Developers See Pain Spread to Multifamily Sector

Turmoil in the capital markets is leaving no segment of the housing business unscathed. Now feeling the pinch is the multifamily sector, where developers at the National Association of Home Builders' annual convention in Las Vegas say tight financing conditions have severely hampered their ability to produce both affordable and market-rate projects. Robert Greer of Michaels Development, Marlton, N.J., a big developer of low- and moderate-income apartments, said big investors - including Fannie Mae and Freddie Mac - are not actively seeking low-income housing tax credits because they have no profits to offset. Consequently, the firm, which has built more than 40,000 LIHTC units over the past 30 years, has had to scramble to find equity investors. So far, the firm has been successful, Mr. Michaels said, but assembling the capital needed to get projects off the ground is becoming more and more difficult, especially for firms that are smaller than his. The Lawson Cos., a market-rate apartment builder in Virginia Beach, also is feeling the pain. "We're struggling just like the rest of the housing industry," said president Steve Lawson. "The credit markets have turned upside down on us." When money is available, Mr. Lawson said, underwriting is so tight that he has to bring "twice as much equity" to the table as he used to. The Virginia builder fears that when members of the Generation Y start forming households, there won't be enough apartments to handle the onslaught. The NAHB is forecasting just 188,000 million multifamily starts for 2009, down more than 100,000 units from 2008. But it could ratchet its prediction down further if the credit markets don't thaw soon.