Slow & Steady
Attracts the Capital
Between a lack of demand and dearth of
capital, the apartment market is certainly
going through its own issues.
But long term, the asset
class is still tops for
Although the multifamily housing market has a long way to go before rid- ding itself of its many issues, there are indica- tions that the bottom of
this cycle is close, or has even passed,
and a turnaround—albeit a slow one—is
starting to take hold.
Those in the industry are even reporting improvement and a dramatic change
in market conditions as compared to last
year. Speaking at the Mortgage Bankers
San Diego in early February, Freddie
Mac’s Michael C. May stated, “To say that
2008 was a turbulent year does a disservice to the word ‘turbulent.’ Catastrophic,
a living nightmare, hell on earth—any of
By John Jordan
these terms might better describe the
May, who serves as senior vice president of multifamily business for the
McLean, VA-based GSE, added that the
nearly one million units of vacant single-family homes and rising unemployment
had also led to a business environment
that had been “about as bad as it gets.”
Fast-forward nine months. While the
same negative market forces still exist,
there are signs of improvement overall.
May’s colleague at Freddie Mac, vice president of production and sales Mitchell
Kiffe, says that while there are still considerable hurdles facing multifamily in 2010,
some conditions have improved since
May’s speech back in February.
“The world was a much scarier place
in the fourth quarter of ’08 and the first
quarter of ’09,” Kiffe recalls. “There
seems to be more stability in the finan-
cial markets, so it’s better in that respect.”
He adds that multifamily, when compared to other commercial real estate
asset classes such as retail or office, is
performing much better.
The state of the economy has been a
considerable strain on apartment market fundamentals, notes Kiffe. “Net operating incomes have been stressed and
2009 year-over-year NOI contractions are
probably in the 5% range,” he points
out. “Most economists believe that on a
nationwide basis, 2010 will be another
difficult year with respect to revenues
and NOIs.” He expects NOIs to decrease
another 5% next year before conditions
start to improve.
The keys to recovery are, most importantly, job growth and access to capital.
However, a recovery in the labor market
is a lofty challenge, given that, at 10.2%
in October, national unemployment hit