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DALLAS-Although the jury’s still partially out, the early signs are the subprime debacle is a boon for commercial real estate. Regardless of how it shakes out across all CRE types, industry experts say it’s a silver lining for the multifamily industry, in particular.

The immediate windfall is fewer people will be buying homes. The long-term prognosis gets better because the interest rate appears poised to rise so there’s additional reinforcement on that front. And, even if it doesn’t, new borrowing restrictions will significantly lower the number of homebuyers. Meanwhile, the decline in residential building, whether it’s due to subprime or a market correction, has planted more construction bodies on the commercial side of the industry. Even the stock market has settled down with the Dow now back above the 12,500 mark.

“The fact that the market has rebounded nicely tells you there is concern, but not over concern,” Jeff Thredgold of Clearfield, UT-based Thredgold Economic Associates tells GlobeSt.com. “In a sense, some of the slowdown in residential is actually a bit of a godsend for commercial real estate because they can find bodies for construction.”

Thredgold says the latest numbers show 56,000 of the 137,000 jobs created in March were construction. “That’s huge,” he says, adding spring’s arrival accounts for some, but not all of the surge. “People with building skills are shifting to the commercial side,” he adds, “and it’s a favorable development for commercial. Every commercial real estate builder has been trying to find bodies to work on buildings.”

Jack Eimer, president of Transwestern’s Central region, says he’s not seen any signs–positive or negative–in the office sector of subprime’s impact. But it’s still too early to tell. “Some firms grew quite a bit. They might have to shrink,” he says.

David Gleeson, executive vice president for Dallas-based L&B Multifamily Advisors LLP, told a recent breakfast group that the multifamily industry is certain to benefit from the subprime fallout. It also looks like the situation will grow stronger with time. “It will take months to unfold. The real impact of subprime on the residential market,” he says, “won’t be felt until 2008 and 2009.”

Greg Willett, vice president of research and analysis for Carrollton-based M/PF YieldStar, cautions that there is one dark cloud overhead–bargain-basement clearance sales by lenders if too many more homes go into foreclosure. “Lenders aren’t landlords,” he says. “I don’t think it’s going to reach that level, but you do have to consider it.” But, he adds the subprime crash, in the short term, is a definite benefit for the multifamily sector. “In the long term, it’s a danger,” he concludes.

“Recall that the fun really did not begin until late February and really ramped up in March,” Richard F. Moody, chief economist and research director for Austin-based Mission Residential, says in a just-released report. It will take a few months before the impact on home sales is evident. “And there will be an impact,” he adds.

The impact will first be felt at “the bottom rung of the housing trade-up ladder,” but it’s going to trickle into the middle and high ranges of the market, Moody predicts. The downward pressure on prices is unavoidable as mortgage delinquencies and foreclosures increase. “After all, those holding foreclosed homes will want to recoup their capital quickly,” he explains, “and could be willing to take a sizeable loss in order to do so.”

Throughout 2006, Willett put part of the blame on sagging occupancies in multifamily circles on the flight to own by first-time buyers. But, that has subsided as homebuilders slowed construction and interest rates ticked up. In the past year, Dallas/Fort Worth’s multifamily market picked up three-tenths of a point in occupancy, ending the first quarter at 93.1%. The construction pipeline has 10,631 units–not a concern until it hits 12,000 units, Willett says.

Willett did point out that multifamily owners are “getting a little more aggressive,” pushing effective rents 2.2% in the past year. The region’s average monthly rent is $708. He says the Q1 picture isn’t drastically different from last year at this time, except owners now are ready to ask more for their units.

Because the subprime crash is still so new, Willett says “it’s really too early for that to have some kind of impact.” But, that’s sure to change as homebuyers caught in the debacle make apartments their next move.

In a recent assessment, the National Association of Realtors says tighter underwriting practices could cause home sales to fall about 100,000 to 250,000 nationally or roughly 3% per year for two years. “Foreclosures are increasing inventories in certain local markets,” says David Lereah, senior vice president and chief economist for the Washington, DC-headquartered NAR. But, he adds, it’s not across the board and the saving grace is many of the hard-hit markets are “exhibiting healthy economic activity, enabling them to be able to absorb increases in foreclosures.”

Moody isn’t as optimistic as the NAR as to how it will all shake out. “We are only seeing the beginning of the impact of the subprime mortgage mess,” he concludes, “and that the trouble in the Alt-A borrower class is just beginning to show up in the delinquency and foreclosure data. As such, it is far far too soon to be proclaiming the worst is over. Because it is not, not by a long shot.”

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