t crash because it was too large, diversified and had proved its stability. This false sense of safety, exacerbated by too-easily available credit, helped inflate the bubble long after skeptics began warning of a crash in 2005, ultimately worsening the downturn.
In contrast, markets that are perceived as risky from the outset are often better able to self-correct. Take Manhattan’s condo market: lenders began turning off the cash spigot in 2015 as soon as signs of slowing apartment sales emerged. This left some developers lacking funding, but probably also saved banks from painful losses.
As of May 2016, more than 500,000 apartment units were under construction in the U.S. almost twice the historical average and the highest total since 1985, according to CoStar (see chart). In some southeastern cities like Nashville, Charleston and Fort Myers, new construction as a share of existing inventory is precariously high. In New York, new supply is still widely regarded as lagging behind demand and nobody expects the market to hit a prolonged downturn amid strong fundamentals. But the risk is that investors overestimate the potential for future rent increases and overpay for properties.
Between December 2015 and December 2016, the average apartment rent fell by 2.5 percent in Manhattan and by 3.8 percent in Brooklyn, while concessions rose dramatically, according to Miller Samuel data. Apartment landlord Equity Residential said this week that same-store profits at its New York apartment buildings fell 3.1 percent in 2016. Despite this slowdown, investors continued to bid up multifamily prices, which rose 1 percent in Manhattan and 9 percent in Brooklyn and 15 percent in Queens, according to a recent Ariel Property Advisors report. As interest rates climb, some may struggle to refinance their own aggressive bets.
Today s near-term outlook is more uncertain than in recent years, with plenty of headwinds, including the tightening of credit markets after the election, as well as higher rental supply, which is causing free market rents to plateau or fall, Ariel s Shimon Shkury wrote in the report.
Earlier this week, Madison Realty Capital filed to foreclose on an East Village apartment building after its owner, Raphael Toledano, defaulted on a $34 million loan offering a taste of how multifamily investing can go wrong.
Across the country, leverage on multifamily buildings is sti阿爱上海同城