Developer Expresses Concern Regarding Less Credit Availability in Industry; Says Apartment Market Already Softening

By Keat Foong, Executive Editor and Anu Kher, Online Editor Reno, Nev.—Like everyone else, multi-housing owners and developers are alarmed by yesterday’s plunge in the stock markets. “I am concerned,” said Bob Nielsen, president of multi-housing developer Shelter Properties Inc., and vice chairman and secretary of the board of the National Association of Home Builders. “The stock market is certainly an emotional gauge. It was Wall Street crying for help.” Nielsen said he is worried about the availability of financing, especially for new construction, for multi-housing. “Looking for credit is more difficult than it has been,” he said. He also cited bank consolidation as a possible cause for concern in the future availability of credit for multifamily housing. Although the stock market has bounced back by nearly 500 points by the end of today, yesterday, the Dow Industrials had plunged by 777.68 points, or nearly 8 percent—its worst drop in two decades and the largest point fall ever. By today, the credit conditions continue to worsen, with certain credit markets being non-functioning and the Libor hitting its highest level ever. Nielsen said that the stock market instability yesterday was an indication of the bad health of the financing market. “The stock markets are very concerned about the credit markets. When the credit markets are not reacting normally, we see the kinds of wild swings we saw yesterday,” he said. Nielsen said lower apartment occupancy numbers are already apparent in his markets of Reno and Las Vegas in Nevada. “I would characterize both markets as soft, though they are not at a place of financial danger.” He said an affordable seniors property of his in the state of Nevada had seen occupancy rates fall from the 96-98 percent range to the high-80 to low-90 percent range. Another affordable property for families had experienced occupancy declines from the low 90-percent to the high-80 percent range. “I believe all that is happening because of the contraction in the economy in both communities,” said Nielsen. He said homebuilding, which had previously supplied many of his residents, is now “gone.” And numbers for the gaming and entertainment industries, another source of employment in his market, are already “way off.” Bob Bach, national director, market analysis at Grubb & Ellis Company agreed that the multifamily industry may be more concerned about the shortage of capital. “I think the plunge in the stock market itself is not affecting multifamily as much as the volatility in the markets, the uncertainty and the tightness in the credit markets,” he told MHN. John Bittner, partner for Grant Thornton’s Corporate Advisory and Restructuring Services, said, “The plunge in the stock market is tied to the bailout and once the bailout passes, we will see an unfreezing of the capital markets, the worst that we have seen in a long time. If the bailout doesn’t get passed and restore the confidence in the markets,  we will see a long and protracted decline in many sectors of the economy, not just real estate.”