The Mortgage Bankers Association (MBA) recently released a couple of different reports painting a more optimistic picture of the multifamily loan market than was previously believed.
The MBA released a research note this month saying commercial mortgages and multifamily mortgages are the best performing loans. They rank lowest among bank loans in terms of charge-off rates; second- and third-lowest in terms of 30-day-plus delinquency rates; and second- and third-lowest in terms in of increases in delinquency rates between the third and fourth quarter, according to the MBA.
"Apartments are the least impacted [sector of commercial real estate] at this point and due to the short-term lease periods compared to other assts have greater flexibility to manage occupancy," says David Cardwell, vice president of capital markets and technology for the National Multi Housing Council in Washington, D.C.
Only 33 of the 35,000 commercial/multifamily mortgages held by life insurance companies were delinquent at the end of 2008 and "commercial/multifamily mortgages ended 2008 as some of the best performing loans held by commercial banks and thrifts," according to the MBA.
Despite the good news, there are still some clouds on the horizon. The 30-day delinquency in commercial mortgage-backed securities (CMBS) ticked up 0.54 percentage points to 1.17 percent between the third and fourth quarters.
"We may see an increase in delinquencies for those properties that aren't getting done through an agency," says Chad Ricks, first vice president with Dallas-based Love Funding. "There are some properties that Fannie and Freddie won't go to. That leaves FHA. FHA will lend the money to you, but will it be at a leverage level they need?"
Cardwell, for one, thinks the impact of CMBS is overstated. He points to the fact that they're usually older assets. For another, there may be weaker sponsors. "They tend to represent very high-leverage, weak sponsor deals that no other lender would make as the CMBS seller needed multifamily loans to fill out the asset diversification and they were essentially 'buying' multifamily mortgage assets for the pool," Cardwell adds.
Other types of servicers saw slight increases in delinquencies, according to the MBA. Life insurance companies saw an increase in their delinquency rate, going up to 0.07 percent. Fannie Mae saw its 60-day-plus delinquency rate on multifamily loans move up 0.14 percentage points to 0.30 percent. Freddie Mac's 90-day-plus delinquency rate stayed at 0.01 percent. FDIC-insured banks and thrifts saw their 90-day-plus delinquency rate rise 0.24 percentage points to 1.62 percent.
Still, these delinquent loans haven't led to a flood of sales yet. Since September, 6 percent of all apartment sales have been distressed, according to Real Capital Analytics. The distressed sales pool is at $10.6 billion (1,022 properties) and is growing by $1.5 billion (120 properties) each month.
And that's not as bad as other sectors. "It's not the same flood [of distressed assets] we've seen from the other property types, but we're getting them in," says Dan Fasulo, managing director of Real Capital Analytics. "It's usually in those communities that were hardest hit."
Additional reporting by Jerry Ascierto