‘OPTIMISTIC’ OUTLOOK FOR MULTIFAMILY

Originally published Feb. 5, 2015 by Tucker, Michael mtucker@mba.org – reprinted from MBANewslink, Vol. 14, Issue 23, Thursday, Feb 5, 2015 (link to newsletter issue here)

SAN DIEGO–The multifamily sector’s sustained healthy performance is attracting new investors from here and abroad just as a wave of refinancing approaches, analysts said.
“There is a lot of supply and also a lot of demand for multifamily debt,” said David Brickman, executive vice president and head of Freddie Mac Multifamily, McLean, Va., speaking here at the MBA Commercial Real Estate Finance/Multifamily Housing Convention & Expo. “There is a lot of liquidity in the market. But against that backdrop is a very healthy set of fundamentals.”

Brickman said he continues to feel “very optimistic” for the future of multifamily. “Despite more supply coming online we still see demand for multifamily housing growing,” he said. “While the capital flows may be a little nervous, we are very upbeat and not concerned where cash flows are going and in terms of supply and demand.”

Jeffery Hayward, executive vice president and head of multifamily with Fannie Mae, Washington, D.C., agreed. “Between 2009 and 2011, not many units were added to the market,” he said. “And 100,000 apartment units go obsolete every year. So I think the market is healthy and will continue to be healthy, though some markets may see an imbalance until things settle up. But I agree with David [Brickman], there is a lot of capital. We’ll be on the watch for that.”

Panelists reported confidence that the market could see a wave of refinancing as multifamily loans mature over the next few years. “We have adequate debt capacity to refinance all those loans,” said Michael May, managing director with Cantor Commercial Real Estate, New York.

Hayward noted current low interest rates could spur some borrowers to refinance early. “With the 10-year Treasury being as low as it is, a lot of what would have been a refinance in 2017 or 2016 will refinance this year because the math works,” he said. “So that will ladder maturity for us. The environment is helping us to manage that a lot better because with rates so low it’s in the best interest of the owner to refinance.”

Hayward said this real estate cycle differs from the prior one. “There’s the amount of pent-up rental demand and rental household formation,” he said. “The macroeconomic factors are really good, so that’s really good for us now. Because market fundamentals and demographics are better, that’s a reason to be more hopeful than we were in 2006. Also, some of us learned a lesson from 2006. I think we know a lot more now and can make better decisions.”

May noted those who survived the last downturn learned important lessons in the process. “But I worry about the new guy that wants to come in and ‘make his mark’ and maybe he didn’t learn the lesson that I did.”

One more change this time around compared to the last cycle: “Commercial real estate continues to be more and more of an institutional investment,” said Joseph Miller, managing director with Northwestern Mutual, Milwaukee. “That’s a good thing. That means we have the benefit of stronger borrowers.”

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