Multifamily News Roundup – May 2019

Opportunity Zones 

The federal Opportunity Zones program, already popular with multifamily investors, has become more appealing with the announcement of new incentives. In the hopes of creating more affordable apartment units across the country, the Federal Housing Administration has announced a reduced application fee for owners and developers applying for mortgages if they are planning to create new apartments or renovate existing apartments within an Opportunity Zone. 

While this new incentive and existing tax credits are alluring, there are those who remain uncertain about the program’s value. Despite doubts about the program’s societal usefulness, investors should keep in mind that whether they are interested in maximizing returns, social benefit, or both, Opportunity Zones can offer meaningful help building a portfolio to fit their goals. 

 Housing Affordability 

Acquiring a home remains out of reach for many, as reported by NAHB/Wells Fargo Housing Opportunity Index. The average American family could afford to purchase only 61.4% of newly delivered housing stock, meaning some 40% of new construction is currently expensive enough that it is inaccessible to most. Higher regulatory burdens and scarce labor have both contributed to increased construction costs, squeezing developers and forcing home prices upward. Those who can afford to purchase a home tend to find success further and further from cities, in what are known as “exurbs.”  

As the high cost of acquiring a home continues to create new renters, multifamily investors should expect more news like recent headlines from California. The California Assembly recently passed AB 1482, a bill introduced by David Chiu and designed to protect the growing class of American renters from rent gouging. Investors should stay tuned for updates as the bill heads to the Senate. 

Ponzi Scheme  

The SEC has accused one of the nation’s largest multifamily owner/operators of financial malfeasance and running an operation similar to a Ponzi scheme. The SEC filed charges against the operators of Morgan Management in May, alleging that the CEO, Robert Morgan, used money from new investors to pay investors to whom he owed money. Morgan still owes investors approximately $63 million. Lenders are beginning to foreclose on properties, and it is likely these seizures will go on for some time, impeded by competing claims and slow courts. The case has implications for the entire industry going forward as regulators and other governmental institutions may increase their scrutiny of multifamily operators in the short term. 

Brokerage Acquisitions Continue 

Real estate owners and operators are not the only CRE companies eyeing acquisitions. Consolidation in the brokerage world continued in May with Cushman & Wakefield’s purchase of the Austin operations of Texas-based broker and property manager Peloton Commercial Real Estate. The company manages approximately 5 million square feet in the Texas capital. The addition of 40 new employees will give Cushman a leg up in the Lone Star State.