Regional Quirks May Account for Multifamily Contradiction


Idiosyncrasies in regional markets appear to be among the reasons securitized multifamily overall has rebounded so quickly in terms of occupancy and rental increases but is one of the worst performing property types in terms of delinquencies, according to Fitch.

Fitch Ratings found in part of an investigation into the possible reasons for the contradiction that New York City, for example, faces unusual challenges due to the underperformance of four large and influential loans involving conversions to market rents from stabilized ones.

“New York City loans represent approximately 12% of Fitch’s rated multifamily U.S. CMBS universe,” Huxley Somerville, managing director, told this publication when asked how influential loans in this market are.

Among other things, Fitch in its report looks into whether various regional market behaviors back the theory that multifamily performance might have an inverse relationship to residential housing. But it ultimately finds it unclear as to whether New York trends support that theory or not.

While NYC is the second best performing city in the Case-Shiller housing index and the worst performing in terms of average multifamily delinquencies, Fitch finds that the anomalous presence of the four large loans complicates the issue.

“Including these four large loans makes the New York CMBS multifamily delinquency rate 56.7%-the worst of all states. But not including them reduces the delinquency rate to 3.4% and puts New York right in the middle as the 25th best performing state, although far closer to the better end of the spectrum,” the ratings agency noted in its report.

Interestingly, Fitch finds that after New York the poorest performing “regional” category of loans in terms of the percentage of total securitized multifamily are those collateralized by multiple properties in various states.

“It seems diversity is not everything,” notes the ratings agency, which said it has been working on looking at this trend more closely to determine why this might be.

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