Heavy investment in multifamily properties may expose risk

Apartment investment is increasing substantially.

Multifamily sales continue to improve, and are doing better than many other commercial property types, which may make property management companies very happy. However, due to the high transaction levels, this means that there may be a heightened underwriting risk, according to CoStar.

Total sales for multifamily properties increased 33 percent year-over-year during the first quarter. In addition, these sales were 52 percent higher in 2011 than in 2010, the report noted. Even with improvements in sales, there are some issues showing up.

The report cited Fitch Ratings, which noted that because of these high sales levels, there may be risks surfacing because of a rise in interest rates. Rising interest rates could hurt refinancing later on, and this was seen during the recession.

Furthermore, changes to Freddie Mac's and Fannie Mae's operations may affect the situation as well, the report noted. If there is a change in liquidity at some point in the future, some of it may not be taken up by other organizations.

The report added that despite all of these hurdles, Fitch thinks that multifamily properties will continue to sell over the next calendar year, and investors will continue to look toward these properties in order to help their own situations.

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