Fitch Ratings Sees Multifamily Asset Stabilization Later this Year

Multifamily properties in the U.S. could begin stabilizing in certain markets later this year, according to Fitch Ratings.

New York–Multifamily properties in the U.S. could begin stabilizing in certain markets later this year, according to Fitch Ratings.

The ratings agency, which has a negative outlook on the sector, predicts that multifamily vacancies are likely to peak at 8.9 percent later this year. Those markets that will be the healthiest for multifamily properties are likely to be metropolitan areas where unemployment rates are leveling off, and job formation may begin to take hold, according to Mary MacNeill, a managing director in Fitch’s CMBS group.

Many states have a significant amount of CMBS loan delinquencies, according to Fitch. Nevada leads the way, with 23 percent of its multifamily loans delinquent. Tennessee is next (21 percent), followed by Florida (18 percent) and Texas (11 percent). On the flip side, Washington State has the lowest percentage of delinquencies, at less 0.1 percent, followed by Washington, D.C. (0.1 percent), Pennsylvania (1.1 percent) and New Jersey (2 percent).

“States with high unemployment, and those which are experiencing high levels of people exiting, such as Florida and Nevada, are continuing to see high delinquencies,” MacNeill tells MHN. “Texas, which has historically contained a large number of multifamily delinquencies, has continued to suffer, as there are less barriers to entry.”

Fitch projects multifamily delinquencies to climb to nearly 13 percent soon, as the loan on the massive Peter Cooper/Stuyvesant Town apartment complex in New York becomes delinquent. The loan is the largest securitized multifamily loan.

“While it has remained current on payments due to reserves up to this point, the loan is likely to incur a significant loss upon its resolution by a special servicer,” MacNeill says.

The securitized portion of the loan in Fitch-rated deals is approximately $2.8 billion, but the ratings agency values it at roughly $1.8 billion. When the loan becomes delinquent, the multifamily delinquency rate will be 13 percent, the highest percentage since Fitch began tracking the index in 2001.

MacNeill says the major challenges to multifamily properties will be high unemployment, leading to lower household formation, and landlords offering concessions to maintain occupancy, which will hamper rent growth.