Uranowitz: MF Not Affected by Fed Rate Hike

LIVINGSTON, NJ—Multifamily property prices and sales activity are not likely to see much impact from the Federal Reserve's first interest rate increase in several years, Gebroe-Hammer Associates president Ken Uranowitz tells GlobeSt.com exclusively.

This is the first time in over nine years the Fed is lifting rates thanks to a steadily growing economy. Since December, 2008, rates have hovered between zero and 0.25 percent.

"What's interesting is that the 10-year [Treasury] bill, since the announcement was made, has gone down 10 basis points," Uranowitz said Friday afternoon.

Property owners will continue to get good returns because the continued low interest environment makes properties more valuable, he says. "If banks choose to try to increase the spread on the T-bill, it's still a non-event."

The 2006 recession has "pretty much devastated" the single family residential home market, he says. "Now you have this Millennial population entering society who are not creditworthy to own a home, have great difficulty in landing jobs, and they want to be in a live-work-play environment where they can just rent an apartment, they don't have to lay out cash. They don't have the money for a down payment, they don't have a need for a car, and they don't want the maintenance of a house, so rentership is the new normal for residential living. This is why our business is on fire and will continue to be so."

Gebroe-Hammer had a record year in 2006, Uranowitz notes, right before the recession took hold. "We've exceeded 2006 by 30 percent, and we have several other deals closing by the end of the year," he says. "That's what the great recession did, it created a new way of living, which is not owning a home."

Multifamily properties, in Uranowitz's view, can weather most economic cycles. Office and retail are heavily dependent on growing economies, he says, but multifamily properties will always be in demand.

"From recessionary to booming economies – apartment buildings have demonstrated their 'investment stability and unwavering asset strength' by consistently performing on the plus side of the balance sheet, rendering them the most favored commercial real estate investment," he says. "It's a benefit for those who own property, and this year we've done a lot of business with long-term owners who came to the marketplace to cash in their chips because it's a very good time to sell right now."

"As rates increase, it affects the consumer more psychologically than it does economically," he says. "Simply put, the cost of home ownership just became more expensive yesterday along with continued strict lending standards for potential home buyers. This bodes well for multi-family since it strengthens an already strong tenant pool and creates conditions for it to magnify."

"At this time it is more of a milestone in the nation's economic resilience, from one of the worst recessions in our history, rather than having any real impact on the multi-family industry, as a whole," Uranowitz says. "While the cost of debt may increase ever so slightly with increased spreads, it will not dramatically affect apartment-building values or cap rates to any great extent. This is because record overwhelming demand for multi-family investments continues to outpace supply of for-sale product – and the gap is only widening. Market-rate rents throughout the New York/New Jersey metro area continue to escalate and will more than compensate for any increases in debt-service costs."

Correction, 12/21/2015: Because of an editing error, an earlier version of this article quoted Mr. Uranowitz as saying low interest rates since the 2006 recession were responsible for damage to the single-family housing market. He actually blamed the recession itself, not low interest rates, for making single family home ownership less attainable.