Confidence in Multifamily Continues to Slide
Concerns in the sector has been growing as rent growth stalled and transaction volumes are far down.
The multifamily sector has been treading water heavily for months and confidence in it has continued to decline.
The National Association of Home Builders in its most recent member survey said that confidence in the market for new multifamily declined year over year in the first quarter of 2024.
The Multifamily Production Index (MPI) had a reading of 47, down three points year-over-year. The MPI measures builder and developer sentiment about current production conditions in the apartment and condo market on a scale of 0 to 100.
The index uses a weighted average of three build-for-rent markets (garden/low rise, mid/high rise, and subsidized) and in the built-for-sale or condominium market. All four parts were down year over year, with garden/low rise down two points to 55; mid/high rise down five points to 36, subsidized down one point to 50; and condos down three points to 39.
“Multifamily developers are concerned about higher interest rates for construction and development loans and tighter lending conditions that are taking place in the market right now,” Tom Tomaszewski, president of The Annex Group and chairman of NAHB’s Multifamily Council, said in prepared remarks “There are also many areas across the country where developers are having a difficult time getting their projects approved.”
As GlobeSt.com has reported during 2024, the Federal Reserve has categorized multifamily with office as being the more concerning areas of CRE markets. This should be surprising, as multifamily showed the biggest transaction decline, at 50%, by the end of 2023, according to MSCI.
Multiple CRE executives at the Milken Institute’s annual conference last week specifically pointed to problems they saw brewing in multifamily, according to a Real Deal report.
“Multifamily now is in the crosshairs,” said Starwood Capital Group CEO Barry Sternlicht, who sees a “huge distress cycle” coming. “This is really a balance sheet crisis. The Fed is very aware that it has a teetering regional banking system that loads about $700 billion, that are real estate loans [originated] in a low interest rate environment, and the small borrowers are going to have a hard time refinancing.”
“We’re bullish on housing in general, but there is going to be a lot of distress in multifamily,” said Jase Auby, the chief investment officer at the Teacher Retirement System of Texas. “There are a lot of developers that are going to need to refinance.”