By Andrew Coen
The red-hot multifamily sector that appeared impenetrable to macroeconomics for much of the COVID-19 pandemic is beginning to show some signs of cooling.
Still, despite declines in multifamily rents of late, the asset class remains an attractive commercial real estate investment depending on the market and financing terms, according to analysts.
Average U.S. asking monthly rents for December 2022 fell $4 to $1,775 during the month and were down by $10 in the fourth quarter, with 25 of the top top 30 metro areas showing negative growth, according to data from Yardi Matrix. National asking rent growth was also down 6.2 percent compared to late 2021 and slipped 80 basis points from November, the Yardi Matrix data showed.
While the multifamily market overall saw record-low vacancy rates in 2022, some developers are facing pressures to stay afloat. That includes the Chetrit Group, which was in danger of defaulting on a 2019 $481 million commercial mortgage-backed securities (CMBS) loan tied to 43 rental properties, according to a year-end Trepp report. The company failed to pay off the loan when it was due last year as it got saddled with below-average occupancy levels and rising interest rates on its floating-rate debt.
JPMorgan Chase supplied the loan for Chetrit’s acquisition of a 8,671-unit portfolio spread across New York, the Sun Belt, Ohio, Indiana and Illinois. The loan entered special servicing after it was transferred for maturity default on July 9, 2022, according to Marc McDevitt, senior managing director at CRED iQ. McDevitt noted that as of January, four Ohio properties were released to help pay down the debt.
“CMBS investors are typically concerned with adverse selection in situations that require drawn-out portfolio releases of distressed properties, which could leave behind some of the lower-quality properties when it’s time to endgame the remaining debt,” McDevitt said.
McDevitt noted that the remaining 39 properties in the Chetrit portfolio have occupancies ranging from below 70 percent to above 90 percent on the high end, with all but six experiencing declines since loan origination.
Even though the Sun Belt’s population has grown robustly the last few years, properties in Tennessee and Louisiana, as well as Ohio, were among the worst performing in the Chetrit portfolio, according to McDevitt. He stressed that some of the assets marketed for sale could attract interest from investors with dry power pursuing value-add or core-plus strategies.
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