How Multifamily Underwriting Is Changing


ATLANTA—The Federal Reserve’s latest Beige Book release highlighted some concerns about the rate of increase in multifamily rents as an item to monitor. Should we be concerned?

SunTrust agrees with the Fed and believes that rental growth rates will moderate in markets like New York, San Francisco, and Denver, as well as Atlanta and Raleigh.  This, KC Conway, SunTrust Commercial Real Estate’s credit risk manager and head of valuation, tells GlobeSt.com, means underwriting will need to emphasize use of proven rents instead of proforma rents with 5% or more annual escalations.

In other words, he says, new supply additions and slowing economic growth—the GDP was at just 2% from the third quarter of 2014 through the third quarter of 2015 versus 5% from the third quarter of 2013 through the third quarter of 2014—will reduce the ability to raise rents at levels seen over the past two years. Of course, he reminds, all real estate is local.

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Source: Publication: GlobeSt.com