Tenant Credit Risk For Multifamily Landlords Stabilizes in 1Q10

Dees Stribling, Contributing Editor

Rockville, Md.–First Advantage SafeRent Inc., a screening and risk management specialist for the multifamily housing industry, has released its Multifamily Applicant Risk (MAR) Index for first quarter 2010. The index hasn’t budged since the fourth quarter of 2009, but it is slightly lower than it was during the same quarter a year ago.

The first quarter 2010 national MAR Index, which includes studios, one-, two-, three- and four-bedroom units, was 98, the same as in 4Q09. The MAR Index for 1Q09 was 99, slightly higher than a year later. When comparing applicants for one- versus two-bedroom units, the 1Q10 MAR Index is higher for one-bedroom units at 99 than for two-bedroom, which came in at 95.

“Following a bad year for jobs, the absence of a major falloff in credit quality in the first quarter is good news,” Jay Harris, vice president-business services of First Advantage SafeRent, tells MHN. “Steady applicant credit quality means apartment operators can continue to manage deposits and relax credit criteria incrementally, thus improving their demand for available units in the busy season with minimum additional credit risk.”

A lower index value indicates an applicant pool with a higher risk of not fulfilling lease obligations. A MAR Index value of 100 means that market conditions are equal to the national mean for the index’s base period, which was 2004. Greater than 100 means market conditions with reduced average risk of default relative to the base period, while less than 100 indicates market conditions with increased average risk of default.

The index is derived from First Advantage SafeRent’s Statistical Screening Model, which was developed from historical resident lease performance data to specifically evaluate the potential risk of a resident’s future lease performance. The model generates scores for each applicant indicating the relative risk of the applicant not fulfilling lease obligations, with a lower score indicating a riskier applicant.

The index is updated quarterly to provide a benchmark against which to compare a multifamily portfolio’s performance. The comparison indicates whether a portfolio is performing above, below or at market levels with respect to attracting and securing applicants with higher credit quality and an increased likelihood of fulfilling their lease obligations.

Regionally, the northeastern United States continues to have the highest MAR Index, with a value of 110, while the South has the lowest at 93. The three U.S. MSAs with the leading decreases in the MAR Index during 1Q10 were Austin-San Marcos, Tex.; Sacramento-Yolo, Calif.; and Detroit-Ann Arbor-Flint, Mich.; with decreases of three, three and four points, respectively. The three MSAs with the leading increases in the MAR Index were Philadelphia-Wilmington-Atlantic City, Pa.-N.J.-Del.-Md.; West Palm Beach-Boca Raton, Fla.; and Portland-Salem, Ore.-Wash.;