Tag Archives: insurance companies

The Apartment Market Forecast in Headlines

Multifamily Industry Expects Strong 2011

Multi Housing News (MHNonline) 11-29-2010

Apartment Market at Tipping Point

Colorado Springs Business Journal 2-4-2011

Distressed Debt Investors Prefer Real Estate in 2011

Forbes.com 1-7-2011

CRE Sales Deal Volume Returning to “Normal Levels”

CoStar Group 1-5-2011

Colorado Exceeded Only by Texas as 2010 Relocation Target

denverpost.com 1-4-11

Apartment Operators Regain Pricing Power as Vacancy Recedes to 10-Year Low

Marcus & Millichap 2011 Annual Report (Denver)

As you can see, apartments are the current darling of the commercial real estate world in the United States. The major factors in this trend include a huge number of 18-34 year olds forming their own households, continued high number of residential foreclosures, general population growth via births and immigration, and a lack of any significant apartment developments completed recently or in the pipeline.

In addition, REITs have apparently stopped waiting for the predicted wave of distressed deals and are scooping up Class A properties in high-barrier-to-entry markets such as Washington, D.C., New York City and San Francisco. Since they’re buying in the 5-5.5 cap rate range, it’s apparent they believe in these purchases as long-term holds. Insurance companies, dormant in the field for the last few years, are also returning to the market as both buyers and lenders.

All this has combined to make the next few years perhaps the best time to buy apartments we will see in our lifetimes.

Government-Backed Financing Entities Only Players in Multi-Family

According to the latest issue of Multifamily Executive magazine, the multi-family market is being buoyed by loans from Freddie, Fannie, and HUD-backed FHA loans. The bad news is that for buyers or developers unwilling or unable to get financing from these sources, there’s virtually no other alternative right now.

Although rumors are starting to circulate that insurance companies whose investment portfolios have improved recently might re-enter the market, it’s unclear how they would be able to compete with the GSEs. That may change depending on the continued solvency of the GSEs. Right now they have healthy multi-family loan values and their default rate is below 0.5%, in contrast to the 3.13% rate that commercial banks report. However, a recent GAO report indicates “that Fannie and Freddie stand to bleed $400 billion by the time the issue of the conservancy is resolved.” This may make it more difficult for legislators to continue supporting Fannie and Freddie in their current status.