Multifamily Investment Came To A Halt Long Before Bank Fails

The failed Silicon Valley and Signature banks both showed commercial real estate (CRE) holdings on their books, generating concern from the sector. 

But some believe there’s no need to worry now — even though that calm comes from the pain of Federal Reserve interest-rate hikes and the halt of CRE investment and sales. 

Many had given the warning sign that they had moved on from conventional CRE and multifamily investment this year and onto RV parks, marinas and self-storage. 

“Multifamily investment is dead. The rates are too high. Any kind of new construction is dead, and the corpses are still warm. That’s how fast it happened,” David Nasatir, chairman of the Obermayer law firm, told Benzinga. “I think this all stopped long before the bank panic. Those waiting on the sideline for a month, hoping things were going to change, are now done. I really think we’re looking at a year and possibly two years until they get back in the game.” 

At the end of last year, Signature Bank, which collapsed on Sunday, held $33 billion in commercial real estate loans, predominantly in the New York metro area. A total of $19.5 billion of that money was in multifamily and around $14 billion in CRE. 

“These failures were caused by a bank liquidity problem. This had very little to do with loans on the books because few of them were in default, which is much different than 15 years ago,” said Nasatir, a finance and real estate lawyer at Pennsylvania-based Obermayer. “These banks have pretty clean portfolios. The fact these banks failed has nothing to do with real estate loans.”

President Joe Biden, announcing the Federal Deposit Insurance Corp. (FDIC) takeover of the Signature and Silicon Valley, said not only would the banks’ executives be fired, but the FDIC would not reimburse its investors. 

“They knowingly took a risk and, when the risk didn’t pay off, they lost their money,” Biden said. “That’s how capitalism works.”

Fed Chairman Jerome Powell characterized the bank failings as “isolated incidents,” but Nasatir says the Fed needs to take part of the blame for the current CRE environment.

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“Deals don’t make economic sense right now, and you don’t want to add to interest rate acceleration. My new question is, ‘What’s worse — raising inflation or no direction from the Fed on where this is going and when it’s going to stop?’ I think the medicine is killing the patient.” 

Nasatir’s advice to his CRE clients?

“Calm down and stay cool. Monday was a rough day. People were concerned. I’m not telling them to do or not to do deals, but I want them to stay calm. Overall, I’m hoping my pessimistic attitude is wrong.”

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