MULTIFAMILY MONDAY: BEWARE DEFAULTS, ROUND 2
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|Easy money today could mean another wave of defaults tomorrow, according to Chandan Economics prez Sam Chandan. That's if lenders and investors don't underwrite assuming interest rates will rise again (the only things that last forever are embarrassing childhood photos and taxes).|
|We snapped Sam and Heitman global research director Mary Ludgin at the ICSC/NAIOP capital markets conference at the Marriott Marquis late last week. Sam says low interest rates (extended indefinitely by QE3) can foment price distortions as bidders with cheap financing chase the best properties (as if apartment buildings were selling on eBay—hey, that's not a bad idea). Tons of lenders want in on the $20M to $45M apartment lending space, for instance, and that means spreads are no longer comfortably wide. Lenders and investors have to be willing to walk away from deals, the Wharton prof says. Those that aren't anticipating interest rates to be higher when it's time to refinance in, say, seven years could be setting the industry up for another cycle of defaults. (Seven years? That's, like, a million years from now.)|