BLDUP Spotlight: Berkadia - Trends in Boston's Multifamily Investment Market 01/11/24

berkadia 1

For our most recent BLDUP Spotlight, we spoke with Adam Dunn, Managing Director at Berkadia. Dunn has more than 16 years of experience in commercial real estate and finance, specializing in multifamily housing investment advisory and equity placement across New England. Dunn and his team have been actively monitoring the challenges across capital markets along with the trends shaping the multifamily development sector.

BLDUP: As we start a new year, what takeaways do you have from 2023 and what are your expectations for the multifamily market for 2024?

Adam Dunn: 2023 was a volatile year. The debt market was all over the place leading to disruption in the capital markets.  As a result, there were very few transactions that closed across Greater Boston. 2023 transaction volume was down approximately 50% compared to 2022.  

There were only 15 institutional deals that closed in Greater Boston. All but 6 of these were fully marketing during 2023, as most were carry-overs from 2022 or off-market transactions. The first 11 deals to close during 2023 prior to Labor Day were at valuations between 4.3-4.75% cap rates. The 4 transactions that closed in the past 30 days priced between 5.1-5.50% cap rates.  There are currently 3 assets currently under agreement, pricing between 5.25-5.4% cap rates.  This is primarily driven by when these assets were put under agreement during October/November 2023 when the debt market was meaningfully higher than today.  Since October 25, the debt market has come in 100 basis points. We are now seeing debt grids featuring interest rates in the mid-to-high 5% range.  

Pending continued stability in the debt market, 2024 should see an uptick in transaction velocity.  There were 12 deals pulled from the market during 2023, which should all come back during 2024 along with the typical flow of loan maturities and merchant developers executing their business plans.

BLDUP: Despite a housing shortage, we have seen a drastic decline in development starts due to market conditions. How do you think this will affect the multifamily market in the coming years, rising rents, etc?

Adam Dunn: For the past 10 years, on average the Greater Boston market has seen permits filed for approximately 8,000 units annually. During 2023, that dropped to just north of 4,000 units. Separately, over the past few years, we’ve seen multihousing deliveries of approximately 8-10,000 units annually.  2023 saw 9,000 units delivered, 2024 will see 8,000 units delivered… during 2025 and beyond, that drops by 50%. As a result, we will continue to see upward pressure on rent growth across the market and housing sector.

There is an emphasis today on affordability at the municipal level. Traditional merchant developers who you would think of for luxury Class A apartment development are now trying to figure out how to “Build to B” to deliver a more affordable product. AvalonBay, Greystar and others are working on this in real-time.

The housing shortage, if not figured out, is going to cause seismic problems for our region. We’re already experiencing this as first responders, teachers and service workers can’t afford to live within an hour of their jobs. If the affordability problem persists, due to lack of supply, there will be a time when those essential workers leave the region and everyone will suffer as a result.

BLDUP: Boston has enacted new regulations for development (affordable housing, energy efficiency, etc), what are you seeing from developers/investors in response to these changes? 

Adam Dunn: Due to new regulations for development, many developers and investors have chosen not to build or invest in Boston.  They have stated it’s too challenging to get any new development approved in the City and there are too many ropes to jump.  Many are choosing to develop/invest in areas where the municipalities are open for business.  As a result, there are zero new multihousing developments of meaningful size in the pipeline after 2025.  The state of the capital markets is challenging for deals to be economically viable, but then you add increased IDP requirements, linkage, and new energy requirements and these developments just don’t pencil without massive rents or land at zero (or negative) basis.

BLDUP: In recent years most new multifamily development in the Boston area have been largely Class A but you have seen a shift toward “Build to B Housing”. Can you explain this term and the sentiments from developers causing this shift?

Adam Dunn: “Build to B” housing is the development of Class B housing.  Class B housing comes without all the bells and whistles of Luxury Class A housing which typically commands the highest rents in the market and are generally more urban-oriented.  Greystar, AvalonBay and many others are striving to build quality housing at a lower cost basis to hopefully provide relief to renters. These assets typically have fewer (or no) amenities and are located in suburban, but accessible, locations outside of the urban core. Most national merchant developers today are trying to figure this out.

BLDUP: Another trend you have been closely monitoring in the multifamily sector is centralization. Many of the largest property owners/developers are moving away from site offices and utilizing technology to manage properties from their HQ. Can you tell us more about this trend and how you expect it to affect the apartment market across the country?

Adam Dunn: This is something that I’ve been following closely.  In addition to “Build to B” to help solve the affordability crisis, Centralization of management services is a theme that has emerged post-covid.  Centralization can mean several things: fewer on-site team members, no on-site team members, or just additional service to complement the on-site teams.

As a prospective renter, you can now tour a property without human interaction via a self-guided on-site tour.  Many renters prefer this. There has been billions poured into PropTech to disrupt an industry, that hasn’t seen much advancement, to become more efficient and do more with less. In addition, the industry has seen labor challenges for on-site teams.  Centralization will help solve some of these challenges.

Some of the largest owners/managers of apartments in the country are trying to figure this out as technology allows the on-site teams to be more efficient and effective with their time.  As an example, UDR has become one of the leaders in centralization, was operating 30 properties at the beginning of 2023 with no on-site teams.  This represented 20% of their portfolio, with plans to increase to 25% by the end of 2023.

As someone who started his career in property management, I think this is going to be one of the biggest disruptors in the industry.  I do not believe that on-site teams will be pulled from every asset - such as full-service concierge assets commanding the highest rents.  I believe it will be complementary to on-site teams in many instances, but some assets will simply not have on-site team members and will be more effective

BLDUP: How did your team handle the challenging market conditions over the past year?

Adam Dunn: The brokerage industry had a rough year during 2023.  Our team grew personnel and created processes/procedures to serve our clients better.  Our team endured during 2023 in the face of a very challenging time.  Many of the deals we worked on were pulled from the market due to the debt market volatility, but we will bring those back out during 2024 in hopefully a better market.  Our goal is to always create as much value as possible to help advise our clients appropriately on their real estate needs. When the time is right, we hope to be their trusted advisor to help them execute their business plan.

BLDUP: Trends to watch for in the longer term (next 3-5 years)?

Adam Dunn: As we witnessed post-GFC, I believe the next 3-5 years will create significant opportunities for investors and developers.  There has been a reset in pricing for many markets across the country - investors with dry powder will have a lot of opportunity.  The supply pipeline across Greater Boston falls off a cliff during 2025 and beyond.  Developers with dry powder who acquire sites today will be in a great position to deliver in a time with very little supply.  

In addition to this, everyone is talking about artificial intelligence. During the next few years we will witness how A/I transforms the industry and every aspect of our lives.  This will be the biggest disrupter of everything we do. This will also impact what we’ve discussed already relative to building more affordable housing and centralization.  

I believe we will see some of the best times of our careers during 2025-2030.  Our team is ready.

Contributor Bio


Berkadia, a joint venture of Berkshire Hathaway and Jefferies Financial Group, is a leader in the commercial real estate industry, offering a robust suite of services to our multifamily and commercial property clients. Powered by deep relationships and industry-changing technology, our people sell, finance, and service commercial real estate, providing support for the entire life cycle of our clients’ assets. Our unique ownership structure allows us to put our clients’ interests first and create a marketplace that delivers a superior experience.

Berkadia >>