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Capital availability remains stable

Views on availability of debt are similar, although slightly more bullish.

Respondents also continue to have optimistic views on the availability of capital for multifamily properties—consistent with past surveys. Most respondents (45.0 percent) believe the amount of equity available for multifamily is the same as it was 12 months ago. Only 17.5 percent said equity is less available, while 27.5 percent said equity is more widely available. Those numbers were virtually unchanged.

Views on availability of debt are similar, although slightly more bullish. In all, 56.6 percent said debt availability is unchanged from a year ago (up from 46.0 percent in 2018), while only 15.3 percent said it is less available (down from 28.0 percent in 2018). Another 22.3 percent said it was more widely available (essentially unchanged from 21.0 percent a year ago).

Respondents are accessing debt from a variety of sources. When asked to rate their use of sources of capital on a scale of 1 to 10, with 1 being no use and 10 being a significant source, most are likely to seek loans from Fannie/Freddie, with a mean score of 7.1. Local/regional banks and national banks rated the next highest, with a mean score of 6.6. Institutional lenders came in next at 6.3.

When asked about anticipated changes to financing for multifamily over the next 12 months, nearly three-fourths of respondents expect loan-to-value (LTV) and debt service coverage (DSC) ratios to remain the same, at 72 percent and 69 percent respectively (up from 58 percent and 59 percent respectively in 2018). Only 11.8 percent said LTV ratios would increase and another 16 percent said they would decrease. For DSC ratios the numbers were 20.5 percent increase and 11 percent decrease. 

When asked to rate the strength of the multifamily market by region, respondents rated the South as the strongest area of the country at a 7.8 out of 10 (up from 7.7 in 2018). For the first time in the six surveys, the South’s score topped the West’s. The West came in second at 7.7, down from 7.9 in 2018. The East was third at 7.3 (down from 7.5 a year ago), while the Midwest continued to be the lowest-scoring region. This year it came in at 6.4, down from 6.7 in 2018. It’s the lowest score of any region in the survey’s history.

Strong economies are quickly filling new apartments in Southeast cities, including Charlotte, N.C., Nashville, Tenn. and Atlanta.

“The Southeast’s major metros have posted terrific apartment sector performance during this cycle,” Greg Willett, chief economist for RealPage Inc., a provider of property management software and services based in Richardson, Texas, told NREI in May. “Investment returns have rivaled the results generated in traditionally favored gateway markets, without the volatility sometimes seen in this part of the country during the past.”

Apartment rents are also growing quickly, rising 5.4 percent on average in Atlanta over the last 12 months, 4.1 percent in Charlotte and 3.2 percent in Nashville, according to RealPage.

In a write-in answer, one respondent identified demographic change as a risk for the sector going forward.

“Do millennials stay urban/renting or move out to the suburbs and buy as their home dynamics shift? How successful are the baby boomers at offloading their homes and potentially moving into the rental pool when much of the ‘move-up’ equity was lost by Gen X in the last cycle? Finally, what are Gen Z’s preferences and are current surveys that show them to be more frugal accurate?” the respondent wrote. “If so, they may not be there to backfill class-A units as professional millennials move to the burbs. The bifurcation between luxury and workforce housing will widen from a fundamental perspective, as all of the supply increase is focused on a relatively thin pool of renters in the luxury segment.”