Three Top-of-Mind Topics for the Multifamily Industry in 2022
As pandemic restrictions are lifted, workers called back to the office, the major industry conferences for commercial real estate (CRE) have also returned in a meaningful way. In addition to meeting with clients and business partners, these events are venues for discussing issues that affect the industry today and sharing future expectations – whether on stage over a microphone or in the conference hallways.
At the Mortgage Bankers Association’s (MBA) 2022 Commercial/Multifamily Finance Convention and Expo) in San Diego, CA, in mid-February, the following three topics were discussed by presenters and attendees and reflect what’s top-of-mind for the industry.
Economy: Inflation and Rates
During the convention, it was nearly impossible to find a panel or presentation that didn’t mention persistent inflation, rising interest rates, or fiscal spending uncertainty – and most discussed more than one of these. Despite the consensus that the year will bring each, the general sentiment remains positive and unshaken. As the MBA Research team explained in their Economic Forecast session, rate rises are expected to address inflation. While there may be consensus on the direction of interest rates, there is less so on the speed of rate hikes and the endpoint. Since late-2021, the Federal Reserve’s communications have signaled interest rates moving higher and faster, as the market’s inflation expectations have seemingly become unanchored.
Despite the expected monetary policy headwinds, the economic outlook remained positive due to the excellent position the economy is currently in. This optimism was mainly attributable to a vibrant economy, tight labor market, and improved financial situation for the American consumer. While there was some discussion of increased fiscal spending, which would be beneficial, the was much less certainty here.
Commercial Real Estate: Positive Momentum
2021 was a banner year for many companies in commercial real estate. Property types that were hit hardest during the start of the pandemic (i.e., lodging, retail, office) made positive progress toward their full recovery during the year. The multifamily and industrial property types that performed better at the start and through the pandemic thrived during 2021.
As a result, debt and equity capital returned meaningfully, lending volumes increased, and cap rates compressed through the year. CRE lending hit an all-time high-water mark in 2021, $900 billion, and is expected to pass $1 trillion for the first time in 2022, per MBA forecast. Multifamily lending accounted for $470 billion in 2021 and is expected to be $493 billion in 2022, according to MBA’s latest Commercial/Multifamily Real Estate Finance Forecast.
Based on comments from panelists and presenters alike, multifamily and industrial will likely remain the darlings for 2022, garnering the majority of capital’s attention. While the government-sponsored enterprises (Fannie Mae and Freddie Mac) will continue to be active for multifamily, many expect the return of securitizations and ample supply of private capital focused on commercial real estate will diversify available capital sources – even in areas like affordable housing.
Companies: Talent and ESG
Despite the favorable industry outlook, many executives noted talent and environmental, social and governance (ESG) as areas of needed improvement for the year ahead. Industry leaders mentioned hiring, training and retaining talent at their firms as a current challenge that they plan to focus on. They noted the difficulty of finding and keeping experienced underwriters and analysts to support their business growth. One executive stated the challenges that remote work has created for mentoring and shaping the next generation of leaders.
Another area of improvement mentioned across multiple panels was ESG considerations and implementation. Apart from acknowledging it as an essential topic, nearly all panelists said that there was a lot more work to define ESG and put the definitions to practice. But even before a consensus was reached across the industry and by regulators, it was clear that many firms were already making taking steps on their own. Panelists who spoke noted internal (employees, management, investors) and external (regulators, rating agencies) forces pushing their companies in that direction.
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