Apartments: The next credit-crisis shoe to drop?
So says Harvard's Joint Center for Housing Studies in a report you can read at the National Multi Housing Council site. (The council, a trade group, provided some of the support for the report.)
Harvard's center notes a danger that apartment owners could follow homeowners into default if the lending situation doesn't improve, even though their loan performance "remains quite strong." Multifamily loans generally come due quickly -- in five to 10 years rather than 30 -- and industry players count on being able to refinance.
From the report:
That puts an even greater sense of urgency on preparing plans now to make sure federal sources continue to provide liquidity.
The risks are great. The CMBS [commercial mortgage-backed security] market has basically shut down, banks and thrifts are presently not willing to lend for multifamily new construction or rehabilitation, and life insurance companies, pension funds, endowments, and others that have provided permanent financing are standing on the sidelines. Also, with no income tax liability to shelter, Fannie Mae and Freddie Mac have stopped buying low-income housing tax credits.
New investors have not yet been found to fill the gap and credit pricing is making most planned projects unworkable. Meanwhile, the public markets for state tax-exempt bonds have been roiled, making it harder to finance the preservation and production of much needed affordable, low-income housing.