The Immunity of Multifamily
Continued from Page 40
Economy.com, as many as one in four, or 12
million, homeowners could be underwater
in their mortgages by the end of 2009. And
the foreclosure rate in the second quarter
of this year stood at 2.75 percent, according to the Mortgage Bankers
If a home is no longer a
sound investment, other questions arise. The answers point
to a possible shift to multi-family residences or condominiums and townhouses.
Soaring heating and electricity costs are bringing a
growing awareness of houses’ operating
expenses. In addition, houses have maintenance costs: roofs to fix, yards to landscape, plumbing to repair, etc. As home
prices fall, it’s much easier to begrudge
these elements as throwing good money
Further, the gas-price spike has had a
major role in popping the housing bubble,
and transportation costs will continue
be a key element. Long commutes are
tolerable when traveling toward a welcoming home. But when a house in the
suburbs is costing more than comparable housing closer to work, this no longer
Demographic trends also point away
from the single-family house in the suburbs.
“If a home is no longer a sound investment,
other questions arise. The answers point to
a possible shift to multifamily residences or
condominiums and townhouses.”
Aging baby boomers and younger “
millennials” — people in their 20s and 30s —
are heading to the city. Boomers are
seeking to downsize, while younger people
are attracted to the diversions of more-urban areas.
Infrastructure improvements also are
assisting the multifamily market. Building
individual houses on separate lots, on inexpensive land has been thought to carry less
risk than denser, urban projects. As a result, multifamily projects inside city limits
have carried less appeal. Increasingly, however, the government has become more receptive to multifamily and has stepped up
to invest in infrastructure improvements
such as public transportation that encourage urban living.
More than 30 U.S. cities
have or are developing commuter light-rail systems.
Apartments near light-rail
stations are doing a brisk
business. The number of
households near transit stations is predicted to more
than double to 15 million in
the next 20 years, according
to Reconnecting America, a nonprofit focused on transit-oriented development.
Homeowners, prospective homeowners
and real estate investors are starting to
reach the same conclusion: Multifamily
The fact that a house is worth less than
its outstanding mortgage won’t in itself
cause a complete housing migration. But
the urban elements that are attractive —
convenience, efficiency and access to transportation and services — will influence
From an investor’s standpoint, multifamily still carries its traditional disadvantages. Income depends on private
individuals, not on business tenants.
Lease terms are shorter. Competition can
be more of a concern: Tenants can heed
the siren song of a reconditioned apartment building nearby offering superior
amenities and a month’s free rent. Rent
increases can be tougher to institute, with
renters pushing back on the basis of their
perception of the economy. Passing off
increased energy costs and taxes is also
more difficult, and more involved management is a general rule.
Still, investors are under pressure to
put their money to work. Investment dollars pulled from equity markets have to
find a home — and apartments just may
fit the bill.
For lenders and brokers seeking a
bright spot now, multifamily holds a lot
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