Multifamily Sales
Today’s WSJ has an article, Multifamily Sales Defy the Slump. Its got a few interesting pieces of information and is relatively correct, something unusual for the popular press. However, its focused on big picture issues and I think its missing something. Sales are up as are values, however as with most things today the middle of the market is missing. Larger high quality properties are selling as are really distressed REO properties. However, the standard B and C quality properties that are not located in an A+ sub-market are not selling and have not found value discovery. Properties are on the market, but sellers wont sell for what buyers will pay and financing these properties are difficult. The deals I’m talking about are the 20-150 unit property is a secondary sub-market of a major city or in a secondary city. Because the current sales are big deals the overall dollar numbers look good, but I would like to see data on the number of deals being closed.
One reason for this is owners of that size properties tend to be smaller entrepreneurial investors. These are the hardest owners to find loans for today. They typically are not very liquid and have limited net worth. With that profile national lenders do not want to lend to them and the banks that typically have supported this part of the market are, on average, having trouble and keeping out of the lending marketplace. Until this part of the market comes back we really can’t say we are out of the slump.
You have hit on the points that don’t make the headlines. From an appraiser standpoint, I see both sales and refi. Sale volume is way down in the markets where I am working. The drop off in sheer number of sales starts in 2009 and is showing little sign of picking up in 2010. Fannie Mae is really the only show in town, with the exception of some regional lenders that are very selective about who they will lend to. I am seeing more small local credit unions getting into the apartment lending business, but they are only doing one-off loans. And the problem from an appraisal standpoint is when you only have distress sales to choose from for comps, it doesn’t help support values for those investors that are brave enough to try to refinance. Until banks are back in the lending business, the middle market doesn’t have many options. Sales won’t pick up until lenders ease up on the recent requirement that ownership has to be locally based as well.