July 09, 2015
Revenue and income growth at multifamily properties across the country backed by Freddie Mac loans continued to outpace inflation significantly despite the boom in multifamily building, which has resulted in rising vacancies and higher expenses and debt service.
According to an analysis of full year-end numbers for loans securitized in Freddie Mac K deals by CoStar News, revenue and income grew at a 3.9% year-over-year growth rate last year. That compares to a U.S. inflation rate 0.8% in 2014, the smallest gain for a calendar year since 2008.
Nearly 60% of the loans securitized in Freddie Mac K deals have reported full-year revenue and expense numbers for year-end 2014. Full year-end numbers for both 2013 and 2014 were available for $82.5 billion worth of multifamily properties. The portfolio included 2,928 apartment properties totaling 764,666 units, excluding health care units.
In a separate analysis, Wells Fargo Securities found that the aggregate growth rate of in revenue and NOI for multifamily properties included in conduit CMBS loans was about 50 bps higher than those in the Freddie Mac portfolio.
The increase seen in multifamily revenue and income comes despite a rise in overall vacancy from 5.8% to 8.2% year-over-year for the Freddie Mac-securitized properties.
Operating expenses at those properties also were outpacing revenue growth -- as did the annual debt service payment increase. Expenses increased 4.1% year over year. The average debt service amount went up 4.5%.
Average revenue per room in 2014 totaled $13,002, up from $12,520 in 2013. The average NOI per room in 2014 totaled $7,183, an increase of $6,911 compared to 2013.
Significantly, of the 2,928 loans analyzed, only one loan was significantly delinquent, and only four loans showed being one month late in debt service. All of the other loans were paid up through June and none of the reporting properties showed an operating loss.
Demand Is Still Strong
The strong revenue and NOI performance reflects the surprising continued demand for apartments nationally as renters quickly absorb newly built apartment units and keep rental growth and vacancies at healthy levels, according to CoStar Portfolio Strategy.
As of the first quarter, CoStar national multifamily data showed vacancies fluctuating between 4% and 4.5%, with the year-over-year same-store rental growth, for properties with 20 units or more, above 3%. The national estimates are based on CoStar multifamily data as of the end of the first quarter of 2015.
While the national numbers may carry some degree of volatility, demand remains quite favorable, making the turn in the cycle slower than anticipated, CoStar analysis shows.
At the center of the prolonged demand-supply balance is an environment that favors renting over owning. Despite gradually improving overall economic conditions, persistently low interest rates, and a healthier single-family housing market, a large number of young households continue to prefer renting over owning, or are not financially ready for homeownership.
One contributing factor, according to CoStar Portfolio Strategy, is that younger renters continue to face a slow employment market. As of March 2015, the unemployment rate for households aged 20-24 was still above 10%.
On top of that, part-time employment for this group is still high compared with historical averages. Part-time jobs currently account for more than 36% of their total employment, far above the approximately 28% annual average prior to the recession.
As a result, CoStar expects the number of new renters will continue to increase faster than current renters become homeowners. While that trend happens, the apartment market will continue to benefit and the turn of the cycle will continue to be very slow.
Individual Property Highlights
The five Freddie Mac securitized complexes reporting the highest revenue in 2014 were spread across the East and West coast markets.
Property Name Address City State Total 2014 Revenue
The Gateway 460 Davis St. San Francisco CA $44,451,636
Franklin Park at Greenbelt Station 6220 Springhill Drive Greenbelt MD $43,622,045
Windsor Court 151-155 E. 31st St. New York NY $39,466,000
Foxchase Apartments 320 N. Jordan St. Alexandria VA $35,377,920
Park Newport 1 Park Newport Newport Beach CA $28,947,854
But when it comes to properties with the highest per unit revenues last year four of five were in New York City.
Property Name Address City State Revenue/Unit
The San Remo
145-146 Central Park West
New York NY $98,482
The Congress 161 W. 54th St. New York NY $76,182
235-241 W. 76th St.
New York NY $74,262
Stratford at Countrywood
1545 Pleasant Hill Road
Lafayette CA $73,690
The Corner Apartments 200 W. 72nd St. New York NY $72,649
Two complexes more than doubled their revenue year over year.
Property Address City State Yr-to-Yr Change in Revenue
Vinings At West Oaks 15250 and 15255 Gray Ridge Drive Houston TX $2,165,494
Retreat At Farmington Hills 27517 Gateway Drive East Farmington Hills MI $4,620,328