Banking woes are not just commercial real estate. Multifamily housing is taking a hit as well.
An apartment-building investor lost four Houston complexes to foreclosure last week, the latest sign that surging interest rates are beginning to upend the multitrillion-dollar rental-housing market https://t.co/At3hM61jcd
— The Wall Street Journal (@WSJ) April 11, 2023
Please note Houston Apartment Owner Loses 3,200 Units to Foreclosure as Multifamily Feels the Heat.
An apartment-building investor lost four Houston complexes to foreclosure last week, the latest sign that surging interest rates are beginning to upend the multitrillion-dollar rental-housing market.
Applesway Investment Group borrowed nearly $230 million to buy the buildings with more than 3,200 units as part of a Texas buying spree during the pandemic. Arbor Realty Trust, a publicly traded mortgage company, foreclosed on the properties after Applesway defaulted on the loans, according to public documents filed in Harris County, Texas.
Real-estate analytics firm Green Street estimates that apartment-building values are down more than 20% from their peak. Meanwhile, rent growth is slowing, meaning some buildings with sizable, floating-rate mortgages no longer generate enough profits to make debt payments.
The interest rate on Applesway’s loan had risen from 3.4% to around 8%, according to loan information obtained from data firm Trepp Inc. At least two of the properties were financed with about 80% debt, which is considered high leverage in commercial real estate.
Some other large investment firms have had payment issues with floating-rate multifamily loans in recent months. Veritas, a San Francisco private-equity firm, defaulted on a $450 million loan backed by rent-controlled apartment buildings, and Blackstone Group is negotiating with its lender over the debt on a portfolio of New York City apartment buildings.
Fun While It Lasted
Blackstone negotiated a no-recourse loan on New York City apartments.
Who played the fool on the other end of that negotiated agreement?
Apparently no one figured out that interest rates might ever rise again or that property values could plunge.
Apartment-Building Sales Drop 74%, the Most in 14 Years
The Wall Street journal reports Apartment-Building Sales Drop 74%, the Most in 14 Years
Investors purchased $14 billion of apartment buildings in the first quarter of 2023, according to a preliminary report by data firm CoStar Group. That represents a 74% decline in sales from the same quarter a year earlier and would be the largest annual sales decline for any quarter going back to a 77% drop in the first quarter of 2009.
Returning to Commercial Real Estate
@HedgeyeTV says 1.4Trillion in ’23/24 Commerical Real Estate loans are maturing. And then what? With a headwind of vacancy rates, high interest and WFH employees its going to get ugly @MishGEA @DiMartinoBooth pic.twitter.com/GqwEOVqSU1
— RFK 24 Memes (@Deflationista1) April 11, 2023
“1.4 Trillion in ’23/24 Commercial Real Estate loans are maturing.”
Good luck with that too.
Signs of Failed Fed Vision
The NY Fed might even consider looking at its own survey!
Consumers Are Having a Much Harder Time Getting Credit Than a Year Agohttps://t.co/x91IBnaU8d
— Mike “Mish” Shedlock (@MishGEA) April 11, 2023
“What on earth is [New York Fed President] John Williams talking about no sign of credit tightening??“
For discussion, please see Consumers Are Having a Much Harder Time Getting Credit Than a Year Ago
Today’s Lesson
- The Fed does not see its own data.
- The Fed does not look at its own surveys.
- The Fed does not know apartment-building sales drop 74%, the most in 14 years
In summation, the Fed never sees what it does not want to see.
It blew three bubbles of increasing magnitude in the process of not seeing the easily seen.
This post originated on MishTalk.Com.
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Mish
“Blackstone negotiated a no-recourse loan on New York City apartments.
Who played the fool on the other end of that negotiated agreement?”