Large banks are stepping back from financing new multifamily projects as the apartment market shows signs of cooling due to an oversupply of new units, The Wall Street Journal reported.
Quoting real estate research firm Axiometrics Inc., the report noted that the number of new multifamily units is set to hit a 30-year high in 2017. That could loosen pressure on rents, which are up 26% from 2010, as developers compete for tenants.
Additionally, the lack of traditional financing is forcing developers to seek other methods and lenders, such as loans from regional banks, which often carry a higher interest rate.
News that banks are getting cold feet over multifamily projects further underlines a softening in the apartments category as developers bring more schemes online than there are demand for.
The slowdown is being seen acutely in country's biggest metros, with rents in San Francisco and New York dipping in February while rents nationwide inched up slightly.
Much of the oversupply and subsequent price reduction is occurring at the upper end of the market. MPF Research reported last month that the luxury apartment market is weakening due to oversupply. In New York alone, 85% of the 30,000 new apartments set to be delivered in 2017 will be on the high end of the market. Nationwide, roughly the same share of the 189,100 units added from the fourth quarter of 2015 to the fourth quarter of 2016 were luxury.
New York is joined by Washington, DC, as another city where a recent building boom in the upper tiers of the market could take the edge off rent increases.
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