World Cup Fever Is Here, But Multifamily Is Still Waiting for Kickoff

I have full-blown World Cup fever. It has overtaken me, my phone, and the TVs in my house. While the US hasn’t had much of a showing the past couple of World Cups (they didn’t even make the 2018 tournament in Russia), my other team, Croatia, has. The small country of Croatia made the finals in 2018 and the semifinals in 2022. Watching those games as part of the larger Croatian diaspora was great fun, fun that I could only hope the US would experience in this home World Cup tournament.

The US kicked off the tournament with a two-game winning streak and clinched its group with a game to spare, though the team ultimately fell short in the later stage. Scottish fans drank Boston out of beer, German fans gained social-media celebrity status as they traveled from venue to venue, and a newfound love affair with ranch dressing prompted the TSA to issue a travel warning. These first few weeks have been a blast, and there’s still more to come.

The news cycle leading up to the tournament, however, was dour. Ticket prices were too high. Many matches weren’t selling out. The resale market was weak. FIFA, the story went, was using the tournament as a money grab and couldn’t care less about the fans.

There are parallels with the multifamily industry today. Some are a stretch, but let’s all get on the World Cup bandwagon.

Dry Powder / Presale Tickets

Starting last year, ticket demand was through the roof despite the exorbitant ticket prices. It was hard to tell whether the demand came from fans or from people looking to make a quick buck. Outrage quickly grew in world media outlets that the prices were too high and were keeping the average fan from attending. Weak initial resale prices further cemented the argument. I remember seeing posts on social media saying, “just wait, the prices will go even lower.” That also sounds like the multifamily “experts” on LinkedIn.

Now that the tournament has started and fans are committed to a once-in-a-lifetime event, ticket prices are surging, at least for marquee games. This is where the multifamily industry sits. There’s a considerable amount of dry powder on the sidelines, just waiting for the apartment market to improve. Those who bought into the “prices are going lower” thesis already returned capital to their investors. Others continue to wait.

The investors who are waiting have seen uneven demand. There are winners and losers. The San Francisco Bay Area is coming back, but places like Austin have a long way to go. It’s not a good macro environment for every market. Similarly, ticket prices for key US games have spiked, yet for group-stage games that are now meaningless (the teams have either already secured their spot in the next round or are set to go home), prices have fallen. Investor demand follows rent growth and improving NOI, and few markets have experienced either.

Emerging Markets / Cinderella Stories

In every real estate cycle, some markets accelerate faster than the experts think. Austin and Nashville saw major appreciation last cycle, at times even selling at lower cap rates than gateway markets. Today, places like Dayton, OH, and Virginia Beach, VA, are seeing rent growth and rising investor interest. Similarly, who would’ve thought that Cabo Verde, a small island archipelago off the western coast of Africa, would play Spain to a 0-0 draw and Uruguay to a 2-2 draw. Literally nobody saw that coming. Not even the folks in Cabo Verde. It’s fun to root for them, but how long will their run last?

Random markets are interesting to watch, and perhaps to invest in for the short-term, but the real value lies in finding markets that grow into something bigger. The tech industry completely reshaped the Bay Area starting in the 1960s and ‘70s. It started to do the same to Austin last cycle, until developers built too many new apartments. Which markets will blossom into something larger during the next cycle? Who knows, but it’s fun to speculate.

Supply / Later Tournament Stages

For the multifamily market to return to full health, investor demand needs to come back, more markets need to recover, and fundamentals need to improve. Namely, rents must grow again. It’s been talked about ad nauseam by everyone in the industry: apartment supply needs to keep falling before rents start to accelerate. And that’s going to take time. Apartment starts are at a decade low, and the trend line keeps dropping. It costs too much to build, interest rates remain elevated, and rents don’t support new construction. By the time rents (and interest rates) catch up, developers will be late to respond, which will only fuel further rent increases in the interim.

It’s akin to the later stages of the World Cup. The tournament opens with considerable optimism and jubilation; everybody thinks they can win, and hope springs eternal. Once the knockout rounds start and every game is win-or-go-home, it gets serious. Teams buckle down and nerves run high. The teams that are best prepared, most talented, and play as a cohesive unit go the furthest. Not until the supply piece of the puzzle is solved will multifamily advance to the later stages of its own tournament.

The Multifamily Tournament Hasn’t Started

In many ways, the multifamily market is stuck in the pre-tournament stage. Dry powder abounds, we’re predicting which markets will emerge, and we’re waiting for supply to wane. There isn’t much jubilation or enthusiasm just yet, and the outlook for investment sales is murky as we wait for the industry to restart.

If you bought World Cup tickets for key games before the tournament, you’re doing well. Values are up three-, four-, and even fivefold, with some sellers trying to make a full year’s wages off a single game. There was more conviction that the World Cup would be a successful ticket endeavor than investors currently have in the broader multifamily industry. But once transaction activity picks up and investors see a path forward through rent growth, more enthusiasm will follow.

For now, enjoy the World Cup.