Why Multifamily Is the Next Stress Point in Commercial Real Estate

When it comes to commercial real estate, a lot of attention is obviously paid to offices. But it's not the only sector facing strains. Apartment buildings — or multifamily residential — may also be in for trouble. For years, rates were falling and rents were rising, and owning and operating apartments was a moneymaker. Then things went into overdrive with the pandemic, thanks to plunging rates, surging rents and an explosion in new household formation. But all of that is reversing. Rates have surged. Insurance costs have surged. Operating costs have surged. The household formation boom didn't last. And in some areas of the country — particular in some Sun Belt markets — rents are actually falling. On this episode, we speak with Lee Everett, vice president of research and strategy at Waterton, on how a multi-family deal binge in 2021 will result in a huge hangover. This transcript has been lightly edited for clarity.

Key insights from the pod:
The multi-billion dollar boom in multifamily — 5:48
Work-from-home migration and multifamily - 7:3
CMBS, CLOs and the financing of multfamily — 9:10
How do cap rates work? — 10:48
The looming maturity wall for multifamily — 12:11
Why rents aren’t covering higher interest costs — 14:10
The math behind the multifamily boom — 17:09
Who are the bagholders in multifamily? — 20:24
How is multifamily marked to market? — 21:13
What triggers losses on multifamily investments? — 22:58
Growth in supply of multifamily housing — 25:17
Can multi-family be converted to single-family? — 27:38
Distressed opportunities in multifamily — 29:17