Magellan Commercial Realty > Article Holder > NMHC Members Cast as Time for Retrenching

At a members-only finance forum, panelists urge industry players to start formulating plans for mid-2009 and 2010 when the market is projected to bounce back.

IRVING, TX-Despite the credit crunch and liquidity crisis, continued foreclosures and all-around gloomy economic news, participants at this year's National Multi Housing Council's Finance Forum say there is a light at the far end of the tunnel. Most speakers believe improvement will begin in mid to late 2009.

Nearly 200 professionals from the US attended the NMHC's members-only forum yesterday at the Four Seasons Resort & Club at 4150 N. MacArthur Blvd. Michael B. Cohen, research strategist with Property & Portfolio Research Inc. in Boston, and G. Ronald Witten, president of Dallas-based Witten Advisors LLC, believe that, for all intents and purposes, multifamily buyers, sellers and developers can expect similar circumstances in the second half of this year that they experienced in the first.

Cohen suggested participants begin focusing on what they might want to accomplish beginning in the middle of 2009 and moving into 2010. "If this is a short recession and the markets can come back, we could see high levels of development and investment in 2010," he said.

The developers, investors and operators agreed with the economists that the long-term outlook will be good. For the time being, however, cap rates continue to remain low for multifamily assets just like net operating income in certain markets.

The extra inventory coming on line, condo projects reverting to rentals and the shadow market of single-family rental homes mean not a whole lot of multifamily product is being developed. James A. Butz, managing partner with JPI East in McLean, VA, pointed out that costs to build are also increasing, especially when it comes to the cost of debt.

"Basic construction costs haven't gone down, but they aren't going up," added Brian T. Murdy, managing director with Hartford, CT-based Cornerstone Real Estate Advisors LLC. "Soft costs are going up. Lenders are requiring more equity up front, but rents aren't trending upward to make up for that." As a result, developers are waiting to build.

Gregory M. Weingast, senior vice president with Archstone-Smith of Arlington, VA, agreed that getting any kind of development financing is difficult in the current market. Developers need a higher equity component. And, he pointed out that it's difficult to justify construction since rents aren't trending up quite so high.

It's not that a dwindling pipeline supply is such a bad idea. "We're seeing the multifamily supply going down in about two or three years," Butz said, adding that with developments taking from three to five years to get to market, that projects started in the coming months have a good chance of being absorbed once they come on line.

On the financing side, Joshua M. Brown, senior managing director with Eastdil Secured LLC's Dallas office, pointed out capital is available for projects, but it's uneasy. He said his staff, these days, has to talk to a variety of sources to cobble together debt whereas not so long ago it came from a single source.

Meanwhile, companies like Cornerstone Real Estate Advisors are focusing on smaller deals for the short term. Murdy said Cornerstone is staying out of smaller markets while looking toward possibly doing something in Florida and the Pacific Northwest.

Butz said JPI is looking for value-add projects in coastal markets as well as Dallas and Houston, student housing and infill urban centers. Dale J. Gruen, managing director with San Francisco, CA-based BlackRock Realty Advisors Inc. said his company also is seeking urban infill locations on East and West coasts.

Home • Links • Contact Us • Legal • Privacy