Sources of capital envision more multi-family businesses this year
Capital markets are open and ready to serve multi-family borrowers this year. According to a new report from Yardi Matrix, the apartment sector continues to face challenges from the pandemic, such as falling rent collections and falling demand on primary subways, but the availability of capital does not. part. This year, capital markets will support transaction activity in the multi-family.
In 2020, that was not the case. Transaction volume fell to $ 80 billion from $ 127.6 billion in 2019, and lenders took a break to assess new market conditions. The flow of transactions fell after the start of the pandemic, but now it has rebounded. For 2021, multi-family is once again considered a leading investment asset class. Why? Multi-family supply continues to be scarce, particularly among the necessity and affordable rental housing segments. In addition, the multifamily produces dividend yields of 4-6%, better than sovereign bonds and grade corporate bonds, according to the Yardi Matrix report.
Government agencies spearheaded loan origination last year, funding a record $ 181 billion in loans in 2020, up from $ 155 billion in 2019. At the same time, CMBS origins have fallen to levels not seen since 2012 .
This year, some of those trends will be reversed. The FHFA, the regulatory agency, has reduced Loan allocations in 2021 to $ 70 billion against $ 80 billion in 2020 for each agency. That’s a 12.5% drop in lending power. In addition, Fannie and Freddie have each increased their affordable housing mandates. At least half of all new loans must be for affordable housing, up from 37.5% in 2020.
These restrictions will likely reduce the lending power of agencies, but borrowers will still have many other options including commercial banks, life insurance companies, CMBS. According to Yardi Matrix, all of these sources of capital want to increase multi-family businesses this year.
Yardi Matrix notes that not all multi-family properties will be on an equal footing in 2021. Properties that have experienced a substantial loss in rents or a decrease in the vacancy rate will still have difficulty raising capital, and lenders are likely to review transactions. However, multi-family defaults have remained low and, barring a sudden change in current economic conditions, investment from both debt and equity is expected to remain high in 2021.