Affordable Housing Emerges as Important MF Play

NEW YORK—With single-family home prices and construction costs rising, affordable housing is increasingly being viewed as an important part of a multifamily strategy, according to Berkadia’s soon-to-be-released 2019 Mid-Year Powerhouse Poll.

The poll, which surveyed Berkadia’s investment sales brokers and mortgage bankers across 60 offices, found that 84% agree that affordable housing will have a major impact on the industry in the next year—especially as regulations around Opportunity Zones solidify.

“The buzz around a growing need for affordable housing has been building for years but escalated this spring when the US Department of the Treasury announced the second set of Opportunity Zone regulations,” Ernie Katai, EVP and head of Production at Berkadia, says in prepared remarks.

“As individuals and families in metros and suburbs across the country continue to struggle with rising rent costs, investors are no longer focused solely on Class A housing,” he continues. “Many are diversifying their portfolios by adding affordable properties to the mix.”

When asked what would improve the affordable housing crisis, respondents ranked modifying tax credit policy (84%), regulatory changes for the GSEs (70%) and local and state government intervention (69%) as the top potential solutions.

A Bullish Outlook

In general, Berkadia’s mortgage banking and investment sales professionals remain bullish on the commercial real estate market despite the uncertainties surrounding the presidential election, interest rates, GSE reform and potential local legislation that could put rent control measures in place.

When asked what major trends impacting multifamily investing are on their radar for the rest of 2019, investment sales brokers pointed to interest rates (94%), debt underwriting (69%) and the political environment (40%) as their top three. For trends impacting multifamily financing, mortgage bankers ranked interest rates (97%), green financing (49%) and the political environment (46%) as the top contenders.

While 81% of mortgage bankers expect GSEs to be the primary lending source for the second half of the year, 80% of all respondents agree potential GSE reform will have a big impact on the way they do business this year.

Despite these pending issues, the survey found that deal flow has been strong for the first half of the year, with deal flow meeting the expectations of nearly half, or 48 percent, of respondents. One in four respondents even said deal volume exceeded their expectations so far in 2019 and 60% of respondents anticipate the amount of capital available for deals to remain the same throughout the rest of the year, while 29% expect capital on the table will increase.

CRE Technology

The survey also asked about technology’s impact on CRE and found that both investment sales brokers (89%) and mortgage bankers (83%) agree that over the past year it has led to more streamlined CRE processes. Respondents rank big data (53%), artificial intelligence (19%) and the internet of things (12%) as the technologies that will have the largest impact on CRE over the next five years.

“The growth of big data across the industry has allowed investors to quickly become acquainted with new markets and their local economic drivers so that they can accurately predict a property’s potential risks and opportunities,” Katai says. “We’ve seen both international and domestic investors use this data to expand their portfolios into markets they previously would have been reluctant to touch due to a lack of familiarity.”