Recently I was watching the Harvard Joint Center on Housing’s State of the Nation’s Housing panel discussion which coincided with the release of their annual housing report. On the panel were Terri Ludwig, Enterprise Community Partners CEO; Mayor Catherine E. Pugh of Baltimore as well as Robert C. Kettler, Chairman & CEO, Kettler, a large East Coast developer of tax credit and market rate housing. I thought this particular panel couldn’t have been put together randomly.
The 10yr apartment loan rate we track rose 12 basis points (bp) to 4.60% from 4.48%, where is was on our report last month. During the same period the 10yr Treasury (T10) rose from 2.21% last month to a high of 2.39% last week before backing off 2bp as of yesterday. What saved the apartment rate from rising 50% further alongside the T10 was that the spread was reduced from a high of 2.9% to 2.22%.
Quote: “[A] very active market that continues to give strong weighting to underlying land value and potential future use, even if this use is far off in the future.” – James Glen, VP, Colliers Vancouver, BC [Emphasis mine]
Any time you see future and potential in the same sentence referring to real estate, watch out…
Oh and another sign is when the average cap rate for a low-rise apartment deal is 3% while high-rises are at 2.5! Just for reference, a 2.5 cap is the equivalent of a 40x multiple (aka PE or Price Earnings Ratio) on a stock meaning that it would take 40 years of earnings (NOI in the case of real estate) to repay the purchase price and that is definitely “far off in the future“.
Despite the ‘interesting times’ we’ve experienced since January 20, people still need a place to live, apartments still exist to serve that need and investors can still get a loan to buy one. To borrow JP Morgan’s phrase (the banker not the bank) however, the apartment investment loan we track has continued to Continue reading Apartment Investment Loans Survive Trump Inauguration