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CRE Finance World, Winter 2012

CREFC Multifamily Lenders Forum Update Jeffrey Day CEO and Managing Director Deutsche Bank Berkshire Mortgage Chair, CREFC Multifamily Lenders Forum I n 2010, multifamily CMBS delinquency rates were at 1.A rapid increase in the key 20-34 age demographic renterThree factors may explain how the traditional correlation betweenjob creation, economic growth and the health of the multifamilysector has broken down:all-time highs, and the YE multifamily vacancy rate, whileimproving from 8.0% at YE 2009 to 6.6% at YE 2010(REIS, Maximus Advisors), masked underlying weaknessin many markets. population, which the Census Bureau estimates will grow by an Between March 2009 and March 2010, U.S. household formation annual average of 650,000 between 2007 and 2014. rose by just 357,000, its lowest level since 1947. The most recent mid-year 2011 Census Bureau data suggests household formation 2.A fall in home ownership rates from a high of 69.2% to 65.9% in excess of 800,000, an improvement over prior periods but still in Q2 of 20114. Rates have fallen 4% for those under age 25 well below the robust years of one million or more annual additions. and 7.0% for those between 25 to 29 (Freddie Mac), with a 1% drop in the overall homeownership rate equaling approximately At the beginning of 2011, it appeared that the economy was on 1.1 million new renter households. the path to recovery, with positive GDP and employment trends, increasing consumer spending, recovering financial equities, and 3.The lack of liquidity plaguing the broader economic recovery the various sectors of the U.S. CMBS market on their way to a acting as a buffer stifling new supply in the multifamily space. much-improved issuance year. Construction financing is restricted to the best borrowers in the best markets, and is often much more conservative than during In the multifamily space, cap rates continued their rapid decline, the past cycle. driven by low interest rates combined with higher agency issuance, resurgent unsecured debt markets, CMBS and the steady supply of This fiscal year the Multifamily Lenders Forum will focus on four capital from GSEs. There was even evidence of momentum in new areas: (1) GSE reform legislation, which would restrict executive multifamily construction financing as larger and better capitalized compensation and wind down Fannie Mae and Freddie Mac over banks gingerly stepped back into the space. All factors pointed a 10-year period; (2) affordable housing, with an emphasis on toward a modest global economic recovery and improvement in LIHTC, lower floater bond credit enhancements, and preservation the U.S. multifamily market. forms of financing focused on underserved markets; (3) the need to provide debt and equity capital to maintain and preserve our Fast forward through 2011, and many of the rosy macro projections aging rental housing stock; and (4) rejuvenation of the private debt have been tempered by reality. The situation in Europe is dire, and capital markets. capital markets around the globe are struggling to price and trade risk. New legislation and capital requirements have constrained the We encourage our readers interested in these or other issues ability of banks to provide much needed liquidity. Notwithstanding, related to multifamily housing, to reach out, join the Forum and the U.S. multifamily sector is one of the only relatively bright spots take ownership of one or more of these key initiatives. across all asset classes globally. A publication of Winter issue 2012 sponsored by CRE Finance World Winter 2012 75


CRE Finance World, Winter 2012
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