Multifamily landscape: What’s up (or down) with apartments?

Summer typically brings rent increases across the region. Complementing that trend, we also usually see the pace of rent growth accelerate. This year, however, that narrative may not hold.

While rents across the area did increase in April, the pace of growth in many of our region’s cities and suburbs slowed. Case in point: Seattle, where citywide rents were up 0.6 percent in April, when in March growth paced at 1.4 percent. In Renton, rent grew by 3.4 percent in March, but slowed to 1.8 percent in April.

So what’s causing this dichotomy? Apartment List suggests it could signal a slow summer and a sluggish rental market on the horizon. A plethora of new apartments could also be a factor.

In Western Washington, the slowest-growing markets were Seattle (although the numbers show that 2024 Emerald City rent growth is outpacing the same months in 2023), Auburn, and Shoreline, where month-over-month rent growth was just 0.1 percent.

The fastest-growing rents were found in Mountlake Terrace (which may be spurred further by the light rail opening this summer), Everett, Bellevue, Redmond, Sammamish, Issaquah, and Kirkland. One takeaway from this list is that the Eastside continues to be a hot rental market. 

Switching gears from slowing rent increases to the financing of existing and new multifamily communities, the news is more sobering to landlords. Nationwide, more apartment properties are heading to foreclosure, indicating an increase in problems with multifamily loans. Multifamily distress shot way up last month, from 3.7% in March to 7.2% in April. Across the country, nearly $150 billion worth of loans backed by apartments are maturing through the end of next year.

Compounding the issue further, maturities are not always going investors’ way. Just last week, Goldman Sachs and Ballast Investments released a 1,200-unit portfolio to their lender, RBC Capital, after defaulting on $688 million in loans.

Unsurprisingly, the problems are mostly interest-rate-driven. Many delinquencies stem from developers trying to refinance out of their construction loans. Across the U.S., multifamily property values have fallen by up to 30% since 2022.

Locally, the underlying fundamentals behind multifamily investment are strong, given a strong local economy and positive population growth. And unmet demand for housing remains sky-high.

More multifamily housing developments are needed to satisfy the Washington State Growth Management act.

The act stipulated that Snohomish County alone needs to add 484,791 housing units and Shoreline needs to add 13,330 new units by 2044. More than a quarter of those are required to qualify as affordable housing. Yet, in the face of the high construction loan costs and the changes in the lending market overall, several multifamily developers are asking for extensions on already-issued permits. If permits expire, developers must reapply or abandon the project.

In the Northend, there are six projects encompassing 2,774 planned units in the light rail corridor of Lynnwood, Mountlake Terrace and Shoreline. One such project, called The Line, is slated to finish by the end of the year. But the developer is concerned about the viability of their future developments along the 8.5-mile-long Lynnwood Link. If the interest rate is still very high, they may not have the potential to start another planned project and be forced to postpone it a year or two.

So what’s next for multifamily? Probably some pain (high interest rates, possible foreclosures) and some gain (slowly rising rents, continued new construction). Time will tell, as developers wait for a more favorable financing environment. 

This post was based on information found on BisNow, SeattleMet, Yardi, Puget Sound Business Journal and Multifamily Dive. Photo credit to: Graphite Design Group



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