Surprise, Surprise: Multifamily Remains Hot

DALLAS-The bad news offered at the 2013 Kick-Off Event for Apartment Development on Jan. 9 is that Congrss, and Washington DC, are still a mess, rife with postponement of mandatory cuts and yet another proposed confrontation over the debt ceiling in early March. The good news? It doesn't seem to be impacting the multifamily sector all that much.

The webinar, hosted by locally headquartered Humphreys & Partners Architects offered experts sharing everything from insight, to design trends, to whether the money and capital are out there to develop new multifamily product. According to Vic Clark, managing director, originations with Centerline Capital Group, the answer to this latter question is an unqualified "yes."

"We're heading into competitive years, with respect to more lenders stepping up and competing heavily, especially for quality product," he says. This past year was huge when it came to loan originations, he adds, nothing that for Centerline, at least, 2012 had been its biggest year in underwriting and arranging finance since 1988.

The one question mark in the capital arena remains the agencies. Between them, Fannie Mae and Freddie Mac have made up about 60% of the $100 billion finance market that is multifamily – and there is still a question about the fate of these agencies. As a result, Clark predicts that Fannie and Freddie will start tightening how they size the loans, as they want to step back as the markets recover.

On the plus side, "CMBS not only had a record year for 2012, but will probably double its production in 2013," Clark points out. "It'll take over some of the business that Fannie and Freddie might turn their noses up at." In short, it's a good time to borrow money on stabilized multifamily properties, as banks and life insurance companies will be aggressive in trying to capture the quality business, especially as demand is still outstripping supply.

Well, for now. One interesting point introduced by Greg Willett, vice president, research and analysis for MPF Research, is that while construction is ramping up on new units (close to a quarter of a million units were under construction at the end of 2012), and those units will meet demand, the market is getting to the point where supply and demand are starting to catch up.

"Certainly the demo numbers are great and there continues to be demand," Willett comments. "But we've been saying for years our supply is below normal. We need to stop saying that. We're getting back to the normal level, and by the end of the year, I think we'll be a little above normal."

Willett says this isn't likely to impact rent growth in 2013, however. Though it is slowing, growth should remain stable at 3.2%, with occupancy increase to likely be in the middle tier and bottom end of the market. A slight dip is anticipated at the top end as newer completions coming online move through lease up.

Doug Bibby, president with the National Multi Housing Council, added other interesting trends to the discussion:

• Capital will continue to flow to "A" markets, a lot of which will be coming from foreign sources.
• Contrarians are starting to dip their toes into secondary markets.
• Jobs creation, though having increase, still remains a challenge.
• Developers continue looking for more cost-efficient ways to bring product to market, which has led to an uptick in modular construction.
• Developers and owner/operators are seeking out more sustainable design and green operations and "investors might be willing to give a premium on asset valuations for measurable results."

Mark Humphreys, CEO at the company that bears his name, threw in another trend. "Construction costs have gone up rapidly," he comments. "We're hearing in markets, like Texas, that they're having a hard time getting precast for parking garages and framers for framing."