As published in Scotsman Guide's Commercial Edition, October 2008.
Common sense might tell us that if homebuying were slipping, renting either would be growing or maintaining its pace. That's usually good for multifamily investors.
Of course, we now know that common sense kept its mouth shut through much of the housing boom, which led to numerous polluted pools on the commercial-mortgage-backed-securities front and a liquidity predicament that has quieted these investors, as well.
In turn, as we begin to flesh out this past summer's market data, brokers are left with mixed messages regarding the multifamily sector's stability.
First, the bad news: A 2.5-year decline in multifamily capitalization rates finally resulted in a decreased average transaction price in the first quarter of this year. As Reis Inc.'s Victor Calanog noted in September's Property TypeCast column, this trend could be indicative of a punctured multifamily bubble; this month, Calanog writes about the retail sector.
On the other hand, other multifamily indicators are looking strong. After being nearly even at this time last year, the overall Consumer Price Index has started to pull away from the rental section of the index this past June, according to the National Association of Home Builders (NAHB). This indicates that rents could weather increases to generate additional income for property-owners.
Further, the Real Estate Research Corp./CCIM Institute's investment report for this year's third quarter notes that multifamily properties continue to hold the highest property-type rating among investors. Strong construction starts for multifamily buildings in June -- the largest amount in a year, according to the NAHB -- also could point to a robust development climate.
Where's the financing coming from? According to an Aug. 13 New York Times article, unlikely sources -- Fannie Mae and Freddie Mac, government-sponsored enterprises now under conservatorship. Fannie has grown its multifamily presence by 26 percent since June 2007, and Freddie has boosted its by 49 percent so far this year, according to the article. This shift also has allowed Fannie and Freddie to be pickier, demanding higher returns from these loans.
The National Multi Housing Council and others have stated that they do not expect last month's Fannie and Freddie takeover to affect the multifamily market -- though the move's long-term impact on investor confidence remains to be seen.