I am of the opinion that multi-family(MF) building values are set to decrease over the next five years. Here is my reasoning:
1) MF are sold based on Cash on cash return. When interest rates return to their normal levels in order to get a good C on C return the value of the building will have to go down or the rent will have to increase. Given the jobless recovery I doubt rents will increase.
2) MF are suffering from the bad press that all Real Estate is getting right now and it will get worse before it gets better.,
3) Banks used to give money away. A lot of the money was non recourse. We refinanced at 70% loan to value on one building and pulled out some cash. I think I would have to come to the table with a fair bit of change if I were to refi now..Why wouldn't you walk away from a building if it was under water and no bank will loan refinance you when the mortgage comes due. When those loans come due banks are going to have some REO buildings and that will be an additional downward tug on MF values.
Do you agree with me or disagree? More importnat what is your reasoning.
