Multifamily Sector's Foreclosures Dropping

DALLAS-With foreclosures at the forefront of the news, a leading market watcher predicts the multifamily sector in North Texas will continue to escape the fate of the single-family industry. In the past year, multifamily foreclosures have dropped 43%, with even more promising news on the horizon for class B and class C assets.

Year to date, Dallas/Fort Worth has averaged 3,499 single-family foreclosure postings per month, according to George Roddy Sr., president of locally based Foreclosure Listing Service Inc. The dire numbers, though, inevitably will be a boon for the multifamily sector as foreclosed homeowners flee into class B and class C apartment complexes, Roddy tells GlobeSt.com.

Without a co-signer, foreclosed homeowners won't be able to clear class A rental credit rating requirements. "We will definitely see an impact on occupancy for class B," Roddy says. "Those people will have to go somewhere. And when we see a positive impact on occupancy, we see an inevitable rent increase." In 2006, there were 38,809 single-family postings in the region, of which 20,000 ended in actual foreclosure, he says.

Roddy's data shows multifamily property postings went from nine to 28 in 2003 and increased steadily until last year when just 26 notices went up or 43% less than 2005 despite the sector's preponderance of floating-rate and interest-only loans. To date this year, there have been notices nailed up on six apartment complexes in the metro. And, they're most likely all class Cs or at least that seems to be the trend, Roddy says, citing 35 years old as the 2006 average age and 40 years old in 2005 of the asset in danger.

"As far as foreclosures, I'm not looking for any major increase for multifamily. I think 2007 is going to be below 2006," Roddy says.

Roddy was this month's speaker for a monthly multifamily networking breakfast co-hosted by La Jolla Bank and Republic Title Co. at Prestonwood Country Club in North Dallas. The presentation focused on single-family foreclosures and the sub-prime debacle. "In Texas, we've been talking about this since 2000," he told the group. "When it starts affecting the rest of the US, then it gets the attention of the national press."

And when it comes to North Texas, foreclosure sales are bringing 67 cents to 70 cents per $1 of the assessed valuation. About 8% of the sold assets end up in third-party hands and the lion's share with lenders as top bidders in the courthouse auctions, according to Roddy. As for the hard numbers, Roddy's four-county territory showed single-family foreclosure spikes across the board: Denton County, 25%; Dallas County, 22%; Tarrant County, 16%; and Collin County, 14%.