Fewer Multifamily Development Deals are Repricing

Multifamily has been struggling after its glory days at the height of pandemic panic and madness. Declining prices in the company of office, worthy of mention by the Federal Reserve. Trepp seeing “more significant fluctuations than usual” in multifamily delinquency rates.

But there’s some good news on the multifamily front according to the National Multifamily Housing Council. Materials prices for construction are continuing to moderate.

“The share of respondents who reported deals being repriced up continued to fall, reaching 13% this quarter (from 48% in September and 23% in December),” the NMHC said about their survey responses from 48 leading multifamily construction and development firms. “Conversely, the share of respondents who saw deals repriced down doubled (52% of respondents, from 26% in December). Twenty-seven percent of respondents reported no repricing of deals (from 32% three months ago).” The average repricing last June was up 9%, up 10% in September, 9% in December, and now it was down 1%.

In March 2022, 92% respondents said they saw deals being repriced upwards. Two years later, 52% saw upward pricing and 42% didn’t, with 6% not answering. Electronic finishes and roofing were up 1%; electrical components were up 4%; insulation grew 2%; and lumber was flat.

Developers used multiple approaches to deal with price changes, with the statistics showing significant overlap. For exterior finishes and roofing, 48% used alternative brands or suppliers; 46% used alternative product or material types; 44% made design changes; 31% changed purchasing schedules, including pre-scheduling and/or warehousing products or materials; and 8% put greater focus on escalation clauses and acceptance of higher escalations.

For electrical components, 48% made design changes; 46% changed purchasing schedules; 44% used alternative brands or suppliers; 40% used alternative products or material types; and 13% given greater focus on escalation clauses and acceptance of higher escalations.

Changes for insulation were a lot lower, with 15% using alternative brands or suppliers; 8% using alternative product and material types; 4% made design changes; 6% changed purchasing schedules; and 6% put greater focus on escalation clauses and acceptance of higher escalations.

For lumber, only 4% used alternative brands or suppliers; 8% used alternative products and materials; 8% made design changes; 19% changed purchasing schedules; and 8% focused on escalation clauses and acceptance of higher escalations.

There were some components that had higher levels of alterations or alternatives: 44% for electrical panels and items with chips, 42% for lighting fixtures, 38% for exterior finishes, 31% for door and cabinet hardware, and 23% for roofing.

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