected to tighten to 3.9 percent, its lowest year-end level in 19 years.
- While primary markets such as Boston, Los Angeles, the Bay Area and New York City are expected to see the largest dollar rent increases, smaller metros are generating faster increases on a percentage basis. Metros across the Southeast and Midwest in particular are generating outsize
employment growth and housing demand.
- Upward pressure on short-term yields has increased concern an inverted yield curve could occur. A potential inverted yield curve will weigh on
confidence levels and could possibly erode consumption and stall the growth cycle. The typical onset time of a recession following an inversion
is about one year, but there have been two false positives in which a recession did not follow an inversion.
- Most lenders, particularly Fannie Mae and Freddie Mac, have adapted to a more fluid financial climate. When Treasury rates increased in the third quarter, many lenders tightened their spreads to cushion volatility. Lenders remain cautious, adopting tighter underwriting standards but aggressively competing to place capital into apartment assets.
- Strong demand drivers supporting long-term yield models will counterbalance much of today’s market volatility, encouraging investors to look beyond
any short-term turbulence.
- As multifamily yields have compressed, the increasing portion of mobile capital acquiring assets priced over $15 million has migrated to secondary and tertiary markets.
US Investment Outlook
2019 Investment Outlook
- Pursuit of yield drives capital beyond the core. As multifamily yields have compressed, an increasing portion of “mobile capital” acquiring assets priced over $15 million has migrated to secondary and tertiary markets. Whereas in 2010 nearly 60 percent
of the dollar volume was focused in primary markets, in 2018 the share of capital inverted with 60 percent of the capital flowing to secondary and tertiary markets. This trend
will likely be sustained in 2019.
- Portfolio diversity increasingly important to private investors. A range of localized
risks such as natural disasters, metro-level economic downturns, and the rise of state
or metro-level policy decisions such as rent control have inspired investors to more
carefully consider geographic diversification. Following the spate of recent hurricanes
across Texas and the Southeast as well as the recent Proposition 10 vote in California,
interstate buyer activity has accelerated.
- Increased investor caution may elevate expectation gap. Stock market volatility,
rising interest rates, trade tensions and the implications of a flattening yield curve will
weigh on buyer sentiment and inspire increasingly cautious underwriting. Sellers, focusing on positive performance metrics, may price assets more aggressively and the resulting expectation gap could weigh on transaction timelines.
Rising Home Prices Positively Impact Demand; Investors Search for Long-Term Acquisitions
- Apartment vacancy remains tight as residents extend stays. Steady hiring in Austin since 2009 has resulted in the creation of more than 300,000 jobs, attracting thousands of new residents over the past several years. The positive net in-migration of an average 40,000 individuals during each of the past five years has placed additional strain on the housing market as single-family and multifamily developers have struggled to keep pace with rising demand. Single-family home prices have swelled more than 40 percent since 2013 to a median over $300,000, widening the gap between the monthly mortgage payment on a median-priced home and the monthly average apartment rent $700 from five years ago to $1,200 in 2018. Many would-be homebuyers have been sidelined as the transition into homeownership has become more costly, resulting in low apartment vacancy throughout the metro. New home construction and multifamily deliveries are anticipated to dip during 2019, while strong demand factors remain in place. As a result, vacancy will stay below 6 percent this year, marking a decade below this threshold.
- Stable growth factors attract long-term investors. Employment gains, steady in-migration, a slower pace of housing construction and a tight supply of affordable single-family
homes drive apartment demand in Austin this year, keeping investors interested in apartment deals. Sales could be restrained in 2019 as more expensive financing and a normalized pace of future rent growth widen the gap between buyer and seller expectations. Cap rates remain compressed in the low-5 percent band, and as the apartment market transitions from high-growth to a steadier pace of advancement, investors seeking long-term hold strategies will target local apartment properties. The high-growth northern suburbs of Pflugerville, Hutto, Cedar Park, Round Rock, Georgetown and Leander attract buyer
attention with initial returns closer to 5 percent.