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Apartment Rent Growth Remains Strong 

Apartment rental rates continue to grow

After some deceleration in multifamily rent growth earlier this year, a recent report indicates that apartment rental rates resumed impressive gains in the third quarter. According to the report from Yardi Matrix, year-over-year rent growth in October was 3.2% nationwide in 30 major markets, increasing to an all-time high average of $1,476. 

There are many factors which continue to drive demand for multifamily units, including low unemployment, demographic changes, household creation, and a shortage of entry-level housing.  Due to these factors, the Yardi report concludes that in the near term rent growth should remain above the historical long-term average of 2.5% increases year-over-year.  

In the Southeast, rents increased faster than the national average as the region continues to benefit from national migratory and demographic trends. For example, several metro areas saw growth well in excess of the national average, including:  Raleigh (5.1%), Charlotte (4.8%) and Nashville (4.6%). Rents increased in these markets despite significant increases in supply as absorption rates remain high. 

In the Atlanta market, rental increases were near the national average for all multifamily asset classes and well above average (over 6%) in the “Renter-by-Necessity” asset class. Job creation in metro Atlanta remains above the national rate helping to sustain apartment demand. In particular, Class C assets are benefiting from vacancies near all-time lows. 

This recent performance continues a long-term trend with average apartment rents up 32% over the past eight years. 

Strong rent growth has, however, created a financial burden on many households and exacerbated problems with affordability. This has created immense political pressure to take action and has led to recent rent-control legislation. In addition to legislation recently passed in Oregon, New York and California, twelve states are currently considering similar restrictions on rental increases. While housing affordability remains a daunting challenge, rent-control laws tend to limit new supply and worsen the problem in the long term.  Accordingly, more innovative solutions will likely be required. 

At CLF, we note continued optimism from our multifamily investor clients as trading activity remains robust. 

About the Author

Kevin Caiaccio, founder of Caiaccio Law Firm, has more than 25 years of experience practicing commercial real estate law. His cut-through-the-noise mentality encourages clients and colleagues to be selective and focus on big-picture solutions. He believes in fighting for what’s important, and filtering through obstacles that distract.

multifamily building

Multifamily Lending: Regulators Increase Caps for Fannie Mae and Freddie Mac

Green Loans No Longer Excluded from Caps on Multifamily Lending

By: Kevin Caiaccio

The Federal Housing Finance Agency (FHFA) has revised and increased the caps on multifamily lending by Fannie Mae and Freddie Mac. The new caps, effective as of October 1, 2019, are $100 billion for each agency for the five-quarter period running Q4 2019 through Q4 2020. These caps represent an increase from prior limits and indicate continued bullishness for the multifamily originations market. 

Multifamily lending exclusions eliminated

In a tradeoff, the regulations have eliminated all exclusions, including the popular exclusion for green loans such as Fannie Mae’s Green Rewards and Freddie Mac’s Green Up programs. (These are multifamily loans that provide financing for energy efficiency improvements). Under prior policy enacted in 2016, there were no limits on the amount of multifamily green loans. As a result of the exclusions, which the regulators felt had become overly broad, the agencies’ market share has grown sharply. In fact, nearly half of the agencies’ loans were excluded from prior caps due in large part to the green programs (see chart below). 

New Guidelines

In other regulatory changes, the new guidelines mandate that 37.5% of all lending by the government-sponsored enterprises (GSEs) qualify as affordable housing by meeting certain definitions of “mission-driven loans.” This reflects the FHFA’s increasing emphasis on affordability and continued efforts to address the problem of lack of affordable housing across the United States:

“These new multifamily caps eliminate loopholes, provide ample support for the market without crowding out private capital, and significantly increase affordable housing support over previous levels,” FHFA Director Mark Calabria said in prepared remarks.

Prior to the enactment of the changes, GSE lending had slowed due to uncertainty in the marketplace. Because the new regulations will ensure good liquidity in the lending market for the next five quarters, they have been well received by borrowers and lenders.

Fannie Mae and Freddie Mac loans continue to be the most popular financing vehicles for CLF clients trading in stabilized multifamily assets.

About the author

Kevin Caiaccio, founder of Caiaccio Law Firm, has more than 25 years of experience practicing commercial real estate law. His cut-through-the-noise mentality encourages clients and colleagues to be selective and focus on big-picture solutions. He believes in fighting for what’s important, and filtering through obstacles that distract.