Page 26

CRE Finance World, Summer 2012

The U.S. Apartment Sector’s Recovery Hasn’t Trickled Down To Multifamily CMBS We believe several factors may be behind the recent improvements. Rents continued to drift lower from the third quarter of 2008 We’re seeing continued trepidation among potential homebuyers, through the first quarter of 2010 before beginning to steadily who may be waiting for prices to stabilize or are concerned that rise. Yet despite the continued increases since then, multifamily homeownership may not be a safe investment. Moreover, tighter delinquencies still remain near historical highs. At 13.39%, they’re underwriting standards among lenders are also preventing many almost double the American Council of Life Underwriters’ 7.12% potential buyers from qualifying for home mortgages. Debundling multifamily delinquency rate in December 1991, shortly after the of households as grown children move out of their parents’ homes end of the severe 1990/1991 commercial real estate recession. and into apartments has also picked up. In our view, the confluence of these factors is spurring apartment demand both in general and Chart 3 within the core 20- to 34-year-old rental group. Changes In Home Prices, Apartment Rents, and the Multifamily Delinquency Rate Chart 2 National Multi Housing Council Market Tightness and Sales Volumes Indices New York City and the Five Weakest Housing Markets Dominate Delinquencies Multifamily CMBS Delinquencies Are Near Historical Among the markets that the S&P/Case Shiller Home Price 20- Highs Despite the Strong Rental Market City Composite Index tracks, those with the worst price declines With the housing bubble firmly entrenched, U.S. home prices since July 2006 are Las Vegas (with a 61.6% price decline), didn’t top out until July 2006, nearly two years after the peak in Phoenix (54.2%), Miami (49.9%), Tampa (48.0%), and Detroit homeownership. According to the S&P/Case-Shiller Index, home (44.3%) (see table 1). Four of these markets also have multifamily prices have been declining since then (see chart 3). Meanwhile, delinquency rates that exceed the national average for multifamily demand for rental units accelerated and apartment rents rose. But CMBS delinquencies. However, the highest multifamily delinquency as the recession unfolded and jobs became scarcer, household rate of the 20-City Composite Index is in New York City, at 44.3% coupling increased and rental demand abated. Rents for apartment of the city’s current outstanding multifamily principal balance. units then began to fall off after peaking in the second quarter of Several troubled New York City rental conversions — Peter Cooper 2008, according to CBRE. With apartment rents declining, owners Village and Stuyvesant Town, Riverton Apartments, and the New of multifamily properties had a more difficult time meeting their York City Apartment Portfolio — account for nearly this entire debt service obligations, and multifamily delinquencies began to amount. Delinquencies in the five weakest housing markets and those accelerate in 2008 and 2009. Multifamily CMBS delinquencies related to the New York rental conversions make up approximately posted their largest annual increase ever in 2009, spiking 260% 84% of delinquencies in the 20-City Composite. to 8.63% from just 2.4% a year earlier. CRE Finance World Summer 2012 24


CRE Finance World, Summer 2012
To see the actual publication please follow the link above