LOS ANGELES—Despite the national debate about an economic slowdown and a possible recession on the horizon, the capital markets remain bullish on the multifamily sector, according to Paul Rahimian, CEO at Parkview Financial. His firm continues to do a tremendous volume of construction loans on multifamily developments, and he doesn’t see the market slowing down any time soon.
“We definitely aren’t seeing a slowdown right now,” Rahimian tells GlobeSt.com. “We are seeing a lot of activity in the multifamily sector, and we expect that to continue through 2016. When you read the reports and look at the research, there is still a strong demand for multifamily, especially in Southern California, and the supply hasn’t been there. In the past seven or eight years, construction hasn’t been keeping up with demand.”
Although his firm is bullish on the multifamily sector, they are still remaining conservative. In an earlier story, Rahimian said that developers are beginning to Los Angeles loosen up their underwriting standards and justifying their pro forma based on anticipated rent growth. Those are the types of deals that Parkview Financial won’t take. As a whole, though, the company has become more conservative because of increasing costs across the board. “We were more aggressive in 2009-2012 than we were in 2005,” he says. “We have actually become more conservative because land prices and construction have escalated, so if we are lending based on our total cost of the project, we are more at risk today than we were 24 months ago.”
The other wild card factor is the potential for increased interest rates. Although the Fed made a nominal hike in December, Rahimian doesn’t see any future increases. “I do not think that they are going up,” he adds. “In December, we had the rate hike, and we thought that this could be the beginning of rates going up. In December the Fed said that they were going to do four quarter-point raises and now it looks like they are retreating from that. The global economic turmoil has really affected everyone, and that is going to keep interest rates low for a while.”
For the private lending community, interest rate hikes don’t really have a direct affect on their market. “If interest rates were going to go up, the delta between private lenders and banks would shrink,” explains Rahimian. “Right now banks are lending at 3% to 5% and we are at 9% to 10%. So if bank rates were to go up and they were lending in the 5% to 7% range then we might be able to increase our rates as well.”
For now, he is bullish on the multifamily market for at least the next year, and maybe beyond. “We think that in 2016 and possibly 2017, there still might be a lot of multifamily out there,” Rahimian says. “Of the different real estate sectors, it is more of a safe product. Even if we hit correction, people still need a place to live, and they are going to live in a multifamily apartment as opposed to a new house.”