Guest Feature

An Article about Nothing

By Brent Rivard, Managing Director

Brent Rivard

Me: “What’s going on?”

My Commercial Real Estate Friends: “Nothing.”

This call and response has been the primary theme of the last nine months.  Since the Fed started increasing interest rates to battle non-transitory inflation, the commercial real estate capital markets feel like they are at a standstill.  So, when it was time to write my article, the word that kept coming to mind – the theme, if you will – was “nothing.”

Maybe I could write an article about nothing.  Jerry Seinfeld built a television sitcom empire around it for nine seasons with Seinfeld, a show about nothing.  During its run, the show helped popularize the phrase “yadda, yadda, yadda” used to gloss over the boring details of any story.  So here goes…

Real Estate Transaction Volume is Way Down

According to Costar, commercial real estate transaction volume across all property types was down nearly 25% in the third quarter of 2022 as compared with the prior quarter and is expected to be down another 22% in the fourth quarter of 2022. Yadda, yadda, yadda...  But the details show that the fourth quarter of 2022 still accounted for over $150 billion in transaction volume, which is better on a standalone basis than some years in the past decade.  The markets are still transacting more than nothing, it just feels like a lot less compared to the level of the last few years.

There’s a major disconnect between what sellers think their properties are worth (“Sure, happy to sell for the price the brokers thought I could get at the peak last spring,” they say) and what buyers are willing to pay ("Surely, a soft economy with the possibility of a recession sets the stage for lower income and property values,” they say).  Brokers, loathe to waste their time, are increasingly reluctant to even list properties for sale for sellers with unrealistic expectations, so there are fewer properties for buyers to consider, leading to lower transaction volumes.

Inflation is Beginning to Cool

Inflation started to wane in the second half of 2022. Yadda, yadda, yadda…  After reaching a peak of over 9% in June 2022, the Consumer Price Index rose 6.5% year over year in December.  That’s not nothing.  We’ve all felt it at the pump as gas prices have dropped by one-third to an average of $3.37 a gallon in mid-January.  This progress is encouraging and as we watch inflation peak and retreat, the market is hoping lower inflation will lead the Fed to slow its pace of rate increases.

The Fed says “we’ll do whatever it takes to bring inflation under control” – and they should, since inflation has brought down kingdoms, empires and governments since the beginning of civilization. The bond market reaction: Yadda, yadda, yadda.

Speaking of the Fed, after keeping the Fed Funds rate at around 0% as recently as a year ago, we’ve experienced seven rate increases in the past 12 months and the Fed Funds rate sits today at 4.50%-4.75%. So, it costs businesses and homeowners a lot more to borrow now. Home mortgage refinances are in the cellar and home values have fallen. To some, that’s a big deal. To others:  Yadda, yadda, yadda…

Consensus has the Fed increasing rates at least one more time in February and perhaps a final time in March.  Let’s hope that’s the end of it.  If so, uncertainty around borrowing costs should decrease, encouraging buyers and sellers to transact.  As a side benefit, investors with idle cash have been able to earn some interest on those balances during the past year, allowing them to get paid at least something to wait for opportunities. Maybe it’s only 3-4% but that’s a darn sight better than nothing.

Multifamily Rent Growth is Cooling – and We Knew This Day Would Come

The experts have started to release their forecasts for multifamily rent growth in 2023 and they’re well below the peak levels of 2021 and below 2022’s still strong levels. Yadda, yadda, yadda…

First Vice President and National Director of IPA Research, Greg Willet, predicts overall apartment rent growth of 3.1% in 2023, with most of that growth in Class-B apartments.  That’s well below the double-digit clip during 2021 and compares favorably to the long-term trend line for rent growth. 3.1% is not nothing!  Yes, we may be used to high single-digit and even double-digit rent growth over the last couple of years but rent growth moderating to the 3% range is good on many levels.  At a minimum, it should take the pressure off of elected officials to pursue rent control measures in many markets.

Washington, D.C.

The Republicans recently took control of the House of Representatives after a protracted fight over who would be the Speaker of the House. Yadda, yadda, yadda…

If the weeklong struggle to elect a Speaker is any indication, we likely don’t need to worry much about new Federal regulations, though we’ll keep our eye on it.

The truth is, there is a lot more than “nothing” going on.  While many in commercial real estate are sitting on their hands waiting on changes in economic data and uncontrollable market conditions, some are keeping active, tracking the data closely, updating strategies and digging in on their current portfolios.

At Pathfinder, we find ourselves in the second camp.  We’re spending our time in the weeds of our portfolio, controlling what we can control.  The overall dynamics of multifamily real estate investing in our key markets has not changed.  There are still more people looking for apartments to rent than there are available apartments so we’re keeping our properties fully occupied.  Our strategy of borrowing primarily on a fixed-rate basis has largely insulated us from the recent interest rate increases.  The weighted average fixed interest rate for our Pathfinder Partners Income Fund, L.P. portfolio is 3.2% fixed for seven to ten years.  That’s a pretty good place to be and allows us to focus on improving operations and not worry about rising borrowing costs.

The other impact of market uncertainty is that it can create opportunities for investors.  Multifamily investors did very well over the last several years.  It’s never easy to produce strong returns but there were many investors, new and old, who took risks to juice returns hoping for the market to be unstoppable.  Many of those investors did great in the prior market but will struggle in an uncertain future market or one where rents aren’t growing at record levels.

We’re busy researching the data and believe there will be opportunities to buy properties from those who employed high leverage or used floating rate debt, which may be coming due this year or next.

Here's to looking forward to a better 2023. Yadda, yadda, yadda…

Brent Rivard is Managing Director, CFO and COO of Pathfinder Partners, LP. Prior to joining Pathfinder in 2008, Brent was the President of a national wealth management firm and CFO/COO of a one of southern California’s leading privately-held commercial real estate brokerage firms. He can be reached at

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