Reuters logo
in 2 months
Fitch: Risks Emerging in Some US MultiFamily Property Markets
May 15, 2017 / 3:44 PM / in 2 months

Fitch: Risks Emerging in Some US MultiFamily Property Markets

12 Min Read

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: U.S. Banks: Multifamily Lending (A Long and Strong Cycle of Growth) here NEW YORK, May 15 (Fitch) Growth in US multifamily lending is showing signs of a plateau after a long and robust period of expansion since the global financial crisis, says Fitch Ratings. Vacancy rates should normalize and asset quality mean reversion for bank lending is also likely as the apartment market reaches unit supply/demand equilibrium. The severity in vacancy rate fluctuations will vary depending on property type and market. Luxury/Class A properties could be at greater risk, owing to the surge in supply relative to Class B/C properties. Cities with historically less volatility in vacancy rates in non-luxury multifamily housing, including New York and Los Angeles, should perform better. Vacancy rates in these cities are lower than the national average due to rent stabilization measures which have limited volatility through economic cycles. In contrast, metropolitan statistical areas (MSAs) in the South and Midwest with historically higher vacancy rate cyclicality and without rent regulations should see greater volatility. Banks with greater exposures to Class B/C properties in stable markets should outperform from a credit standpoint. Credit performance in multifamily portfolios may be more variable for banks with less specialization and/or exposures in a relatively less stable market, although these institutions tend to be less concentrated. High regional concentrations in multifamily mortgages act as a constraint to credit profiles, especially in areas with higher vacancy rate volatility. That said, the majority of concentrated banks tend to operate in relatively more stable markets like New York and Southern California. Concentrated multifamily lenders in Fitch's rated universe specialize in rent-stabilized apartments in New York City. Fitch anticipates these institutions will continue to exhibit strong credit performance, provided they maintain underwriting focus on these types of properties. Tighter underwriting standards for single-family home mortgages, changing consumer preference for apartments and demographic factors have contributed to the long-term boom in the multifamily market. Fundamentals remain stable even as property valuations have been pushed above the previous peak in 2007 and with capitalization rates now at long-term lows. However, there are signs of oversupply emerging in some MSAs and there could be further risks should demand soften. Effective rents in New York City at year-end 2016 fell modestly relative to the previous year, which was the first year-on-year decline since 2009. Moreover, vacancies are expected to increase this year. Vacancies were already up in Houston in 2016, and Fitch expects supply pressures in many other MSAs in 2017 including Seattle, Denver, Washington D.C., San Francisco, San Jose and Orlando. Banks have a prominent role in multifamily lending, accounting for 36% of outstanding multifamily mortgage debt as of 3Q16. In recent years, multifamily lending has been among the fastest growing segments for the US banking system. The compound annual growth rate for outstanding multifamily mortgages was 14% for the three-year period to 2016, far outstripping aggregate loan growth for the banking system. Multifamily mortgage origination activity remains robust, although it declined slightly in 2016. Fitch believes this reflects growing caution toward the asset class. Multifamily lending has been characterized by strong credit performance that has outperformed other bank lending segments over the past 20 years. However, rapid multifamily loan growth in recent years has been a driver of strong competition among US banks. This latest increase could elevate credit risks at some institutions, in light of current market fundamentals, should it have resulted in lower underwriting standards. For Fitch's analysis of US multifamily market trends and our views on bank credit implications, refer to the special report titled "U.S. Banks: Multifamily Lending," published today. Contact: Johannes Moller, CFA Associate Director Financial Institutions + 1 646 582-4954 Fitch Ratings 33 Whitehall Street New York, NY Justin Patrie, CFA Senior Analyst Fitch Wire +1 646 582-4964 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: hannah.james@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Related Research Multifamily Viewpoints – 4Q16 here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below