Multifamily homes have been a popular asset class for US commercial real estate investors for years. A nationwide housing shortage has led to a consistent increase in rents, hitting a record high last year and spurring a huge wave of investment.
However, many of the top market buyers in 2021 and early 2022 have had to raise additional funding through bridge loans, mezzanine debt and preferred stock. to win the dealAs interest rates soar, these complex capital stacks can quickly lead to over-leveraging, creating opportunities for distressed asset investors to swoop in for deals. Bisnows Multifamily Annual Conference last week.
Jason Morgan of Morgan Properties; Jason Pantzer of Pantzer Properties; Matt Jones of Harbor Group International; Geri Borger Urgo of NewPoint Real Estate Capital; Matt Ferrari of TruAmerica Multifamily; Tom Noble of Archway Capital; I will give a talk on the panel of the Annual Conference. November 29, 2022.
“Even with the generally positive multifamily overlay, there are some fairly straightforward ways to spot situations where default or distress is likely,” Jones added. “Looking back over the past 18 months, we have seen a lot of very volatile capital stacks compared to the current interest rate environment and current capital availability.”
A turnaround from the hectic days of 2021 — when Selling $335 Billion Multifamily Homes, nearly double the previous record — was quick. Earlier this year, Mortgage Bankers Association predicted Commercial Real Estate Transaction Volume Exceeds $1 Trillion first time.
Well, stock investors and lenders who attended the event said they’ll be bearish on the multifamily market in the next year or two. Sector faces 3rd straight month of decline Experts say it could be a sign that the overheated market is starting to cool down.
Should rents start rising again, it could continue to fuel sustained inflation. This is exactly what the Federal Reserve is doing aggressively to keep interest rates from rising.Driven by an aggressive rate hike campaign Increased negative leverageThis occurs when interest payments exceed the underwriting return on the investment.
“This negative leverage phenomenon will be a real problem for us over the next 12-24 months.” Tom NobleSenior Vice President and Chief Operating Officer Archway Capital“If you’re buying multifamily now and you’re assuming rent growth, you’re assuming interest rates are going to be higher. That’s a problem.”
Head of Production at Geri Borger Urgo Newpoint Real Estate Capitalproperty owners with complex capital stacks or variable rate loans may soon find themselves with excessive leverage and may be forced into the need for capital injections.
“I’m more interested in the purchases in early 2022 and late 2021 that have built a capital stack involving many parties… they don’t necessarily have deep pockets.” There are many opportunities.”
There are early signs that a property type known for affordable housing known for complex financing schemes is going through its crisis. DC Department of Housing and Community Development interim director Drew Hubbard At the event, the public agency said it had to fund some of its previously closed financing deals to allow much-needed housing projects in the district to move forward. I got
John Gilmore of Walker & Dunlop, Kanan Ajmera of Builders Patch, Drew Hubbard of DHCD and Tabaré Borbón of Colliers will speak at the BMAC panel.
“Some of the deals that we chose to underwrite two years ago, the numbers they were relying on are quite different today,” said Hubbard. “We’re redeploying and adding those projects to make sure they’re actually closed and really down to earth.”
The buyer frenzy that preceded the rate hike also prompted companies that are typically committed to long-term holdings to start selling assets at favorable prices, he said. Jason Morganpresident of special circumstances Morgan Properties.
The company is typically a long-term owner, having sold $1.5 billion worth of real estate assets in the past 12 to 18 months, Morgan said. Earnings.
“There was tremendous euphoria from many groups,” Morgan said. “They really expected rates to stay low for longer and the lease trade-outs to go on forever. And that’s not going to work.”
Today, Morgan said his company is seeking fixed-rate loans for the next few years, but the terms will allow interest rates to float in the medium to long term when interest rates are expected to fall again. He believes those with the capital to weather the current interest rate environment will be well positioned to weather the storm in a real estate sector that has long been viewed as an inflation hedge.
“If you buy well, don’t buy at very low cap rates, and fund with reasonable leverage, it’s a great asset class overall,” Morgan said. “We generally say ‘survive to 2025’ because you really have to survive this.”