Economic Update — M-F Finance Deals Squeak Through

Things are looking up a little for the U.S. apartment market, if the latest quarterly survey by the National Multi Housing Council, which queried 79 CEOs and other senior executives of apartment-related firms nationwide, is any indication. That isn’t to say that conditions are strong in the multi-family rental segment–just better than in the early dark days of the Panic of 2008. The NMHC’s sales volume index, for instance, is at 30 as of April 2009, a considerable improvement from the October 2008 dismal reading of 4. A sales volume index reading above 50 means that sales volume around the country is increasing, while a reading below 50 indicates that sales volume is decreasing. A reading as low as 4 means boy, howdy, the market’s tanked. The organization’s equity financial index likewise rose from 12 last October to 29 this April. The debt financing index fared even better, vaulting from 4 in October to 41 in April. Still, lenders are a little leery about apartment lending. “The top concern among lenders right now is that there’s going to be a further deterioration in revenue from multi-family properties, considering that there’s downward pressure on occupancies and rents,” Chris Black, vice president-loan origination with the Boston office of KeyBank Real Estate Capital, told CPN. “It’s hard to know when the deterioration will stop, and in the meantime no one wants to catch a falling knife.” He adds that in spite of everything, there are strong multi-family rental properties out there. Recently KeyBank Real Estate Capital closed a $4.2 million Freddie Mac commercial mortgage to Truman Drive L.L.C. for Truman Park, a 284-unit apartment building built in 2002 in Largo, Md. Key provided a supplemental loan that allowed the owners to increase outstanding debt on the property, to take advantage of improved performance since the initial funding in 2004. “The first note was conservative, and it’s a well-located property,” said Black. “And there hasn’t been a dramatic drop in revenue. That’s what lenders are looking for in apartment properties, and it isn’t an impossible scenario, just a lot harder than it used to be.” Late last week, other closely-watched economic indices rose unexpectedly, thus entering the category of less-bad-than-previously. The Institute for Supply Management’s factory index rose from 36.3 in March to 40.1 in April, for one. Not only that, the Reuters/University of Michigan consumer sentiment index bounded upward by the most in more than two years, rising to 65.1. Wall Street was indecisive on Friday, however, just barely ending in positive territory. The Dow Jones Industrial Average closed 44.29 points higher, or 0.54 percent, while the S&P 500 was also up 0.54 percent. The Nasdaq gained 0.11 percent.