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Multifamily market outlook in Md. called solid, with lingering concerns

Despite concerns about an overheated multifamily market, the outlook in the short term remains optimistic. (File photo)

Despite concerns about an overheated multifamily market, the outlook in the short term remains optimistic. (File photo)

The outlook for multifamily properties in Maryland remains positive in the short term, though factors such as any increase in interest rates could eventually hamper deals, industry experts are saying.

During a panel at Saul Ewing’s annual real estate conference on Thursday, lenders and investors discussed what the future may hold for a market sector that has become increasingly popular in and around Baltimore and Washington.

Jonathan Stern, managing director of Fundamental Advisors, and Benjamin Horn, partner at Core Real Estate Capital, both said they see opportunities in secondary markets, particularly in value-added properties.

“There’s still opportunities to pick up properties from management companies that are not as efficient,” Horn said.

Hilary B. Provinse, Fannie Mae senior vice president and chief production officer for multifamily properties, concurred that markets for multifamily properties remained strong. She said the debt market for that sector is expected to reach $200 billion this year. Fannie Mae and Freddie Mac are targeting a combined 40 percent of that market share, she said.

Despite all the good news, market conditions are not perfect. Many investors have been pushed out of primary markets by prices. There’s also some concern that banks are starting to reach their fill on lending for commercial real estate. Commercial mortgage-backed securities sales are also virtually non-existent.

“Primary markets have been difficult for us,” Horn said.

There’s also the continuing questions about when the Federal Reserve will raise interest rates, now at nearly zero. The Fed has flirted with the idea throughout the year but resisted raising rates until there are stronger indicators that the economic recovery has taken hold.

Mark B. Van Kirk, executive managing director at Berkeley Point Capital, was fairly optimistic about the multifamily market’s ability to handle a rise an increase in interest rates. He argued even an increase of 150 basis points wouldn’t be enough to seriously harm the multifamily market, but he noted such a hike would cause a greater focus on returns.

“There will be more pressure on deals,” Van Kirk said.

There have been lingering concerns, particularly in Baltimore, that the multifamily market is overheated. Proposals for new buildings or conversion products are regular agenda items on city oversight groups, such as the Urban Design and Architecture Review Panel.

Much of the redevelopment boom has been generated by a 15-year tax credit for converting Class B office space into residential. But some major city projects have yet to break ground as developers watch how large projects, such as the conversion of 10 Light St., perform. A third quarter report from Delta Associates found there are 5,000 apartments expected to be delivered in the Baltimore metro area in the next 35 months.

But there are firms that still see enough demand in the market to pursue new projects.

For instance, Rockville-based Berman Enterprises last month bought 2 and 10 Hopkins Plaza and announced plans to convert those properties to residential.


About Adam Bednar

Adam Bednar covers real estate and development for The Daily Record.