OC Multifamily Fundamentals Rock

Mill Creek Residential senior managing director Samuel Simone, who will be speaking at our event, tells us that there are still plenty of great sites for multifamily development in Orange County. He notes that the big question for developers is “will a land seller provide enough time to obtain the discretionary approvals to fully unlock the value?”

Samuel adds that there's higher-density multifamily product, along with rental growth and investor appetite for OC multifamily. That means that land valuations for multifamily are representing the highest and best use for locations throughout OC, like the Irvine Business Complex. Mill Creek's recent development in the IBC is the 194-unit Modera Irvine, which offers one- and two-bedroom units and penthouses in a five-story structure.

While it's true that much of the multifamily inventory in OC is in the hands of a few owners that rarely sell, TruAmerica senior managing director Greg Campbell, also a speaker at our event, tells us that there are opportunities to acquire assets. “The market will never have the same transaction volume as the other major SoCal markets," but there are acquisition opportunities from new developments by merchant builders, as well as value-add opportunities in aging assets, particularly in Central and North OC, he explains.

KeyBank Real Estate Capital VP Rob Prouty, who will be speaking at our event, tells us he's fairly bullish on multifamily lending in 2015. "There are headwinds," he says, like new supply and wage growth, which could disrupt the market. Even though some borrowers believe we'll have a 5% 10-year Treasuries eventually, Rob sees rates remaining fairly stable, at least in the near term. Spreads are compressed, which impacts profitability, so lenders have to have more volume to make the same amount of money as last year. Rob hopes this doesn't lead to a "quick deterioration in lending standards, as everyone races to the bottom.”

Walker & Dunlop VP Mark Grace, another speaker, agrees that 2015 should be a strong year for multifamily finance (and a busy year at the Grace household; Mark's snapped with his boys Hudson and Rowan, who welcomed a new baby brother into the house a few weeks ago). “There's a huge wave of maturities that will need to be recapitalized between now and '17," which should lead to a large amount of business momentum, he says.

Even so, there are a few of key fundamentals that need to remain in place for all cylinders to fire, Mark notes. Interest rates need to remain low, the overall capital market environment has to remain stable, and the economy to continue its steady growth. “We have some new construction that needs to be absorbed, but Orange County is well poised to do so, considering limited construction and a growing economy,” he says. Join us for our Orange County Multifamily Financing & Development event on Friday at the Balboa Bay Resort at 8:30am. (Sign up here.)