Maturity, for the lucky, comes for all. But how people and things survive and live through it is another matter.
In multifamily, as with all CRE categories, there is a coming wave of maturity. But for many, it will be ugly because of negative leverage, according to David Wegman of Trepp.
Investors of all stripes regularly use leverage. When working correctly, growing value outpaces the ongoing cost of acquisition from borrowing money. Or, as Wegman puts it, so long as the return on asset (ROA, the generalized equivalent of CRE’s cap rate) is higher than the borrowing cost, all is fine. There is enough value coming in to pay the debt service with the remainder going to the owner and return on equity (ROE) “moves directionally higher than ROA," Wegman said.
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