There is good news for the developers of multi-family projects: It continues to get easier to qualify for financing.
But that good news comes with a caveat: Developers need to have the right project in the right location to attract this financing. Unproven developers with riskier projects will still struggle mightily to earn the financing they need for their multi-family projects.
Midwest Real Estate News recently conducted a roundtable interview with several of the biggest names in financing about the multi-family market. Their message? The multi-family market remains hot and attracting financing has become less of an ordeal. But this market still contains its challenges.
Participating in the roundtable was Mike Jehle, Midwest regional director with the Bloomfield Hills, Mich., office of Arbor Commercial Mortgage. Here are some of this thoughts on the state of the multi-family industry. For the thoughts of other big players in this industry, be sure to check out the August issue of Midwest Real Estate News for a longer version of this story.
Midwest Real Estate News: The multi-family sector has been a strong one for several years now. What are some of the reasons for the strong activity in this sector that continues today? Mike Jehle: During the most recent protracted recession very little new product was built, although our population and family formation continued to grow. As a result, demand exceeded supply. Construction money was non-existent or very scarce and many developers were shut out in developing new product. That all changed a couple of years ago and new construction in most markets has resumed, but there will be a catch-up time before equilibrium in the apartment sector is realized.
MWREN: When you look across the Midwest, do you see any cities that are experiencing especially strong multi-family development and sales activity? Jehle: Minneapolis, Chicago, Milwaukee, Kansas City, St. Louis and Columbus all stand out as particularly strong apartment markets at the present time primarily because of strong employment and balanced inventory.
MWREN: When it comes to new multi-family developments, what amenities are developers including today? What amenities do renters increasingly want to see in these developments? Jehle: Like the hospitality industry, many renters today are looking for social media connections and a feeling of community living. They want all the bells and whistles of the nice granite countertops and in-unit washers and dryers, etc., but they also want common amenities that bring the residents together more.
MWREN: What do developers need to show you to qualify for financing for multi-family projects? Jehle: Obviously demand for the product, but also a proven track record of successful projects, including lease-up, and reasonable budgets that can and will be obtained.
MWREN: Is it getting easier for developers with strong fundamentals to qualify for multi-family financing? Jehle: Absolutely, but it still is very hard for a lender to get approval for a new or unproven developer in apartment financing. Lenders wrote so much off during the last downturn that they have become increasingly cautious. That said, they have to put their money to work now more than ever, so the good deals have no problem finding financing at the present time.
MWREN: I know it’s not easy to predict the future, but do you think multi-family will remain a thriving sector for the next two to three years or longer? Jehle: Yes, as employment increases and new residents enter the market, and with existing renters still gun shy to commit to a new home (and mortgage), I am expecting to see continued high occupancy, rent increases and very nice new product coming on the market. The next two to three years should still be very good for the multi-family industry, both for owners and lenders.