Credit Crunch Changes Apartment Buyers’ Preferences

By Anuradha Kher, Online News EditorWashington, D.C.–Demand for apartment homes remains strong, but the continued credit crunch is causing the volume of property sales to slow sharply and making it more difficult for apartment firms to access the debt and equity markets, according to the National Multi Housing Council’s (NMHC) Quarterly Survey of apartment market conditions.The Market Tightness Index, which measures changes in occupancy rates and/or rents, improved significantly from 33 in January to 44, as more respondents reported tighter apartment conditions—and fewer reported looser conditions—than three months earlier. (A reading above 50 indicates that, on balance, conditions are improving; a reading below 50 indicates that conditions are worsening; and a reading of 50 indicates that conditions are unchanged.) The “shadow market” of rental homes being offered by individuals no longer able to afford to live in them is not seriously eroding demand for professionally managed apartments, suggests NMHC.“The bursting of the for-sale housing bubble has greatly slowed the outflow of renters into ownership,” says Mark Obrinsky, NMHC chief economist. “More than 80 percent of the survey respondents reported a decrease in the number of renters leaving to become homeowners.”In fact, Obrinsky says that professionally managed properties may become even more desirable in the current market as renters of many of these individually owned condos and houses find themselves without housing because the owners of these properties have lost the property to foreclosure.“In our experience, apartments are holding up better than any other property type,” Keith Misner, executive managing director of Cushman & Wakefield’s Capital Markets Group, tells MHN. “This is mainly because supply and demand in the apartment sector are balanced, and even though there is a credit crunch, Fannie and Freddie are doing a good job of introducing new products into the market.” On the property sales front, the housing market downturn and financial market dislocation are affecting multifamily financing, and thus, the volume of transactions.The Debt Financing Index posted a sharp fall, to 22 from 45 in January. Two-thirds of respondents noted that borrowing conditions had worsened compared with three months earlier, a reflection of the continued widening of spreads and tightening of credit standards. Equity financing is also increasingly difficult to obtain.  The Equity Financing Index declined to 13, its lowest reading ever.  A record 76 percent of respondents reported that equity finance was less available, compared with 17 percent who indicated conditions were unchanged, and two percent who saw improvements.“The average deal size is reducing. Larger deals are more difficult to arrange because people are for smaller deals and spreading their risk,” says Misner. A $50 million deal is more likely than a $100 million deal.The Sales Volume Index declined to 13 this quarter, the second lowest reading in the NMHC Survey’s history. “While there are still many buyers looking to purchase apartment properties, there is an unusually wide disparity between buyers and sellers about the appropriate prices in today’s market,” says Obrinsky.