July 12, 2017
By Dennis Kaiser
Multifamily investment strategies continue to shift in response to home ownership trends, Millennial location preferences, as well as a host of economic factors. George Smith Partners multifamily lending experts Steve Bram and Bryan Shaffer shared insights into the ways investors, developers and managers are meeting those changes in Connect Media’s latest Q&A.
Q: As new multifamily construction hits the market, are lenders pulling back on financing multifamily assets?
A: Bram (above right): Construction lenders are definitely limiting the number of new projects they will finance. The “money center” banks are looking for a very few new clients and will not do transactional deals. They are focused on taking care of their existing clients. Some regional and local banks will look at transactional business. That said, multifamily permanent financing is still a preferred project, with all lenders aggressively going after this project type.
Q: Which markets have emerged as the most promising targets for multifamily investments?
A: Shaffer (above left): Los Angeles has emerged as one of the hottest markets in California for multifamily, and for good reason. The trend toward urbanization, explosive job growth, and the pent-up demand for housing are some of the main factors that are driving multifamily investment and development in this rapidly growing market.
While markets such as San Francisco are becoming overheated and seeing an out-migration of residents due to the high cost of living, Los Angeles gained over 42,000 people in the past year and has surpassed four million people in population, earning its rank as the most populated city in California, according to a recent report by the California Department of Finance. Based on these demographic shifts, demand for multifamily housing continues to outpace supply, despite an uptick in new multifamily construction. Overall, all signs point to a healthy and strong multifamily market in Los Angeles.
Q: What other factors might impact multifamily financing in the year ahead?
A: Bram: Multifamily construction will decrease because of overbuilding in some areas, increased land prices, new regulations (such as measure JJJ in Los Angeles, which requires 20% affordable and prevailing wages), projected increases in supply, and the inability of tenants to pay the increasing rents.
A: Shaffer: The strength of the economy will play a key role in multifamily financing – as long as job growth continues, the multifamily market will remain strong in the year ahead.
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