2009-06-18, 12:34

Apartment Defaults In the News

By: Multifamily Real Estate Industry Team
An interesting analysis of some of the reasons why apartment loan defaults lead other types of commercial real estate loan defaults appeared recently in an article by Ilaina Jonas with the Reuters' News Service. Among the reasons cited are:

1. Apartment building prices peaked before other types of commercial real estate (2006 vs. 2007), so deterioration has come on earlier;

2. Falling rents and occupancies have pushed down values 35 to 45 percent, and this, along with the difficulty of getting any loans, has pushed the default rate higher than for other types of assets;

3. In some markets, prices were driven up by investors planning to convert rental units to condominiums --- until the markets collapsed, and condominiums (now rental condos) down market rents;

4. While the overall U.S. unemployment rate in May was at 9.5 percent, among 18 to 24-year olds, it was 15 percent. About 70 percent of this age group are renters who are now doubling up or moving in with their parents.

None of these are new insights, certainly. From talking with people in the industry, however, it seems that the rate at which young adults are moving back home has been somewhat surprising, and the widespread availability of this option could hardly have been anticipated. It seems reasonable to anticipate, though, that once the job market begins to open up, these young people will be eager to get out on their own again --- and will create a ready market for the industry.

To read the entire article, go to http://www.reuters.com/article/businessNews/idUSTRE55G63220090617

(This entry posted by Karen Estelle Carey, a member of Womble Carlyle's Real Estate Development and Construction groups.)


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