When this year’s National Multifamily Housing Council (NMHC) Annual Meeting wrapped up in Las Vegas on February 2, many industry insiders, buoyed by a sense of cautious optimism, flew home with perhaps a very slight psychic tailwind. More than 8,500 industry professionals attended the four-day event, held at Las Vegas’ ARIA Resort. It included the Women’s Event, Apartment Strategies Conference, and the group’s Annual Meeting itself.
Any in-flight optimism was due in equal parts to signs in the economy—3.5 percent unemployment, slowing rate hikes—and the power of convening in person with colleagues across the industry. There are challenges ahead, to be certain, but as KPMG Chief Economist and CEO of DS Economics Diane Swonk put it during her economic keynote at the larger meeting’s Apartment Strategies Conference: “We are going into a world that still has opportunities to exploit.”
Lument executives in attendance agreed that 2023 will present challenges for multifamily as it adjusts to a new economic paradigm. However, they also felt that the sector remains an attractive one, framed against the backdrop of rates that are still historically quite good.
“There was general optimism around rates and the economy and an expectation that we’ll move towards a stable, steady market around the middle of the year,” said Jim Flynn, Lument’s CEO. “I would be in the camp that expects things to take a little longer. What seemed clear to me is that there does seem to be liquidity in the market, willing buyers, and loan capital for those buyers.”
Tyler Griffin, the firm’s mortgage banking chief operating officer, said that part of the optimism she sensed during the conference seemed to come from a general belief that rates would get better in the fall. “I’m not sure that everyone in the industry agrees with this, however those who do are going to work their portfolios as they are until they see rates come down and then they’ll move back into what they hope will be acquisition mode,” she said. “Rents can also affect optimism, so I’d note that we anticipate average rents to remain above pre-pandemic levels, despite some softening in major markets.”
However, for those willing buyers that Flynn references who are not sitting on the sidelines, the record attendance at NMHC this year could drive transactions by providing opportunities for them to connect with debt providers like Lument that offer a variety of capital solutions tailored to meet their needs. Even with the agencies’ focus on affordability, as reflected in the Federal Housing Finance Agency’s 2023 cap structure, convening for such large, in-person events is bound to surface a variety of potential solutions that can increase the number of deals closed across the board.
Ian Monk, a deputy production officer at Lument, said that he was “much more optimistic” than prior to the event and cited mission-rich, affordable deals as having the potential to increase overall velocity as the year progressed. He also expected these deals to garner the agencies’ attention—receiving better pricing and credit metrics, as the country continued to struggle with a deficit of seven million affordable homes*.
“This conference and MBA CREF will drive activity,” added Monk, referring to the Mortgage Bankers Association’s Commercial/Multifamily Finance Convention and Expo, which took place February 12 through 15 in San Diego. “I’m much more optimistic than I was prior to this event.”
Commercial real estate is a highly creative and collaborative industry—from design and construction to how deals are structured—and that creativity was on view at NMHC, pointing the way to a number of options and strategies that can be deployed during this period of economic uncertainty for even market rate and workforce properties. This bodes well for investors at the conference, who Flynn said weren’t looking for any one creative solution, but rather “optionality.”
He added that short-term debt was a frequently discussed topic as was the case during the “Multifamily Outlook: Finance & Capital Markets” panel at the Apartment Strategies Conference. “People are looking at their portfolios,” he said. “The general view is that rates are high and so they don’t want to lock in.”
Griffin agreed, adding that clients were much more interested in short-term, fixed rate debt with flexible pre-payment options. “I’m hearing from clients that they want something to give them stability in the near term but that has enough flexibility to take advantage of any upside in the next three to five years,” she said, adding that some are simply holding onto capital in hopes that they can take advantage of any distressed loans that come to the market.
According to Monk, Fannie and Freddie are amenable to 5:3 structures—so short-term debt combined with a relatively shorter yield maintenance period. This can be an attractive option for borrowers who believe that interest rates will come down over the next few years.
Despite the real challenges facing the multifamily industry for the remainder of 2023—what many industry experts are calling a “transitional year”—the NMHC Annual Meeting created an environment for collaboration and problem solving. This sense of transition was all the more tangible as NMHC President Sharon Wilson Géno delivered her first address since taking the helm, while attendees and the industry as a whole honored outgoing President Doug Bibby for his 20-plus years of service.
Experience matters, so if you’d like to tap into the decades of combined experience that Lument’s Conventional Multifamily and Affordable Housing teams can offer to help further your goals during these challenging times, please get in touch.
[*National Low Income Housing Coalition, Gap Report, April 2022]