I tapped the publish button before inserting my disclosures. Went back to add them. Long AVB, CPT. These are not huge positions. They represent 1.63% of and 3.29% of my portfolio respectively. AVB is less discounted than CPT or MAA. But I'm stuck with a big taxable gain on the position, so I've been more hesitant to swap it.
I doubt it will really impact them. Rents should dip and occupancy dip, but let's say maybe they combine to drop 15% in some of the hardest hit markets. That hurts, but unless the borrowers were very heavily leveraged, they would be foolish to default on their loans. They can still make the payments. Equity just won't earn much.
Our apartment REITs have much lower leverage, so it's not an issue for them.
The other issue is the net asset value for highly leveraged buildings. It'll come down to underwriting. I'm thinking that we probably won't see a wave of defaults on apartments. If the developer put in a decent chunk of equity, they would be hurting themselves by walking away. The lender would simply resell the property for more than the outstanding loan amount (probably providing a loan to the buyer as well).
It's only really risky if they are in the wrong market and did crappy due diligence. That will probably happen to some loans. Sometimes underwriting does a bad job evaluating an investment and the borrower takes on too much debt hoping for a big leveraged return. Those borrowers can end up defaulting sooner because there wasn't enough common equity in the project.
For office, defaults should be common. Office is awful. Huge vacancy rates and office isn't riding on the back of massive rent increases. For apartment REITs, rents are dipping from all-time record highs. That gives them quite a bit more breathing room.
Thank you for the realistic apartment REIT analysis. It provided great perspective on this REIT subcategory. I've had MAA on my watchlist for awhile, but your analysis has reinforced that practicing patience is a good strategy for the time being.
I have a moderate position in CPT at around the current price, and apparently sold ESS too soon... I'm timid regarding CA focused REITS, REXR excepted. Been wanting to build an apt position, and have
been watching MAA and CPT, but my sense, supported by your article, is that I'll stay on the sidelines a while longer.
I tapped the publish button before inserting my disclosures. Went back to add them. Long AVB, CPT. These are not huge positions. They represent 1.63% of and 3.29% of my portfolio respectively. AVB is less discounted than CPT or MAA. But I'm stuck with a big taxable gain on the position, so I've been more hesitant to swap it.
How bad would this have to be to in order to eventually affect mREIT portfolios of multi-family loans? FBRT, for example has 77% exposure.
I doubt it will really impact them. Rents should dip and occupancy dip, but let's say maybe they combine to drop 15% in some of the hardest hit markets. That hurts, but unless the borrowers were very heavily leveraged, they would be foolish to default on their loans. They can still make the payments. Equity just won't earn much.
Our apartment REITs have much lower leverage, so it's not an issue for them.
The other issue is the net asset value for highly leveraged buildings. It'll come down to underwriting. I'm thinking that we probably won't see a wave of defaults on apartments. If the developer put in a decent chunk of equity, they would be hurting themselves by walking away. The lender would simply resell the property for more than the outstanding loan amount (probably providing a loan to the buyer as well).
It's only really risky if they are in the wrong market and did crappy due diligence. That will probably happen to some loans. Sometimes underwriting does a bad job evaluating an investment and the borrower takes on too much debt hoping for a big leveraged return. Those borrowers can end up defaulting sooner because there wasn't enough common equity in the project.
For office, defaults should be common. Office is awful. Huge vacancy rates and office isn't riding on the back of massive rent increases. For apartment REITs, rents are dipping from all-time record highs. That gives them quite a bit more breathing room.
Thank you for the realistic apartment REIT analysis. It provided great perspective on this REIT subcategory. I've had MAA on my watchlist for awhile, but your analysis has reinforced that practicing patience is a good strategy for the time being.
I have a moderate position in CPT at around the current price, and apparently sold ESS too soon... I'm timid regarding CA focused REITS, REXR excepted. Been wanting to build an apt position, and have
been watching MAA and CPT, but my sense, supported by your article, is that I'll stay on the sidelines a while longer.