Health of apartment sector remains strong despite ills of market

Richard H. Zahm, founder and principal, Second Angel Bancorp

As published in Scotsman Guide's Commercial Edition, November 2008.

For lenders, investors and brokers, the multifamily market is one relatively bright spot in real estate today. Despite the malaise that seems to be covering real estate lending in its entirety, multiple signs indicate that apartments are enjoying relative health.

This health could be a reflection of a much larger trend, changing the way that people live in the United States, fostering an even-greater opportunity for commercial multifamily lending.

Multifamily prospects

In general, prices of multifamily properties are up. Although prices of office properties dropped 0.2 percent between June 2007 and June 2008, according to the Standard & Poor's/Case-Shiller Commercial Real Estate Indices, multifamily gained 3.6 percent. Compared to the rate of decline in the single-family-residence market -- down 14.1 percent nationally from the first quarter of 2007 to the first quarter of this year, according to the Standard & Poor's/Case-Shiller Home Price Indices -- actual price appreciation is all the more remarkable.

Sales of multifamily properties have increased in areas that have shown distressed single-family conditions. For example, on the West Coast, two major markets have seen multifamily-sales increases: Sales for the second quarter of this year increased 32 percent in Los Angeles and 27 percent in San Francisco, compared to the first quarter.

In general, occupancy rates also are up in the multifamily market. Again, this isn't true in all areas across the country. But it's telling that hard-hit Tampa, Fla., is experiencing an uptick. The area's occupancy rates and rents increased in the first two quarters of this year after record lows in 2007, according to ALN Apartment Data.

Multifamily-building permits also have increased in several areas. In California, for example, building permits for multifamily projects are showing an upswing in select markets. The San Francisco/San Mateo area had 25 percent more multifamily permits pulled in the first two quarters of this year than in 2007, and Santa Barbara/Santa Maria is up 40 percent, according to the California Building Industry Association.

Loans for multifamily properties are available, despite the credit crunch. Earlier this year, Fannie Mae and Freddie Mac expanded their multifamily presence. Despite their entering government conservatorship in September, that trend is expected to continue. The two provide funds for the purchase of multifamily properties, buying individual loans and pools of loans from a list of lenders that follow Fannie and Freddie guidelines.

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