Mid-Year Berkadia Powerhouse Poll shows continued strength in GSE lending; South and West regions remain the hot spot for investors
NEW YORK – August 23, 2018 – Mortgage banking and investment sales experts at Berkadia remain confident that the remainder of the year will see strong activity within the multifamily commercial real estate sector, according to the firm’s Mid-Year Powerhouse Poll. The proprietary poll, conducted in July, collected insights from over 150 Berkadia investment sales brokers and mortgage bankers across 60 offices to assess opportunities in the multifamily space for the second half of the year.
At the start of 2018, the majority of Berkadia’s mortgage bankers and investment sales advisors did not expect multifamily lending and investment activity to decrease year-over-year, despite several potentially disruptive factors such as rising interest rates and an uncertain political and regulatory environment. According to the mid-year study, the team remains confident in the performance of the multifamily sector. In fact, most (70%) of Berkadia’s experts say that by year’s end, multifamily industry deal volume will either increase or stay the same. Sixty-seven percent said the same about the number of multifamily transactions in the industry.
“The multifamily space is the land of opportunity right now, and we don’t see that waning any time soon,” said Ernie Katai, Executive Vice President and Head of Production at Berkadia. “While we may not have seen as many big block-buster deals during the first half of the year as in years past, production remains steady on both the investment sales and lending sides of the coin, and industry-wide, we expect that activity to remain strong.”
In fact, 72% of respondents say that multifamily will be the most active sector for the remainder of the year, and 81% of respondents say that their outlook now is either more positive or the same compared to what it was at the beginning of the year. This confidence remains, despite most respondents (70%) saying that rising interest rates have somewhat or definitely impacted commercial real estate lending and investment sales activity this year.
“At the start of 2018, we were all fairly certain that the Fed would raise interest rates a few times over the next 12 months,” said Katai. “Despite this anticipation, we’ve certainly seen an impact on deals this year, particularly on the lending side where there has been an added stress on refinancing. That said, many economic factors—including robust hiring and a rise in the labor force—have kept investment sales deal flow strong.”
GSEs Lead the Way; Investors are Born in the USA
A resounding 87% of respondents still expect that Government-Sponsored Enterprises (GSEs) will provide most of the financing in the remainder of the year. But is there a potential for this to change? Prospective borrowers should stay abreast of government policy and potential regulations that may impact the GSE structure.
“While there is no indication that the GSEs will be restructured in the immediate future, it’s been under discussion by our current administration and would certainly have an impact on the lending landscape,” said Katai. “Certain sectors in particular—such as affordable housing—should keep an especially keen eye on possible government action.”
On the investing side, more than 86% of respondents say that domestic capital will lead the way for investments for the remainder of the year, with domestic private investors accounting for 60% and domestic institutional investors accounting for 26%. While most capital is expected to come from the U.S., foreign investors have displayed a pique in interest around other property sectors, like student housing.
“There’s a very real faith in the strength of the U.S. market, both at home and abroad,” said Katai. “Foreign investors—particularly from Canada and Asia—are becoming quite comfortable with the student housing sector. As U.S. colleges and universities gain more and more recognition across the world, cross-border capital is more likely to flow into properties near those institutions.”
Look to the South, to the West and to the Young
As with the beginning of 2018, mortgage bankers and investment sales associates are still high on lending and investing activity in the Southeast, Southwest and West, with 81% of respondents saying these areas will continue to see the most activity in the industry.
“We’re seeing healthy activity in the multifamily sector across the country, but a few select cities are rising to the top,” said Katai. “Six of the country’s top 10 markets have seen strong activity and investor appetite over the previous year, including New York, D.C., Phoenix, Houston, Seattle and the Los Angeles metro area.”
With the millennial generation continuing to show a strong affinity toward renting over homebuying, the overall demographics of the country’s renting population are changing, leading to an impact on both lending and investment sales activity. Investors and property managers are ensuring that their properties appeal to this generation’s apartment desires.
“The millennial renter is different from any other previous generation when it comes to the sorts of amenities and features they like in their apartments, as well as the type of space they need and how they prioritize their rental’s location within a metro area,” Katai added. “From emphasizing tech amenities to coveting properties that have restaurants and entertainment on the premises, millennials are shaping the future of the multifamily sector.”
About the Powerhouse Poll:
Data was collected in an online survey conducted internally by Berkadia through SurveyMonkey in July 2018. The sample was based among Berkadia’s 60 offices throughout the U.S., consisting of 56 investment sales brokers and 100 mortgage bankers, totaling 156 overall respondents.