If you are looking for a bright spot in the real estate investment world right now, look to multifamily apartments as your best bet. The combination of weak sales and tough financing is creating a backlog in the rental markets forcing many who would be considering purchasing new homes onto the sidelines.

The issue has stopped being demand for buyers and now is an issue of buyers being able to qualify for loans in a very limited lending pool. Think of it this way, if there were 5 banks in town fighting over the ability to give you a loan, there would be competition and motivation by one to get it done.

But after the bloodbath of the subprime and Alt-A crisis with major securitization firms dropping like flies on Wall Street, the lenders are not even returning phone calls now. And if you get your call returned, you will most likely face an approval process by the underwriters that will include a first born somewhere.

That is why people are renting more and multifamily buildings are holding their values better than the rest of the real estate market.

“Of all areas of real estate, the underlying market for multifamily is holding up the best,” the chairman of the board at Signature Bank, Scott Shay, said. One outcome from the declining availability of residential single-family mortgages and from the forced sales and foreclosures of single-family homes is that demand for rental apartments is likely to remain robust. The only real offsets to this are houses that are being put on the rental market and condos that are being converted into rentals.

But everything is not rosy on this front either. Trying to get a loan on a multifamily property is getting very difficult as well. The lock-down on real estate financing knows no boundaries. Until the confidence to lend money trickles from Main Street to Wall Street happens, transactions that are not all cash are going to be tough to pull off.

We are in the very definition of tight money.

“Yet financing for multifamily is also facing severe headwinds as the Wall Street firms who securitized this form of mortgage financing, who used to love multifamily loans so much they increased elevations on collateralized mortgage-backed securities to create larger AAA trenches. With the securitization market in deep freeze this source of demand for loans is gone,” he said. via The New York Sun

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