Originally posted by @Joel Owens:
I would like to see the data showing 1% foreclosure rate for MF.
When down cycle happens there is a delayed affect asset class by asset class. SFR was first to fall. Not all asset classes cycle at the same time. There were also loan workouts happening at the start of the downturn. Operators thought they could keep going with a workout and for many it just kicked the can down the road 1 to 2 years. Additionally there were short sales that did not make it to foreclosure. So lot's of variables within multifamily for default percentages and when and how they were happening.
I can tell you I saw it happen as I was selling some of these properties for property owners.
Hi Joel. Sure, I can type out the paragraph I found that alluded to in a book entitled The Perfect Investment, by Paul Moore of Wellings Capital. A 2016 book. I will note that I made a mistake recalling his data, because it was NINE percent of houses that went to the chopping block due to 2008.
"As we discussed before, the foreclosure rate of multifamily assets in the Great Recession was under one percent. Compare this to the non-performance rate of first liens for SFDs held by banks, which peaked at 9% in 2010). When you factor out the highly volatile sand states of Florida, Nevada, Arizona, and California, the foreclosure rate of multifamily properties was a fraction of that. Zeroing in on assets in solid, low-crime submarkets, run by a professional property manager, and the rate drops close to zero."
Perhaps he messed with the stats by partialling out those four bubbly states.
He cites a Freddie Mac report (p. 47) in graph format that shows a relatively flat line for multifamily delinquincy rates; it hovers at around zero from 2000 to 2009, then rises to about .5% in 2011, and is back down to like .25% in 2013, and by 2015 it's virtually zero again. SFDs went from a low of 1% in 2005 to a high of 4% in 2010, and were at 1.5% in 2015. It's on the magnitude of like 10:1.
The citations are Fannie Mae, Freddie Mac, and the Urban Institute. I believe he constructed the graph.
So the question is, when you say that multifamily got crushed, are you saying that that occurred in Ca/Fl/Nv/Az, and that is how you two can disagree so substantially, or are you saying that he is citing data incorrectly? Perhaps you can show that overall in the U.S., more than 3-4% of multifamily properties were foreclosed upon by banks in a given year during the Great Recession.... Or that cumulatively, 5-10% of all apartment complexes were foreclosed upon in the years 2008, 2009, 2010, 2011, 2012, 2013, and 2014.
I am open to changing my mind if you can validate your claim, because I JUST read about Moore's opinion that value-add multifamily is the perfect investment like yesterday. It hasn't become part of my deeply-held belief system. Though, of course, I would be afraid, since I just put two chits on Ashcroft's Class A value-adds in Plano TX and Winter Park, FL. If I thought there was a 5-10% of seeing them go belly up - THAT would cause great distress to my current belief system because it will hit me in the pocketbook big-time.
@Theo Hicks perhaps as a Fairless compatriot, you would care to weigh in here?
