It’s a great time to be in the multifamily commercial real estate business.
The 2008-2011 downturn in the economy caused fundamental changes in all product types but none more significant than it the multifamily business. The multifamily business ground to a halt with the glut of foreclosed homes and with the stagnation in mortgage lending brought on by the demise of the CMBS market. As lending started to thaw the GSA’s stepped up to fill the gap. FNMA and FHLMC have started lending again. HUD has really never been out of the market, although it may seems that way since getting a new HUD loan can take 18 months or longer.
As rents dropped and vacancies increased with the rising unemployment rate, apartments took a beating. Values dropped precipitously due to deteriorating fundamentals leaving most owners underwater with their mortgages. Lenders initially were in shock and not interested in either working out the loans or foreclosing on the loans.
The downturn caused developers to stop building both apartments and single-family homes. As home foreclosures rose, the market was spooked by “shadow inventory,” but that excess inventory did not materialize.
At present, nationally, the picture continues to brighten for multifamily. Lenders are loosening up lending standards for multifamily and FANNIE MAE and FREDDIE MAC are lending again.
Multifamily fundamentals continue to improve and lenders are clearing their shelves of product, although very slowly. As the economy continues to improve, vacancies and concessions are improving. Rents in many markets are increasing due to lack of new product and the absorption of single family homes. Cap rates are returning to 2005/2006/2007 levels although at lower income levels.
The outlook for 2013 is that it is a good time to buy multifamily (if you can find the product).
Prepared by:
Multifamily Product Council Chair
Sperry Van Ness Nevada, LLC
Las Vegas, NV
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