Daily market intelligence on mortgages, equity raising, investment sales, and CMBS.

Tuesday, 12 June 2018

Multifamily Sector is Biggest Winner Post Crisis. Can the Growth Continue?

The multifamily sector, which thrived during the last market downturn, could weather another recessionary storm based on the latest trend of Millennials, and even Baby Boomers, who largely are choosing to rent rather than own.

Commercial Real Estate Direct Staff Report

There is no doubt that multifamily properties have been the darling of the financial recovery.

Fallout from the housing bubble led to a paradigm shift in that sector. The American Dream of owning a home became a nightmare for many who learned that houses aren't investment vehicles. Renting, meanwhile, offered flexibility and the mobility not found with homeownership.

The homeownership rate, which stood between 67 percent and 69 percent from 2005 through 2007, plunged to 64.2 percent in the first quarter of 2018, according to the United States Census Bureau. The rate declines even more, according to age, with the homeownership rate for those who are less than 35 years old dropping to 35.3 percent in the first quarter from a peak of 43.1 percent in 2004 and 41.7 percent in 2007.

As the homeownership rate has declined, demand for rental units - be they apartments or single-family homes - has increased. The national rental vacancy rate, as pegged by the Census Bureau, was 7 percent in the first quarter, down from a peak of 11.1 percent in 2009.

But what does the future hold for investments in the multifamily sector?

Multifamily completions are at a level we haven't seen since the early 1990s. Completions increased in 2017 after flat growth in 2016, according to Freddie Mac. For the 12 months ending November 2017, 350,000 units were delivered, an increase of 12.3 percent compared to the same period a year earlier. This year, deliveries are expected to reach 360,000 units, according to Yardi Matrix. But a slowdown is expected.

Multifamily permits and starts are down 11.4 percent and 9.8 percent, respectively, since 2015. UBS predicts a flattening or reduction in multifamily permits over the next two years in most major markets.

Meanwhile, construction costs have continued to increase, growing by 3 percent in last year's third quarter, when compared with a year earlier, according to JLL, which cited not only higher costs for materials, but also average wages for construction workers. Lumber prices have skyrocketed since June by 72 percent. And banks have scaled back development lending, adding to the costs to build.

Supply and demand dynamics have remained well balanced since 2014, indicating that demand has been healthy enough to absorb the elevated supply. So the national vacancy rate has remained below 5.5 percent, according to UBS.

Multifamily Starts and...





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Data Digest

 

CMBS DELINQUENCY VOLUME

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CMBS SPECIAL SERVICING VOLUME

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Top Bookrunners Domestic, Private-Label CMBS - 2017
Investment Bank #Deals Vol$mln MktShr%
Goldman Sachs 17.59 11,819.34 13.68
JPMorgan Securities 14.52 10,968.11 12.70
Citigroup 12.04 10,012.71 11.59
Wells Fargo Securities 14.02 9,936.06 11.50
Deutsche Bank 12.55 9,879.74 11.44

 

RCA CPPI

 

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CMBS 2.0 Spreads

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Top CMBS Loan Contributors - 2017
Lender #Loans Vol$mln MktShr%
Goldman Sachs 146.89 11,719.34 13.63
JPMorgan Chase Bank 117.68 10,114.14 11.76
Deutsche Bank 198.48 9,689.97 11.27
Morgan Stanley 166.18 8,539.78 9.93
Citigroup 199.05 8,088.24 9.41

 

 

 

REITCafe

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  • US REITs Feeling Effects from Turmoil in Greece and China
    International economic forces have taken center stage this week, affecting both US stock markets and REITs. The crash in the Chinese stock market and ongoing concerns about the future of Greece in the eurozone drove markets down during the first half of the week. REITs fared better than the overall market...

  • What Does Increased Construction Mean for Apartment REITs?
    REITs so far this year have raised $17.1 billion of capital through the sale of unsecured notes, bringing the total raised over the past two and a half years to just more than $75 billion. That’s more than they raised during the previous five years. The massive volume shouldn’t be a surprise as it comes while the yield from 10-year Treasury bonds, the benchmark...
shouldn’t be a surprise as it comes while the yield from 10-year Treasury bonds, the benchmark against which most REIT’s price their bonds
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