Many of our investors have been long term buyers of a variety of multi-family properties, and the asset class seems to still make sense, even at increasingly tight cap rates. The rental market is being driven by two huge demographics: baby boomers looking to downsize and who want the flexibility of renting vs. owning, and millenials who are starting their careers carrying student loans and who don't want to be tied down to a long term house and mortgage. These trends seem likely to stay in place for a lot longer than anyone had anticipated.
That being said, at some point cap rates just get too tight for our comfort level. When deals start getting done with a cap rate of 5.50 to 6.00, that are being financed with interest only debt and that are relying on 3% rent increases as far as the eye can see - that makes us a bit nervous.
We are seeing great value in other assets, such as retail centers and office space, where cap rates are typically a more attractive 7.5 to 8.5, and sometimes higher with a little luck.
Here is a good article from co-star that talks about that rotation: http://www.costar.com/News/Article/After-Riding-Apt-Value-Wave-Investors-Taking-Long-Look-at-Cashing-Out-Diversification/171730
The article also make the point about overbuilding occuring, although the market seems to be absorbing the new inventory without even skipping a beat. Still, it should give one pause....after all, eventually the tide will turn and we believe that investors would be prudent to consider an opportunity to diversify into other commercial asset classes while the opportunity is there.