Multifamily Sector Improvement Depends On Job Growth, Freddie Mac Says

Despite positive developments in parts of the commercial mortgage market, including rent stabilization and the slow return of private funding, a full recovery in multifamily housing ‘is still a ways away,’ according to a Freddie Mac executive. Mike May, senior vice president of Freddie Mac's multifamily division, says the multifamily sector will only improve once unemployment numbers decline.

‘The simple fact is, lasting improvement in apartment-market conditions can come only from strong job growth,’ May wrote in Executive Perspectives, a regular blog feature on Freddie Mac's website. ‘Higher incomes and household formations are essential to a lasting recovery. But neither is achievable when the unemployment rate is 9.6 percent.’

When it comes to financing multifamily loans, Freddie Mac is looking for an 80% loan-to-value ratio and a 1.25% debt-to-coverage ratio ‘on most loans,’ May wrote. Other criteria include ‘realistic’ forecasts of net operating incomes and good track records among property owners.

‘For deals that meet our credit requirements, we have plenty of available funds for multifamily loans,’ he wrote. ‘Otherwise, we're willing to take a pass, even if that means missing out on some attractive deals on the leading edge of a lasting recovery.’

Freddie Mac has purchased approximately $45 billion in multifamily loans since 2008. The company's shrunken presence in the multifamily market during the boom allowed it to sidestep much of the pain felt by other investors, according to May.

The delinquency rate on Freddie Mac's multifamily portfolio is 28 basis points (bps), compared to 400 bps for bank-held loans and more than 1,000 bps for multifamily loans in commercial mortgage-backed securities (CMBS), he wrote.

Trepp's latest CMBS delinquency report shows that the delinquency rate among securitized multifamily loans rose 53 bps in August, resulting in a 14.53% delinquency rate at the end of the month. Only hotel loans had a higher delinquency rate among CMBS property types.

However, CB Richard Ellis CEO Brett White tells The Los Angeles Times' Roger Vincent that multifamily properties are leading the recovery in the commercial sector.

‘There is a real demand for apartments, and rents are going up,’ White said in a Q&A published Monday.


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