VOL. 126 | NO. 101 | Tuesday, May 24, 2011
Multifamily Sector ‘Poised for Solid Growth’
Multifamily investment activity in Memphis continues to gain steam as lenders slowly loosen their purse strings.
The positive sales activity is being propelled by the market’s improved performance, low interest rates and additional capital coming off of the sidelines after being quiet for the last few years.
“The landscape for multifamily sales and lending activity is picking up considerably, especially for stabilized product in Memphis and in most markets across the country,” said Blake Pera, senior vice president of CB Richard Ellis’ Memphis’ multifamily division. “Interest rates are favorable, and operations are showing great signs of recovery.”
Marcus & Millichap’s 2011 market outlook report for Memphis predicts overall vacancy rates to fall 100 basis points to 10.4 percent, while overall asking rents will rise 3.2 percent to $700 per month. Net absorption is expected to total 1,300 units. One area that is expected to see notable improvement is the submarket that includes the Whitehaven, airport and Southaven areas, thanks to Electrolux breaking ground on its new plant this year and coming online in 2012.
“The interest by investors to buy multifamily continues to increase, although not at a tremendously rapid rate,” said Frank Stallworth, president of the commercial and multifamily real estate division at Magna Bank. “In fact, there’s no question that today, multifamily is the No. 1 property type choice for investors to buy and probably the No. 1 property type for lenders to loan on.”
Stallworth pointed out positives for multifamily in Memphis for 2011 and 2012 include modest growth in the local economy and modest declines in unemployment, along with little new construction.
So far this year, the majority of concessions have been reduced or eliminated, and occupancies have improved. Also, he believes the desire for homeownership has declined, and apartment owners will benefit from that trend.
“Most of the activity we are seeing on the sales side is with well-maintained Class A, B and C-plus multifamily properties,” Stallworth said. “We are not seeing much activity so far this year with distressed properties that are 50 percent vacant and in need of renovation.”
He said good refinancing opportunities are available for qualified borrowers. A 10-year fixed-rate 30-year amortized debt is still between 5 and 5.5 percent, so most borrowers that have a reasonable amount of debt on their properties can refinance and can enjoy good cash flow.
“Local lenders are now starting to get back in the lending game slowly as they are realizing that prices have bottomed out and that values can only improve from this point forward,” said Steve Woodyard of Woodyard Realty Corp.
Rick Wood, executive vice president of the commercial and multifamily division at Financial Federal, has witnessed increased interest from investors for the past 18 months following two years of very little activity in 2008 and 2009.
“Starting in early 2010, we have seen more multifamily sales, and there has been some momentum in the marketplace,” he said. “However, it appears many of the sales transactions are either on the lower end of the spectrum with Class C properties or at the other end of the spectrum with the Class A-plus properties.
“As we sit here in mid-2011, financing is very much available for acquisitions up to 80 percent of the purchase price, with interest rates below 5.5 percent.”
Curtis Braden, senior associate with Marcus & Millichap’s Memphis branch, specializes in Class C properties. He sees many buyers coming to the table with all cash for acquisitions, and he agrees lenders are starting to ease up on requirements somewhat as pricing begins to stabilize.
“Memphis is an undervalued marketplace, and a number of investors from abroad and locally are looking here for good deals,” Braden said. “We are very happy with the business we are getting so far this year.”
He expects to see more activity through the end of the year with Class C and distressed properties.
“The city’s new blight program is putting pressure on many distressed properties,” said Braden. “Some of them are getting torn down, and others have owners that are quickly trying to find investors interested to buy.”
New construction in the Mid-South was at historic lows last year, with only 93 conventional units delivered. More units are anticipated for this year and next.
“We are tracking approximately 500 units expected to come on-line in the market in 2011, including 238 units in Cordova and 204 units on Mud Island,” Pera said. “With an average annual delivery of around 500 units for the next few years, the market is poised for solid growth.”
The Mud Island project, called Grand Island and built by Grant & Co., is nearing completion and will feature 204 high-end apartments. The $19 million project sits on 9.9 acres just north of the vehicle entrance to Mud Island River Park.