Real estate may be local, but a lot of markets appear to be correlated. I felt that way this past summer when I was meeting with developers in Paris and I continue to feel this way when I read articles about other markets. Here's a recent one from Building Salt Lake talking about the state of Utah's multi-family market.

Based on the article, cap rates appear to be in the mid-4s for newish product, which is too low right now:

Investors aren’t jumping at the 4.6 cap deals they can typically find in Utah today, she added, when they could get over 5.5 in other major markets.

“Salt Lake, a 4.6 cap, I personally think it’s a little mispriced relative to where else we can put our money,” Schultz said.

This means that there aren't the asset trades to support new development. To justify ground-up development, developers need to see a positive spread between their development yield and the exit cap — one that compensates them for the additional risk of construction. If that spread isn't there, or if it's unclear what it might actually be, development shuts off.

Rents and values coming down also doesn't help:

Back in 2022, which was the peak of the market, you could underwrite double-digit rent growth on a typical 250-apartment deal Downtown. Now, he said, “we’re seeing that effective rents down about 8.25%.”

Overall multifamily values are down 26%, King said, though he added that’s not indicative of every single project or every deal. He also said that decline came after four years of record supply and double-digit rent growth.

What should be clear from these excerpts is that Salt Lake City is not at the point in the cycle where developers are jumping to deliver new ground-up multi-family product. They're at the point in the cycle where firms are looking and hoping to buy distressed assets below replacement cost.

Cover photo by Saul Flores on Unsplash

Real estate may be local, but a lot of markets appear to be correlated. I felt that way this past summer when I was meeting with developers in Paris and I continue to feel this way when I read articles about other markets. Here's a recent one from Building Salt Lake talking about the state of Utah's multi-family market.

Based on the article, cap rates appear to be in the mid-4s for newish product, which is too low right now:

Investors aren’t jumping at the 4.6 cap deals they can typically find in Utah today, she added, when they could get over 5.5 in other major markets.

“Salt Lake, a 4.6 cap, I personally think it’s a little mispriced relative to where else we can put our money,” Schultz said.

This means that there aren't the asset trades to support new development. To justify ground-up development, developers need to see a positive spread between their development yield and the exit cap — one that compensates them for the additional risk of construction. If that spread isn't there, or if it's unclear what it might actually be, development shuts off.

Rents and values coming down also doesn't help:

Back in 2022, which was the peak of the market, you could underwrite double-digit rent growth on a typical 250-apartment deal Downtown. Now, he said, “we’re seeing that effective rents down about 8.25%.”

Overall multifamily values are down 26%, King said, though he added that’s not indicative of every single project or every deal. He also said that decline came after four years of record supply and double-digit rent growth.

What should be clear from these excerpts is that Salt Lake City is not at the point in the cycle where developers are jumping to deliver new ground-up multi-family product. They're at the point in the cycle where firms are looking and hoping to buy distressed assets below replacement cost.

Cover photo by Saul Flores on Unsplash