, Jeff Lee, EVP of Capital One Multifamily Finance

BETHESDA, MD—For the past several years, Capital One has surveyed multifamily industry participants at the RealShare Apartments conference to assess market sentiment for the coming year. Starting last year, the firm began using the survey as a platform for its senior bankers to explain the implications of the findings and also add their own perspectives on the coming year. For this posting, Jeff Lee, EVP of Capital One Multifamily Finance, talks about how lenders are expected to be active in the multifamily market in 2017.

The views expressed in the commentary below are the author's own.

It has fallen to me to write the fourth in the series of blog posts based on Capital One's RealShare Apartment sentiment survey for 2017—and I'd like to comment on the picture from the finance side. But before I do, I think it's worthwhile reviewing the commentary that Ben Stacks, Brian Sykes, and Greg Reed provided in their three previous posts.

The Consensus View: Another Solid Year for Multifamily

The multifamily industry professionals who participated in our survey believe, as they had in previous years, that demand will outstrip supply, a view that resonated with Ben Stacks, our New York Market Manager. Despite some pockets of softness—e.g., Williamsburg, Long Island City, and some parts of Manhattan—Ben noted that the fundamentals for driving demand for multifamily remain strong. He cited regulatory factors like Basel III and the hiatus in New York's 421-a housing program as a limiter that maintained the infusion of supply and helped keep it at a steady pace.

Brian Sykes looked at the multifamily market from a slightly different perspective, but came to the same conclusion about multifamily investing. It's been his experience that some market players have become a shade too reliant on the low-interest-rate environment we've experienced since the recession and that our survey respondents' choice of global uncertainty as the issue that keeps them up at night is a proxy for anything that might push rates higher. Compared to other asset classes such as bonds or equity, however, Brian believes that multifamily has a lot going for it.

Greg Reed tackled the response to the question that always starts our survey: Are you going to be a net buyer or seller next year? More than half of the respondents declared their intention to be net buyers. Greg found both short-term and long-term trends support that conclusion.

In other words, the consensus of our survey participants and our Capital One experts is that we are getting ready for yet another year of solid multifamily performance. Yes, as our respondents tell us, the gap between supply and demand seems to be closing somewhat and interest-rates are likely to rise, but the fundamentals remain sound.

Lenders Are Ready

Looking forward, I believe that there is adequate financing to support the level of activity we expect for 2017. Like the survey participants, who expressed a preference for buying, I see acquisition financing continuing to be an important driver of our business. I also expect to see demand for refinancing remaining high. The increase in those who say that construction will be the most important form of financing for their business in 2017—up to 25 percent in our latest survey from 18 percent last year—represents the pent-up demand that has resulted from the Basel III standards. My sense is that construction lending will continue to be constrained, but that it will not tighten further.

From an investor perspective, there will be a wealth of financing options. We expect to see the banks continue to be active participants, CMBS lenders adequately serving the segment that relies on this source of funds, and the Agencies closing in excess of $100 billion in capped and uncapped loans, just as they did last year. Also, from what we can tell, construction starts have slowed, which is a good sign.

Obviously, I can't speak for all lenders, but I can say that in these uncertain times, Capital One is a trusted advisor and lender who can tailor the solutions you need to accomplish your goals and be opportunistic.

Several economic factors have resulted in net positives for the multifamily sector and prices in core markets are at an all-time high. But just how long can the market continue on this trajectory? Join us at RealShare Apartments East on Feb. 28 and March 1 for insights on succeeding in the right markets as well as navigating and finding opportunities in the more challenging ones. Learn more.

Capital One

The views expressed in the commentary below are the author's own.

The Consensus View: Another Solid Year for Multifamily

Lenders Are Ready

Instant Insights /

Demand for MF Refinancing Expected to Remain High in 2017

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