The good news for the multi-family market is that lenders are closing a greater number of construction loans today for strong multi-family projects.
Dan Hampton, senior vice president and head of U.S. commercial real estate in the Indianapolis office of BMO Harris Bank N.A., says that BMO Harris has increased its volume of such loans as the company has moved in to 2012.
Some of the most attractive multi-family projects in Hampton’s eyes are the student-housing projects popping up around university towns such as Madison and Minneapolis. Hampton has also seen strong new-construction multi-family projects in Milwaukee and Chicago.
“There are some thing that are common in those markets,” Hampton said. “They each have diverse, stable job environments. They have research-and-development firms that are doing well. They have strong populations. Some of these markets benefit from a major university. These factors, this stable environment, makes these markets good environments for new multi-family development.”
Mitchell Gould, executive vice president with BRT Realty Trust, said that the multi-family market appears to be strongest in the Southeast region of the country. He pointed to Atlanta as a particularly strong multi-family market.
BRT Realty looks for many of the same factors that Hampton outlined when deciding which multi-family projects receive funding and which ones don’t. Gould added that BRT Realty studies the history of the borrower closely when deciding whether to approve that borrower for financing.
“Does the borrower have a strong operating history?” Gould asked. “Does the borrower own other multi-family projects? Does the borrower know what it is doing? We also want to work with borrowers who can come up with additional cash if that is ever necessary in the event of a problem.”
David Roberts, president and chief operating officer of Grandbridge Real Estate Capital, said that his company’s focus remains on providing financing for multi-family projects because of the continued strong performance of this asset class.
For 2012, Roberts predicted, effective multi-family rents should continue to rise. He said that in most markets, these rents will jump 4 percent to 4.5 percent during the year. At the same time, vacancies are dropping.
Combine this with the fact that the national homeownership rate continues to fall, and you have the recipe for a multi-family market that shows no signs of slipping in the near future.
Roberts pointed, too, at the jobs that the country has created during the last two years. Of these, about 70 percent have been filled by individuals from the ages of 20 to 34. These younger consumers remain prime rental candidates and are, indeed, choosing renting over single-family housing in larger numbers.
“It’s more challenging for young people to get down payments today,” Roberts said. “They have doubts about whether it’s a good investment to buy a single-family home. It’s caused a lot of people in that age group to become renters.”
Roberts also predicted that the country will see a larger number of multi-family starts in 2012, somewhere in the range of 200,000 to 250,000 new units started this year.
“The rents are going up. The vacancies are going down,” Roberts said. “That makes multi-family look pretty darn good.”
– Dan Rafter