Multifamily News Roundup – June 2019

Lennar Fund Closes

Lennar has long developed single-family housing throughout the United States, and is the sixth largest developer of multifamily apartments through its subsidiary, LMC. Refusing to rest on its laurels, in June the company closed a $1.3 billion fund to acquire existing Class-A multifamily apartment complexes. The fund, LMV II, is Lennar’s second to focus on acquisitions, and many of the investors in this fund are the same as the first.

2019 has treated Lennar and LMC well. Low mortgage rates have driven demand for Lennar’s single-family homes, and lower-than-usual lumber prices have meant reduced costs. Lennar beat analyst expectations for Q2 earnings, and the company’s share price rose at the end of June in response to this positive news.

New York State Rent Control

New York state legislators passed some of the strongest rent control regulations in the country in June. The new regulations have drastically altered the way multifamily owners and operators throughout the state, including in the country’s largest city, will function going forward. The bill shrinks the amount by which owners can increase rents on apartments designated “affordable” and removes several legal provisions used to boost rents.

Already, brokers have reduced building prices and experts anticipate that a wave of foreclosures is not far behind. Investors with deep pockets can afford to treat this new law as a blip, or a buying opportunity if they are especially well-capitalized and willing to deal with lower horizons going forward. For those smaller, local property owners currently courted by large institutional players, waiting to sell may prove rewarding: two property owner groups, The Rent Stabilization Association and the Community Housing Improvement Program, plan to file suit to dispute and possibly eliminate the new laws.

State of the Market

May housing starts dropped 0.9% in May, against expectations that they would rise above April numbers. High home prices relative to incomes continue to challenge some buyers, but low mortgage rates have mostly mitigated this concern and boosted sales. Experts do not expect construction to pick up this year, exacerbating the existing housing shortage. This tension between consumer interest and low supply has created a five-year high in demand for apartments. Potential homeowners are not the only ones facing high prices: a small number of units available for rent has also impacted tenants, and low income renters are the hardest hit.

Despite some setbacks, real estate owners and operators have had a more pleasant 2019. Real estate stocks, including those of many REITs, are trading higher than anticipated. Those with properties related to e-commerce have benefited the most, but all real estate verticals have performed well. Investors interested in REITs can assume e-commerce will continue to drive profit for the owners of warehouses and that steady demand for apartments will reward owners of multifamily-related stocks.