{"id":1004280596,"date":"2018-11-20T06:42:38","date_gmt":"2018-11-20T14:42:38","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004280596"},"modified":"2022-12-08T19:35:29","modified_gmt":"2022-12-09T03:35:29","slug":"fitch-forecasts-strong-multifamily-reit-performance","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/fitch-forecasts-strong-multifamily-reit-performance\/","title":{"rendered":"Fitch Forecasts Strong Multifamily REIT Performance"},"content":{"rendered":"<p>By Stephen Boyd<\/p>\n<div id=\"attachment_1004184562\" style=\"width: 310px\" class=\"wp-caption alignright\"><img loading=\"lazy\" decoding=\"async\" aria-describedby=\"caption-attachment-1004184562\" data-attachment-id=\"1004184562\" data-permalink=\"https:\/\/www.commercialsearch.com\/news\/vornado-completes-dc-spin-off-jbg-smith-begins-trading\/stephen-boyd-2\/\" data-orig-file=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2017\/07\/Stephen-Boyd-e1500543152191.jpg\" data-orig-size=\"1260,945\" data-comments-opened=\"0\" data-image-meta=\"{&quot;aperture&quot;:&quot;5.6&quot;,&quot;credit&quot;:&quot;\\u00a9 Stefan Falke&quot;,&quot;camera&quot;:&quot;NIKON D3&quot;,&quot;caption&quot;:&quot;Fitch Ratings Portraits June 5th 2004\\n\\nPhoto \\u00a9 Stefan Falke\\nstefanfalke@mac.com\\nwww.stefanfalke.com&quot;,&quot;created_timestamp&quot;:&quot;1401968261&quot;,&quot;copyright&quot;:&quot;Stefan Falke&quot;,&quot;focal_length&quot;:&quot;120&quot;,&quot;iso&quot;:&quot;100&quot;,&quot;shutter_speed&quot;:&quot;0.125&quot;,&quot;title&quot;:&quot;&quot;,&quot;orientation&quot;:&quot;1&quot;}\" data-image-title=\"Stephen Boyd\" data-image-description=\"\" data-image-caption=\"&lt;p&gt;Stephen Boyd&lt;\/p&gt;\n\" data-large-file=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2017\/07\/Stephen-Boyd-e1500543152191.jpg?w=1024\" class=\"wp-image-1004184562 size-medium\" src=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2017\/07\/Stephen-Boyd-e1500543152191.jpg\" alt=\"\" width=\"300\" height=\"225\" srcset=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2017\/07\/Stephen-Boyd-e1500543152191.jpg 1260w, https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2017\/07\/Stephen-Boyd-e1500543152191.jpg?resize=300,225 300w, https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2017\/07\/Stephen-Boyd-e1500543152191.jpg?resize=768,576 768w, https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2017\/07\/Stephen-Boyd-e1500543152191.jpg?resize=1024,768 1024w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><p id=\"caption-attachment-1004184562\" class=\"wp-caption-text\">Stephen Boyd<\/p><\/div>\n<p>With Millennials finally pursuing homeownership in significant numbers, the <a href=\"https:\/\/www.commercialsearch.com\/news\/2018-reits\/\">future of multifamily REITs<\/a>, and the stable fundamentals they\u2019ve enjoyed, has been called in question. While it\u2019s true that Millennials are finally heading out to the suburbs, other trends\u2014and the disciplined approach taken by the industry since the financial crisis\u2014have positioned the sector for the longer term. As we head into year-end, the industry remains stable, with prospects continuing to look good into the new year.<\/p>\n<p>Today, 10 years after the financial crisis, most multifamily REITs are operating at, or below, the low end of financial policies. At the height of the financial crisis sector leverage levels peaked at 8.4x, while today, multifamily REITs enjoy a much improved and more conservative, 5.5x. Fixed-charge coverage is expected to remain towards the high end of financial policies.<\/p>\n<h2>Market concentration<\/h2>\n<p>Same-store net operating income (SSNOI) should grow in the low-single digits through year-end, constrained primarily by excess supply. Supply will exceed demand as <a href=\"https:\/\/www.commercialsearch.com\/news\/new-construction-pricing-pose-risks-to-reit-investors\/\">new development inventory<\/a> skyrockets to a 22-year high. Coastal, urban areas will see the greatest increase, notably in New York, Los Angeles, Dallas\u2013Fort Worth, Seattle and Denver. Not all urban areas will face an oversupply: Houston, Washington, D.C., and San Francisco should all see a decline in inventory.<\/p>\n<p>The property portfolio footprints for most U.S. multifamily REITs have been pruned back, to increase concentration today primarily in coastal gateway markets and the Sunbelt region. Denver and Southeast Florida have seen an uptick in REIT interest due to strong demographics, employment trends and positive net migration. The New York metro area saw selective exposure reduction, which has resulted in compressed occupancy rates and rents.<\/p>\n<p>Elevated supply notwithstanding, slow but steady SSNOI is expected over the medium term.<\/p>\n<p>While some mortgage lending data suggests Millennial homeownership is on the uptick, exacerbating the excess new development occupancy and rent pressures, multifamily units remain in demand. Constrained single-family mortgage lending is pressuring homeownership rates and boosting demand for apartments, in some cases overshadowing market-level demand considerations.<\/p>\n<h2>Tax impacts<\/h2>\n<p>Another trend helping support multifamily REITs in the near term is the loss of the state and local tax deduction, making homeownership in some of the concentrated coastal markets less attractive\u2014or unattainable.<\/p>\n<p>As 2018 comes to a close, <a href=\"https:\/\/www.commercialsearch.com\/news\/reit-returns-5\/\">U.S. multifamily REITs remain well positioned<\/a>. An en masse Millennial move to homes in the suburbs looks less likely than a slow migration that will be compensated for by a tightening mortgage market as interest rates continue to rise. And as the cost of homeownership rises, on both rising rates and the loss of the Federal deduction of property taxes, the move to the suburbs may have to wait for some, which positions multifamily REITs well to fill vacancies and execute portfolio strategies.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The rating agency&#8217;s Senior Director Stephen Boyd details the trends that have positioned multifamily REITs to fill vacancies and execute portfolio strategies.<\/p>\n","protected":false},"author":1255,"featured_media":1004184562,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21783,23891,21742,37301,21684],"tags":[33427],"class_list":["post-1004280596","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investment","category-national","category-latest","category-uncategorized","category-viewpoint","tag-fitch-ratings-inc"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v23.4 (Yoast SEO v24.6) - 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