WASHINGTON, DC-Every now and then talk arises that this multifamily cycle has peaked—in development, in asset prices and in REIT valuations. To be sure, there is some substance to these fears. Multifamily REITs have returned slightly less 10% year-to-date, compared with the 16% or more that REITs in general have delivered.
Still, a number of indicators, both quantitative and anecdotal, suggest that the multifamily asset class is still a solid performer on many levels—as an acquisition target, as a development project and as an equity holding.
First, its value as a REIT holding: SNL Financial reports that multifamily REITs are the top in terms of dividends. On a sector basis, 14 multifamily real estate companies have raised dividends year-to-date through Sept. 6, making it the property sector with the highest number of increases among North American real estate companies. The closest asset class was the hotel sector, with 10 dividend increases, followed by the health care sector with eight dividend increases.
Multifamily also continues to be a core property for acquisitions—as illustrated by Archstone’s acquisition of Grosvenor Tower, a 237-unit apartment community in the Washington, DC area. In related news, Beech Street Capital, secured a $152 million Fannie Mae loan to refinance Archstone Wisconsin Place, a 432-unit apartment community in Chevy Chase, Md.
The activity that is the most telling about the sector’s health—development--is also on a strong track. Last week, the National Association of Home Builders reported that the Multifamily Production Index improved for the eighth consecutive quarter with an index level of 54--the highest reading since the second quarter of 2005. The MPI measures builder and developer sentiment about current conditions in the apartment and condominium market on a scale of 0 to 100. It rose from 51 in the first quarter.
"The strength of the MPI suggests that multifamily production is likely to increase somewhat going forward," says NAHB chief economist David Crowe, in a prepared statement. He notes that multifamily production has already recovered from a historic low of about 110,000 starts a year in 2009 and 2010 to the current annual rate of a little over 200,000.
That said, prior to the downturn multifamily starts remained about 300,000 per year for 12 consecutive years, “so there is room for further improvement before apartment and condo production return to normal, sustainable levels," he concluded.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
