Multifamily Sector Update 11/19/2015

"Multifamily Loan Growth Slowing Down to Steady and Normal Rate"

The volume of loans given to multifamily properties is expected to remain the same through 2016 and 2017 as it is in 2015. Jamie Woodwell, VP of research and economics at MBA, describes the current multifamily loan market as strong, steady, and healthy, especially in comparison to the rapid growth rates of around 10-15% that the multifamily loan market experienced in the last few years. For the year ending 2015, experts anticipate that $224 billion will be given in permanent loans to multifamily properties. This will be about a 15% increase from the amount awarded in 2014. The majority of experts expected growth rates to have leveled off more than they have so far in 2015. Most of these loans have come from banks and agency lenders that go to properties based on Fannie Mae (The Federal National Mortgage Association) and Freddie Mac (The Federal Home Loan Mortgage Corporation) programs. Both of these government sponsored enterprises are meant to increase the secondary mortgage market, thus increasing the amount of money available to new home buyers. The government officials who run Fannie Mae and Freddie Mac have made this large volume of loans possible by slightly changing the lending limits for these agencies so that loans on affordable and workforce housing do not count towards lending caps. Small and steady growth of about $1-2 billion a year is expected in multifamily loans.

"Rents Soar Across the Country Putting Landlords in Position of Power"

Rents across the country are increasing rapidly, at a much faster rate than are salaries and inflation. Around 88% of property owners have hiked up rents in the past 12 months, and 68% think rental rates will continue to increase in the next year at an average of 8%. This is three times the expected increase in wages this year. Further, landlords are being tough on credit scores and are refusing to make any concessions at all, since they are in a position of power due to the lowest vacancy rate in twenty years of 6.8%. Many renters are now spending more than the recommended benchmark of 30% of income on rent, and the number of people spending more than 50% of their income on rent will rise 11.8% in 2015. Both local and federal governments are reporting that they simply do not have enough supply to meet the demand for affordable housing now, and the market has risen too high to reach low-income renters. The highest rent increases are seen in San Francisco, which surged a whopping 14% year over year to $3,530 for a one bedroom apartment, compared to NYC’s already high 5% year over year price increase to $3,160 for a one bedroom apartment. Those in NYC also cite the exorbitant broker fees of 15% of annual rent one must pay as well in order to find an apartment.

"Luxury Manhattan Condominium Complex Sparks Debate Once More Over EB-5 Funding"

Steven Witkoff plans to build a new 900 ft. tall condominium tower on “Billionaire’s Row” along the southern edge of Central Park. What makes his tower so controversial is that more than $200 million of his funding comes from the federal visa program EB-5. EB-5 allows aspiring immigrants to invest in increments of $500,000 in either rural areas or areas where unemployment is 150% of the national average, with the assurance that new jobs will be created. However, the law does not specify what size the ‘targeted areas’ have to be; thus, developers are left to draw the lines of their own districts. For example, Witkoff linked his luxury development to a census tract in East Harlem with a plethora of public housing projects. His proposed $1.7 billion project will be the highest-end development to receive EB-5 funding yet. Witkoff said that working-class people receive the construction jobs no matter where the construction actually is, yet others argue that glitzy projects like 36 Central Park South pull the funds away from the less glamorous projects that EB-5 was enacted to help fund. The savings from using EB-5 funding as opposed to more traditional sources are on average between five and eight percentage points per year on loans, which adds up to tens of millions of dollars of savings. Key parts of the EB-5 legislation expire on December 11, at which time will Congress will have to debate whether to change the program in order to prevent situations like this, or do away with it entirely.