One Recorded Sale in February 2024
Sales volume stumbled out of the gates to start 2024 off with no recorded sales in January and only one transaction in February. Since the conclusion of 2023 and continuing into 2024, it is evident that market velocity has been impacted by the rise in interest rates. Structuring deals will continue to be a challenge going forward due to not only the cost financing, but also, the escalation in costs associated with operating expenses such as insurance, utilities, 3rd party services, etc.
To help paint a picture of how properties are moving: The February sale of 1749 Fern St., a 7-unit building was originally listed in July 2023 for $2.5M, was reduced $250k a month later, removed from the market completely in November ’23, re-listed with another broker for $350k less in January ’24 and then finally selling for $1.9M, at 76% of the original list price.
Download Sales Comp Below
Current Inventory Snapshot
There are currently 44 properties on the market equivalent to $191.8M in opportunities. 7 of the 44 properties are in escrow. The average days on market is just over 4 months at 132 days. The average CAP rate of deals listed is 3.89% with only a 51 basis point spread between the 10-year treasury yield at 4.40%.
To receive our Hawaii Multifamily Inventory Sheet, which compiles all active listings into one convenient document, simply reply to this email requesting to be added to the distribution list.
Given the ever-changing nature of the market, your property acquisition criteria may have evolved. Please take a moment to fill out our 2024 Buyer Criteria Survey to ensure we tailor our offerings to match your preferences.
Interest Rates / Fed Decisions
The Federal Open Market Committee (FOMC) announced following its March 20th meeting that it would maintain its policy rate in a range of 5.25% to 5.50%. The March decision marks the fifth consecutive meeting at which the Fed has opted to hold interest rates steady. While the fed funds rate has likely reached its ceiling for this tightening cycle, questions remain about the precise timing and extent of potential rate cuts in 2024. The labor market posted strong numbers in March, and thus is causing the Fed to scale back the number of cuts, we will hopefully see a rate cut by the summer months.
Asset Management Tip – Improvements Vs. Repairs
Since we’re amidst tax season, let’s compare improvements vs. repairs and how they can serve as a valuable tax deduction for multifamily owners.
Examples of Capital Improvements:
- Replacing an entire roof
- Replacing all existing plumbing
- Installing a security system
- Interior renovations – kitchen & bathroom
- Repaving the parking lot
Examples of Repairs:
- Repainting a room
- Fixing a leaking toilet
- Replacing an entry door
- Replacing a cracked flooring tile
- Updating old appliances
Capital improvements are typically more intensive as well as expensive than repairs. They add value to the property, whereas repairs are much more cost effective and are usually maintenance of existing items.
Improvements or Repairs – Which is better to deduct?
Capital improvements are deductible, but not the full value of the improvements during the year that they were made. They must be capitalized and depreciated overtime, 27.5 years for residential property. Conversely, the full cost of the repairs may be deducted in the tax year that the repair was completed. Be sure to budget for large capital projects to preserve the value of your property and continue to make routine maintenance a priority. Which is better? Everyone’s situation is different, so be sure to consult with your tax advisor for the best solution.
Multifamily In the News
Flow of Affordable Housing Funding Faces Redirection
Affordable Housing in Hawaii
House Committees Remove Key Provisions in Bill Allowing for Denser Neighborhoods
Missing Middle Housing Can Provide Affordable Homes
Networking Events
CCIM Networking Event April 19th – UH Baseball Game
CCIM Lunch & Learn May 7th – Commercial Property Insurance
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