Obrinsky

WASHINGTON, DC—The credit crunch is certainly impacting the apartment market, pushing sales volume down significantly and restricting firms’ access to debt and equity capital. On the plus side, there continues to be strong demand for units. Those are the findings of the National Multi Housing Council’s most recent Quarterly Survey of Apartment Market Conditions.

The organization polled 87 chief executive officers and other senior executives of apartment-related firms across the country between April 28 and May 5. According to the indices utilized by the organization, a score above 50 indicates that for the most part, conditions are improving. A reading of less than 50 indicates conditions are worsening.

Respondents reported higher occupancy and/or rental rates than the prior three months, sending the market tightness index to 44 from 33 in January. NMHC notes that the improvement is also a sign that the shadow market of rental units isn’t seriously impacting traditional apartments.

"The bursting of the for-sale housing bubble has greatly slowed the outflow of renters into ownership. More than 80% of the survey respondents reported a decrease in the number of renters leaving to become homeowners," says NMHC’s chief economist, Mark Obrinsky. "Even though there has been an increase in the number of condo and single-family rentals, these properties do not typically compete for the same renters as professionally managed apartments.

"In fact," he adds, “professionally managed properties may become even more desirable in the current market, as renters of many of these individually owned condos and houses find themselves without housing because the owners of these properties have lost the property to foreclosure.”

Yet the tighter credit market has hindered would-be buyers and sellers. The debt financing index dropped considerably over the quarter, from 45 to 22, with two-thirds of respondents reporting worse borrowing conditions than three months ago. This, says the organization, is a reflection of the continued widening of spreads and tightening of credit standards. Meanwhile, the equity financing index reached its lowest level ever, 13. A record 76% of those poled said equity capital was less available. Conversely, 17% said conditions were unchanged, while 2% saw improvement.

As far as investment is concerned, the sales volume index fell to 13 this quarter, the second-lowest reading in the NMHC survey’s history. It also represents the 10th straight quarter with a below-50 reading. Three-quarters of executives reported lower sales volume than the prior quarter. A mere 1% saw the opposite. “While there are still many buyers looking to purchase apartment properties, there is an unusually wide disparity between buyers and sellers about the appropriate prices in today’s market,” says Obrinsky. “Even though investors remain committed to deploying considerable equity capital in the apartment sector, tighter credit makes it harder to hit target rates of return. The upshot is the current low level of transactions.”

While financing is not as available now, it certainly was present last year. The Mortgage Bankers Association reports that despite the midyear slowdown, commercial and multifamily loan originations hit a record volume in 2007, with $507.7 billion, a 19% increase. Office properties took up the top spot in terms of financing volume, but multifamily was not too far behind. In terms of investors in these mortgages, conduits were the largest single investor group, responsible for $225.2 billion, or 44% of the closed loan volume. Yet Freddie Mac saw the greatest percentage increase in volume between 2006 and 2007, followed by Fannie Mae, both of which remain the main lenders for the sector.