CRE i Ohio

Foreclosure numbers offer little hope for strong recovery

Expect rentals to continue to perform well not only in 2011 but beyond. There is plenty of evidence that the housing market’s struggles are far from over. And as long as the residential market is in the doldrums, the multi-family market will benefit.

[caption id="attachment_4819" align="alignleft" width="150" caption="Foreclosures remain high in Detroit"][/caption]

It’s no surprise to anyone that multi-family remains the strongest commercial real estate segment.

Patrick McNulty, a director in the Chicago office of Arbor Commercial Mortgage, sums it up well: When an economic disaster strikes – and few would argue that the nation still isn’t in the middle of a painful economic  slump – the multi-family market is best designed to withstand it.

Consider what happens to the office or retail markets when the economy slumps: Companies go into layoff mode. Stores go out of business. Vacancies jump. It’s a mess.

But for the multi-family market? Consumers actually turn to rentals when times are tough. Some lose their homes to foreclosure. Others turn to renting because they see home values falling and don’t want to invest hundreds of thousands of dollar in an asset that might continue to lose value.

It’s no surprise, then, that the analysts at Marcus & Millichap Real Estate Investment Services expect to see apartment vacancies to fall 110 basis points in 2011 to 5.8 percent. These pros also expect to see asking rents rise 3.5 percent to $1,067 a month and real rents to jump 4.5 percent to $1,002 a month.

As Charles Meyer, managing director with Columbus, Ohio-based Red Mortgage Capital, says, “Multi-family looks quite healthy when compared to the other classes. Occupancy levels are strong in most markets. Building owners are getting to the point where they can push asking rents again. Then there are the housing market’s troubles. They are pushing many people to rent.

Expect rentals to continue to perform well not only in 2011 but beyond. There is plenty of evidence that the housing market’s struggles are far from over. And as long as the residential market is in the doldrums, the multi-family market will benefit.

RealtyTrac, the online foreclosure company, makes headlines all year every time it releases its housing foreclosure numbers. In the company’s year-end report, RealtyTrac reported that foreclosure activity increased in 2010 in 149 of the nation’s 206 metropolitan areas that boast a population of 200,000 or more.

That would indicate that the country’s foreclosure problem is far from over.

“Foreclosure floodwaters receded somewhat in 2010 in the nation’s hardest-hit housing markets,” said James Saccacio, chief executive officer of RealtyTrac in a written statement. “Even so, foreclosure levels remained five to 10 times higher than historic norms in most of those hard-hit markets, where deep fault-lines of risk remain and could potentially trigger more waves of foreclosure activity in 2011 and beyond. Meanwhile foreclosures became more widespread in 2010 as high unemployment drove activity up in 72 percent of the nation’s metro areas — many of which were relatively insulated from the initial foreclosure wave."

More than 2.8 million properties across the United States saw foreclosure activity in 2010. That’s up 1.67 percent from 2009, which had set its own record for foreclosure activity.

The Midwest certainly wasn’t spared. The Detroit-Warren-Livonia market of Michigan saw its foreclosure numbers jump 15.11 percent from 2009. In all, this market had more than 79,000 properties in some stage of the foreclosure process. In Chicago-Naperville-Joliet area of Illinois, more than 138,000 properties were in the foreclosure process, an increase of 16.09 percent from 2009. And in the Indianapolis-Carmel area of Indiana, foreclosure activity jumped by more than 8 percent from 2009.

This all points to one of the easiest predictions for the rest of 2011: The multi-family market will remain the strongest of the commercial real estate sectors not only in the Midwest but across the nation.