|
Industry
News
Longer-term prospects for multifamily appear bright
by Susan Futterman
Although
a weak economy will continue to dampen U.S. commercial real estate
markets for at least another year, long-term market trends for
multifamily housing remain “extremely favorable” according
to “Emerging Trends in Real Estate: 2003,” recently
released by PricewaterhouseCoopers, LLP, and Lend Lease Real Estate
Investments, Inc.
The report views apartments as a “hold,” noting that
high pricing coupled with lower occupancy and rental rates reduce
the attractiveness of multifamily acquisitions temporarily.
For the commercial real estate market as a whole, higher vacancies,
corporate belt-tightening, downward rents and rising expenses
will make 2003 a “problematic, but manageable, year,”
the report said. “Real estate’s attractiveness has been
income security, and that security could come under stress the
longer the economy remains sluggish.”
However, the report noted, despite short-term weakness, most indicators
point toward a recovery in 2004. Based on interviews with more
than 170 real estate investors, developers, analysts and managers,
the report also suggests that flattened high-tech markets such
as Silicon Valley, Seattle, northern Virginia and the Boston suburbs
could present attractive investments.
Regardless of the economic environment, capital continues to flow
into the real estate market. On the equity side, institutional
and individual investors still find real estate investment trusts
(REITs) and REIT mutual funds attractive, while a number of pension
funds are mulling increases in their real estate allocation targets,
the forecast noted, Foreign institutions, particularly German,
have moved more heavily into the market while, after a long absence,
private syndicators are returning in force.
On the debt side, commercial mortgage-backed securities (CMBS)
conduits and domestic banks are still major players together with
life insurers, an increasing cadre of foreign bankers and various
mezzanine debt lenders.
The report also found that while debt investors expect delinquency
and default rates to increase from near-record lows, they appear
comfortable that better underwriting, more borrower equity and
low interest rates will offset these problems.
Capital sources are expected to remain fully engaged in property
markets, the report found. Overall, total equity in real estate
has increased from $223 billion in 1992 to $403 billion. Institutional
debt has nearly doubled since 1992, now totaling nearly $1.85
trillion.
The report also notes that overall demographic trends favor apartment
investments, as “Generation Y” enters the rental market
and more aging baby boomers exchange suburban single-family homes
for apartment living.
Sounding a note of caution, the report said that many investors
have been overpaying for apartments, despite weakness in occupancies
and rent. Because they’re paying too much up front, it noted,
recent buyers may get cash flow stability but no appreciation.
The report suggests focusing on B-class housing, which caters
to moderate-income wage earners, the prime renter group. It noted
that following a period during which owners delayed renovations
in the face of declining rents, opportunities may exist for the
purchase of “renovation-starved” properties, initially
in the Southeast and Southwest.
REITs dominate the institutional equity scene with a 43% share,
followed by pension funds (37%), foreign investors (11%) and insurance
companies (8%). Total equity has increased from $223 billion in
1992 to a current value of $406 billion.
On the debt side, commercial banks’ share of invested debt
capital is 42%, followed by CMBS issuers (16%), life insurers
(12%) and foreign banks (11%). Institutional debt has nearly doubled
since 1992 and now totals more than $1.85 trillion.
To access the report online, visit www.lendleaserei.com.
|
