8C — June 24 - July 14, 2016 — Mid-Year Review — M id A tlantic

Real Estate Journal

M ultifamily M arket

By Michael Chavkin, M&T Realty Capital Corporation The Northeast Multifamily Market

T he natural ebbs and flows of market forces i n t h e No r t h e a s t

real estate player in 2017 will need to be bigger, smarter, and stronger. The tailwinds carrying the real estate market are like a refreshing cool breeze on a hot summer day. Year- over-year rent growth in the apartment sector is strong. The young millennial demo- graphic continues to flock towards rental housing in urban environments for a “live-work-play” lifestyle. A global economy mired in fi- nancial turmoil continues to push foreign buyers into our local markets for real estate

assets, and more importantly, for US Treasury debt. The frenzy in the market is fed by cheap and readily available debt for multifamily assets. Lenders are frequently grant- ing several years of interest- only payments on loans, and, in some cases, full interest- only terms. There are often multiple lenders competing on deals, with little more to differentiate them than a race to the bottom on pricing. Personal guarantees on real estate loans are increasingly rare. On the surface, it seems that the multifamily market

has no obstacles in sight. However, lurking just below that surface are headwinds slowing down the multifam- ily market. It’s perhaps not a complete Groundhog Day flashback to 2007, but it’s clear that similar dark clouds may be forming overhead. The same rent growth that has carried the market is now leveling off, as shown in short-term rent growth ver- sus year-over-year growth. New banking regulations are working to reign in excesses as the market comes to grip with Dodd-Frank. CMBS lending

activity remains restrained as conduit lenders struggle to comply with risk-retention rules. Lending caps placed upon the volume of business at the nation’s mortgage gi- ants Fannie Mae and Freddie Mac are limiting them, to an extent. A steepening yield curve is presenting refinance risk and will put downward pressure on leverage. Further uncertainties arise upon closer investigation. Is the millennial migration to urban rental housing truly a lifestyle choice, or is it just a lingering hangover of the credit crisis? The possibility of closing in on a market ze- nith, or dare we say “bubble,” is a concern that should be present in the mind of all lenders and borrowers alike. The biggest unknown of all is the outcome of the upcom- ing presidential election, and what the results will entail for banking regulation, monetary policy, and other economic measures. Add in the constantly conflicting messages out of the Fed on rate movements, and one can begin to see an inflection point beginning to form. With such a worrying fore- cast, what’s a lender to do? Compete fiercely, but stick to the basics. Lenders should focus on the capacity of their borrowers to weather poten- tial “whirlwinds” in the mar- ket. As such, the bigger bor- rowers will have easier access to capital. Lenders will also prefer to work with smarter borrowers who will focus on their core competencies, and with stronger borrowers who rely less on high leverage loans to make a deal work. Is this the end of the world as we know it? Probably not; just time to rinse and repeat in this real estate cycle. The views and opinions ex- pressed in this article are those of the author, and do not neces- sarily represent those of M&T Realty Capital Corporation. Michael Chavkin, as- sistant vice president, is a managing director for agency production with M&T Realty Capital Corporation in New York City. Michael is an up- and-coming CRE finance professional with involve- ment in more than $2.6B in transactions. He joined M&T Realty Capital Corp. in 2012. n

multifamily m a r k e t a p p e a r c l o s e t o equilibrium. T h e r e a l e s t a t e market has en j o y e d a great post- r e c e s s i o n

Michael Chavkin

run, but the coming clash of forceswill requireparticipants to be on their toes. As the tide begins to shift, the successful

Reliability is important.

When you’re facing a complicated multifamily financing situation, it’s crucial to have a dependable lender on your side. M&T Realty Capital Corporation has the experience and expertise to understand your business, and our relationship-focused approach ensures the terms we recommend are right for you. These are just some of the reasons 75% of our business comes from repeat borrowers. Get started at learnmore.mandtrcc.com or call 1-800-737-2344.

Equal Housing Lender. Based on internal customer data. All loans and all terms referenced herein are subject to receipt of a complete application, credit approval and other conditions. ©2016 M&T Realty Capital Corporation. Member FDIC.

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