DLA Piper 2011 State of the Market Survey: Multifamily Rules

By Jeffrey Steele, Contributing Writer

Washington, D.C.—The upbeat mood of the first half of this year has given way to a decidedly more pessimistic view in recent months. Worries about global markets, sluggish job growth and the stubborn impasse in Washington, D.C. have all contributed to industry leaders taking a dimmer view of the next 12 months. In fact, seven in 10 of those polled termed themselves bearish on the next year.

Those are among findings of DLA Piper’s 2011 State of the Market survey of perspectives of 291 top U.S. commercial real estate market executives. Amid the pessimism, however, was a hopeful glimmer for multifamily, which the study ranked as the most attractive investment opportunity by a considerable margin.

These were among the study’s key findings:

• Last year’s three top-ranked international regions for investment opportunity, Brazil, China and India, remained tops this year. So where’s Russia? “There was a high-risk, high reward view of investing there several years ago, but people have decided the risks outweigh the rewards,” DLA Piper’s chair of the U.S. real estate practice Jay Epstien tells MHN. “That’s what the survey is telling us. There’s a tremendous amount of interest in the country of Brazil. It’s a well-run country that’s hospitable to investments. People want to put down stakes in China. And people have been investing in India for eight or 10 years.”
• A majority of respondents (55 percent) prefer financing from conventional portfolio lenders, despite potentially more attractive terms via commercial mortgage-backed securities. “We worked hard at phrasing that question,” Epstien says. “The reaction . . . has to be a reflection of the frustration people have felt in getting the attention of the special servicers in the CMBS world.”
• At 45 percent, multifamily ranked as the most attractive investment opportunity, outdistancing all others. “It’s not easy to close financing in the other asset classes,” Epstien reports. “Last year, multifamily was also number one, but it was given more competition from offices, industrial and hotel than this year. Because the fundamentals have stayed stronger, and the single-family home market has struggled, it’s not a surprise multifamily has again led the pack.”
• The most significant takeaway for multifamily industry leaders is that there’s not a lot of optimism in the notion of the markets sustaining the strong performance of the first six or seven months of this year, Epstien opines.

“There’s a lot of uncertainty now, that will push money to the sidelines, and chill people’s willingness to make decisions until we’re in a more stable environment,” Epstien says. “It’s all about jobs. With the jobless recovery, people are going to be worrying where we’re moving. But pricing has been very strong, especially in Washington and New York City. These are great places where foreign investments and pension funds want to place money, in both multifamily and office. Now we’re seeing some cooling on the office side, but not necessarily in multifamily.”