The Mortgage Bankers Association recently reported the results of its Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations. According to the report, second-quarter 2009 loan originations were up 50% from the first quarter of this year, although still down 54% from the second quarter of 2008. The dramatic improvement shown over Q1 2009 in large part reflects the minimal loan activity during the first quarter. The report quotes MBA VP of Commercial Real Estate Research Jamie Woodwell as saying that the second-quarter increase "likely signals that commercial and multifamily mortgage originations bottomed in the first quarter of 2009."
Several trade articles and reports in the last week or two have focused on concerns about the multifamily housing market. The current recession and the frozen credit markets have combined to cast a cloud over this market (like all others, of course). The April 2009 issue of Mortgage Banking (a monthly publication of the Mortgage Bankers Association) reported a continuing decline in builder confidence in the multifamily market, as reflected in the National Association of Home Builders’ Multifamily Rental Market Index (the “NAHB Index”). The NAHB Index indicated builder pessimism about both demand for multifamily housing at all levels (affordable, moderately priced, and luxury) and the availability of financing for construction of new housing.According to the MBA article, therefore, construction of multifamily housing continues to decline.At the same time, both occupancy rates and asking rents are declining in existing projects.
Another article in the same issue of Mortgage Banking highlighted Fannie Mae’s $35.5 billion investment in multifamily housing in 2008, but projected ongoing challenges in the market in 2009 as, among other things, potential apartment dwellers delay forming new households because of economic worries.The article foresees rising vacancy rates and therefore lower operating income for multifamily projects.
The impact of all this on multifamily housing owners and lenders is reflected in a recent study released last week by CB Richard Ellis (“CBRE”), which reported that cap rates increased by an average of 150 basis points in 33 of 35 major metropolitan areas over the past year. The CBRE Capital Markets Multi-Housing Group’s March 2009 Cap Rate Study noted higher cap rate increases for Class A assets as compared to Class B/C assets; the report indicates that this represents a change from previous years, in which Class B/C cap rates tended to rise sooner and further than Class A cap rates. CBRE pointed to intensified “deterioration in both capital markets and real estate fundamentals” in noting that one-third of the surveyed markets reported cap rate increases of well over 150 basis points since May 2008. Among markets reporting “notable” cap rate increases were Austin, Dallas, and Houston, Texas.
The Cap Rate Study results from an informal survey of senior CBRE professionals in each market, who offered their “best estimates” for stabilized and value-added deals, based on “an estimated NOI derived by annualizing the last 90-days [sic] of revenue and subtracting what buyers would estimate as stabilized, one year expenses after adjustments for real estate taxes and reserves.”