Is Multifamily Immune from Commercial Real Estate Decline?

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While the turmoil in the residential real estate markets continues to make headlines, some analysts and prognosticators are questioning whether we will see the same kind of meltdown and mass foreclosures in the commercial real estate side of the industry. And the general consensus of those quoted in various news services and website across the United States is not good.

Overview of Commercial Market Status

The commercial real estate market, including retail malls, multifamily buildings, office buildings and other non-residential buildings has already been hurt by falling prices, unemployment, economic decline and foreclosures. However, as already mentioned, commercial real estate includes many different property types, which perform differently under the same economic conditions. For example, retail malls have been adversely affected by numerous issues such as the credit crisis, lower consumer spending, retail competition from the internet and changing consumer behavior. These economic factors that have already caused the bankruptcy of major malls across the United States may not have the same affect on the multifamily real estate market due to the fact that the demand factors influencing apartment buildings are completely different from those of a retail mall. In fact, some of the issues now hurting retail malls could actually increase demand for affordable multifamily housing.

Can Multifamily Thrive in This Down Market?

Millions of people have seen their homes foreclosed upon over the past two years. These people may not be shopping every weekend at the local mall for a new pair of designer jeans but they will still need a place to call home. With tightening credit guidelines for residential mortgages and falling residential home prices it is a logical presumption that many of these displaced people will be seeking multifamily housing. As most apartment building investors understand, it is difficult to find reliable statistics for multifamily housing demand. This is due to the fact that demand for multifamily housing varies according to local economic factors. For example, demand for multifamily housing may increase or decrease according to the local job market.

One of the factors that does seem to be affecting all property classes in the commercial sector of the real estate market are commercial mortgage backed securities. According to the issuance of commercial mortgage backed securities reached its highest point in 2007. Most of these bonds are for duration of ten years and have a fixed rate of interest. These bonds become due in 2017. While this is true for the majority of large retail commercial projects, many apartment building owners have five year loans that become due in 2010 or 2012. Because of stricter underwriting guidelines and depressed values, these owners may find it difficult to refinance without having to put up more cash to facilitate the loan.

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  1. Commercial lenders are still closing loans! SBA is still going to 90% for owner business loans.
    Apex Commercial is doing small commercial loans down to $25,000 which helps the average business man.. Avant Capital Partners recently closed an apartment building at 40% occupancy.. Cambridge Realty Capital is knocking out Hud 232 Lean Financing and teaching the commercial industry a thing or two about assisted living financing transactions. Capmark Finance Inc. (Capmark Finance) originated $17,000,000 in fixed-rate debt via its Freddie Mac program for the refinance of Sonoran Vista, a multifamily property in Scottsdale, Ariz.

    I can go on.. I would like to stay positive!
    Keep the Commercial Refi boom alive!

    Jack Getter

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