Lenders On the Defense May Impact Multifamily Market
Lenders are bracing themselves “to handle the disruptions they know are coming.”
The multifamily market may feel the pressure of lenders “going defensive” in the near term, according to leaders speaking on the institutional investing panel at this year’s GlobeSt Multifamily conference in Los Angeles.
“If there was ever a time we needed to hear real time insight from our industry leaders, that time is now,” said moderator Marc Renard, executive vice chairman of the capital markets group at Cushman & Wakefield. “Last year, we were high fiving each other at this conference….we were awash in money and it was a party. But unfortunately, the bigger the party the bigger the hangover, and right now this market is a little hungover.”
According to Douglas Schwartz, managing director at JP Morgan Asset Management, lenders are bracing themselves “to handle the disruptions they know are coming,” and that’s being reflected in less debt capital being available.
“In office, there certainly will be a lot of broken capital structures,” Schwartz said. “It’s too early to tell if that plays out in multifamily… That will be a major determinant of whether we have a huge problem next year or ride it through.”
Ritesh Patel, CIO of Virtu Investments LLC, said there are some key differences to watch: for one thing, US financial institutions are in a better position than in 2007 prior to the Great Financial Crisis.
“You always see this debt issue first and sometimes it cures itself like in 2020 or 1997 and you get two or three years out of it, and sometimes it doesn’t,” Patel said.
Sean Burton, CEO of Cityview, says he’s observed a “herd mentality” among institutions, noting that at a recent pension system conference he attended “doom and gloom was the message.”
“That feels like 2008 and 2009,” he said. “But what’s different now is I’ve never seen a period of rapid inflation like this. We’ve been in a deflationary environment for 30 years. The question is how structural this is…We are of the view there’s some structural elements and you won’t see 2% inflation for some time. And requires a different focus and different response.”
Despite all that, Renard said there’s still liquidity in the market, and deals are getting done, adding that “we are in a capital market recession, not an economic recession.”
“What’s happening with those today and a year or so from now will create enormous opportunities for those with courage and capital,” Renard said.