And the Cycle Continues – Multifamily DOWNtown

John Wise says it well: “…I’m afraid the party is over and there are going to be some tough times for some developers.”

In every real estate cycle there is the BOTTOM, the UP, the TOP and the DOWN. Calling the BOTTOM and TOP is hard to do but seeing the UP and DOWN is much easier. We are now seeing the long called for DOWN with discounts, desperate marketing efforts and other tricks starting to come out. In time we may see the next phase of a down: sales. Discount sales as lenders and investors pull the plug on projects they’re just going to write off as a loss. Those are usually a good indication that the BOTTOM is close by.

How long any of this actually takes to happen is a guess and is dependent on lenders staying power and devotion to the market. A local lender / investor with long ties to the market may stay with a project and work with the developer / owner to restructure the debt or delay payments in order to weather the downturn. Most national lenders and equity players have a much shorter fuse and when things look like they’re going to take a while to rebound many will cut bait. Take their lumps and move on.

This can be a great deal for tenants with lowered rents and all manner of incentives. It can also be great for those looking for an opportunity to buy into the market as some of the projects may trade at a discount. With a new lower basis it will be easier to ride out the market downturn and then make even better money in the following UP cycle.