M-F Fundamentals Strong, but Financing Problems Remain: NMHC Panel

Multi-family fundamentals are very healthy, but economic uncertainty and the difficulties in the debt financing market have bogged down investment sales in many markets. That was the general consensus of a panel of multi-family executives held yesterday at the National Multi-Housing Council’s annual meeting in Boca Raton, Fla. Bob White, president & CEO of Real Capital Analytics, illustrated some figures as to the multi-family market’s performance in 2007 as compared to previous years. According to White, while U.S. multi-family sales volume actually increased from 2006 to 2007 (from $91 billion to $93 billion), the majority of that uptick was the result of REIT privatizations and large portfolio sales. The “bread-and-butter” of the industry though—one-off deals for single properties—experienced a sharp decline, from $58 billion in 2006 to $48 billion in 2007. One reason for the dropoff in single-property sales is that, in today’s debt financing market, being large and well-capitalized and having an established track record and relationships with lenders is becoming a prerequisite to obtaining financing. A large percentage of buyers in one-off deals are smaller, more regional firms that must use more leverage to make purchases, and these firms are finding it ever more difficult to make deals. Indeed, the squeezing out of the “little guy” is evidenced by the fact that in 2007 institutional sources accounted for 39 percent of all multi-family acquisitions—in 2006, that percentage was just 28 percent. While financing remains an issue, the fundamentals of the multi-family market have rarely been better, according to several panelists, including Ric Campo, CEO of Camden Property Trust, and Greg Pinkalla, who heads the multi-family development group at Fairfield Residential L.L.C. Pinkalla noted that the subprime mortgage struggles have resulted in the rental market actually picking up renters from the home ownership market for the first time in several years, rather than vice versa. The tighter lending standards for home buyers and the large amount of foreclosures engendered by the subprime mortgage situation have driven many people back to the rental market. Pinkalla noted that his firm had actually increased its multi-family development activity in 2007, as compared to 2006.