SoCal Multifamily Sales Pulse - July 3, 2022 - July 9, 2022

• 11 July 2022
• Mike Lembeck

Disclaimer: All information contained herein is obtained from sources believed reliable. We have not verified it and make no guarantee, warranty or representation about it. Any projections, opinions, assumptions or estimates used are for example only. We make no claim(s) as to the accuracy or reliability of the information presented. If you wish for us to analyze your specific property or situation please feel free to call or email us anytime.

Here's What's Happening In The Market, Here’s What This Means For You

After two years in which the Federal Reserve expanded the U.S. money supply by an astounding 410% and kept interest rates at near zero to prop up the economy, the U.S. central bank is striving to battle inflation that has hit a 40-year high. That raises a pivotal question: Will those inflation-fighting efforts help or harm multifamily lending, investment and development?

The Fed’s tightening, which began in March, had little effect on the red-hot multifamily sector in the first quarter, when buyers sank $63 billion into apartments, a 56 percent year-over-year increase and the strongest first quarter on record. But since then, lenders and investors have become more cautious. 

During the first quarter, investors were eager to refinance in order to take advantage of high valuations and to get in the market before the Fed started hiking its benchmark interest rate to ease inflation. Now, many are hesitant to tap the debt markets because interest rates have risen so rapidly since March, and lender underwriting is reflecting economic uncertainty and increased risk. There is even talk of “negative leverage” for some properties if the cost of capital is higher than a property’s cap rate.

In previous periods of rising interest rates, lenders typically kept the cost of capital relatively stable by narrowing the spread above whatever benchmark rate was being used. Today, however, lenders either have moved to the sidelines or are pricing more risk into deals.

<< Back

Comments

No comments.

Register here or Login here to be able to add comment.