SPECIAL REPORT: There Will Be Money on the Other Side, Says Multifamily Panel About Credit Crunch
- Jun 24, 2008
By Anuradha Kher, Online News Editor San Francisco–Even as the housing crisis continues to spread and investors become increasingly wary, multifamily executives are looking at the situation with a great deal of optimism. Gathered at the Multifamily Trends 2008 Conference in San Francisco on June 23, a panel of industry insiders discussed the problems facing multi-housing–lack of financing, high cost of loans, rising cost of construction–but from a perspective suggesting that the glass is half-full rather than half-empty.In his welcoming remarks, Richard J. Campo, chairman and CEO of Camden Property Trust, emphasized that the fundamentals of the multifamily industry are strong and will continue to be strong through the next several years. “This is a bizarre time. There is a credit crunch but at the same time, demand for multifamily is very high,” he said. “A lot of value will be created in the next few years. There will be a lot of bumps on the way, but in the long term, this is a good business to be in.”Panel members echoed Campo’s remarks during the 60-minute discussion. “An incredible amount of money will be made in this process,” Constance Moore, president and CEO of San Francisco-based BRE Properties, said. “We are in the middle of it now, but things are going to turn around.” Some people will get very rich in this phase, said Brad Kraus, director of Ackerman-Ziff Real Estate Group LLC.In the meanwhile, Moore is telling her investment staff that it is all right to take a pause and do nothing. The cost of capital is too high right now, she said.The panel here also included Fran Wagstaff, executive director of Mid-Peninsula Housing; Richard Meruelo, chairman and CEO of Meruelo Maddux Properties Representative; and Robert Rosania, CEO of Stellar Management. Philip Payne, CEO of Babcock & Brown Residential LLC, moderated the discussion.There is a shortfall of $3.5 to 4 billion equity nationwide, according to Wagstaff. “So it is not surprising that multifamily developers are not finding investors,” she said. But according to Kraus, there are alternative sources of financing that are waiting to be discovered. “We are opening our address books and making calls. That’s the only way deals are getting done,” he said.While no one on the panel could say when the cap rates will go down, they all agreed that the rates would be market-specific. “As long as the volume of transactions is down, cap rates will continue to be high,” Meruelo said. “We will have to lower the prices for assets.”The discussion ended with a positive statement from Moore, who said, “Things are never as good or as bad as they seem to be. This too shall pass.”What the panel members and their companies are doing in these troubled times: Tips that developers can use. • Strengthen relationships with previous investors, • Don’t leave any stone remain unturned. Pull up your sleeves, make calls and find alternative financing; • Structure the deals well;• Think about operating your company and properties better. Get smart with staffing model; • Spend more time chasing leads and looking for opportunities; • Make sure every nickel and dime your company spends is worth it; • Think about investing in student housing, which is doing well; and • Go after people who are getting out of large, ugly deals–the stress deals.Pictured, from left to right: Philip Payne, Fran Wagstaff, Robert Rosania, Constance Moore and Richard Meruelo.