Rising Rents & Cheap Money Flowing, Apartment Prices are Soaring

Fannie Mae announced today it provided nearly $70 billion in multifamily financing last year. The government lender crowed about $9.6 billion of the total being for affordable housing projects and $13.5 billion financing projects deemed “green and sustainable” units. This helped Fannie “grow its Multifamily Green MBS (mortgage backed securities) issuance to more than $100 billion last year,” according to the press release.   

Fannie Mae apartment loan pricing and terms are attractive: the 5-year fixed rate starts at 2.74% to the 30-year fixed starting at 3.81%. 30-year amortizations are available and in some cases interest only loans can be negotiated, as well as non-recourse loans. The larger point is with the CPI at 7% in December, the real interest rate on these Fannie Mae loans is negative. 

According to Multi-Housing News, “On an annual basis through December, rents increased by double-digit percentages in 26 of the top 30 metros, six of which posted gains of 20 percent or more: Phoenix (25.3 percent), Tampa (24.6 percent), Miami (23.5 percent), Orlando (22.7 percent), Las Vegas (22.2 percent) and Austin (20.9 percent).” 

So with rents rising and cheap money flowing, the prices of apartment projects are soaring. The latest Las Vegas multi-family announced sale is Ideal Capital Group’s purchase of the 287-unit Jade project near the Rio hotel & casino for $124.5 million. That is a whopping $433,798 per unit.   

The COVID shutdown in 2020 slowed project sales as many renters lost their jobs. But now, “Las Vegas’ rental market has since heated up with fast-rising rents and shrunken availability, in part as people sought more space amid widespread work-from-home arrangements, and investor sales have rebounded,” reports Eli Segall for the Las Vegas Review Journal.

Jade went for double 2021’s average sales price per unit, $215,151. Average apartment sales per unit have risen over 460% from $38,219 in 2011 to last year’s price. 

Wolf Richter writes on his site wolfstreet.com that working people are harmed by inflation because their wages never catch up, while people with assets, inflated in value by low interest rates, reap the benefit. He writes “the wealth of the wealthiest 1% of households spiked, creating the biggest and worst wealth disparity ever to the bottom 50% and even to the bottom 99%, based on the Fed’s own wealth distribution data.”

Over lunch recently I expressed my astonishment over the $400,000 per unit sales to a developer (and apartment project owner) I used to bank.  He told me units would be selling for $500,000 a unit by the end of this year. 

I said rents would have to jump even more or CAP rates would have to go to virtually nil for that to happen. He said emphatically, “rents are going up.” People moving in from California believe rents in Vegas are cheap. 

Not for long.