Multifamily Sector Shows Signs of Recovery

Posted on April 26, 2010 by Kevin Caiaccio

While commercial real estate continues to struggle through the current downturn, some initial signs of improvement are emerging in the multifamily sector. As vacancy rates gradually improve , rents are increasing and concessions are tightening (see chart below).  These emerging trends are causing a noticeable uptick in investor demand and a downward pressure on capitalization rates.

 According to the current data, it appears that the apartment sector will be the first to recover as the economy begins its turnaround .  There are a number of factors contributing to this budding recovery:

  • Unlike other sectors, multifamily did not experience overbuilding in most markets.
  • The lack of construction financing and dearth of new projects will result in few units coming online in the near future.
  • Many people are electing to rent rather than own given the current state of the housing market.
  • Fannie Mae and Freddie Mac continue to provide liquidity which is lacking in other sectors.

Investors should be cautioned that challenges remain and any sustained increase in demand will depend on a recovery in the employment market.  Even if unemployment does moderate as expected, rental increases for apartment owners will be gradual.  Nevertheless, many real estate professional believe that we may be seeing the bottom in multifamily asset prices and that the time is ripe to execute acquisitions.

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Foreclosure Reform Proposed in Florida

Posted on April 6, 2010 by Kevin Caiaccio

The Florida legislature is considering reforms to the state's foreclosure process.  According to a report in the Tampa Tribune yesterday, House Bill 1523 would allow non-judicial foreclosures in some cases, unlike the current system which requires the lender to file a foreclosure lawsuit.

Florida law has long been considered by many as too favorable to defaulting borrowers.  The judicial process can often take years, and this problem has been exacerbated recently with the steady rise in the number of foreclosures.

Georgia, on the other hand, is a non-judicial foreclosure state which allows a lender to foreclose without court action or approval.  This results in a system which is criticized for the opposite reason as Florida, as being too easy for lenders to take away a borrower's property.  As a result of this criticism, there are bills pending in the Georgia legislature which would make the process more borrower friendly as I discussed here recently.

In the Tampa Tribune article, the author quoted me about the need to strike a balance between the countervailing forces:  protecting the rights of the borrower vs. allowing lenders to repossess property within a reasonable time.  It makes little sense that two neighboring states have systems which are so diametrically different. 

I believe that the states should comprehensively study the various foreclosure systems utilized in the U.S. to determine which procedures best strike this balance.  Just as we have uniform laws for the commercial code and partnership law, we should consider more uniformity in the area of foreclosure law.

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