February Pulse Check
Friend,
The era of free money is over. Developers are still adjusting.
If there was one clear message coming out of the 2024 NMHC Annual Meeting in San Diego last month, that was it. Everyone is still adjusting.
The Fed is adjusting to good news on inflation, jobs, and the economy but waiting for more data before moving on rates. Banks are bracing for new capital requirements expected before the end of the year, requirements that will likely mean less lending and higher rates. Bid/ask spreads are really wide, as buyers and sellers each wait for the other to blink. And developers want to lean into new projects but are waiting for everyone else, it seems, to adjust.
It's easy to see the result of all this waiting.
Banks, faced with slower rent growth, higher costs, higher cap rates, and unsure how to price deals, aren’t lending. Private and institutional capital is amassed and waiting to buy into an expected flood of distressed multifamily properties with maturing loans, a flood that may never come as banks, much better capitalized than in 2008, revert to extending and pretending. Debt funds and short-term loans can fill the gap but at a much higher cost than traditional debt.
Those attending the NMHC annual meeting certainly wanted to be more optimistic after a very difficult 2023, but slowing rent growth, higher operating costs, uncertain valuations, increased supply, and lack of construction financing leave many thinking that conditions will improve only in late 2025.
We are still lending.
Now, AGM is an FHA lender, so you might reasonably expect a “commercial” for FHA multifamily financing here, but it really is true that FHA and AGM are still lending. As Myles Perkins, AGM’s president, reminds us often, FHA is countercyclical, meant to provide liquidity when markets are not working. FHA financing for multifamily is available, its terms unchanged, in markets all across the country and at fixed rates far lower than floating-rate bank debt (if you could get it).
It was clear from the NMHC meeting that we are all still adjusting to the end of an era, but you don’t have to wait for the world to change to get deals done.
