Dive Brief:

• Starts for buildings with five or more units jumped 30.6% month over month in June and rose 25.8% year over year to a seasonally adjusted rate of 414,000, according to a monthly report from HUD and the U.S. Census Bureau.
• Overall housing starts came in at a seasonally adjusted annual rate of 1.3 million in June — a 0.5% decrease YOY and a 4.6% increase compared to the revised May estimate. Single-family home starts clocked in at a rate of 883,000 homes, a 10% YOY fall and a 4.6% month-over-month decline.
• Apartment developers pulled permits for a seasonally adjusted rate of 478,000 apartments in buildings with five units or more, an 8.1% YOY increase and a 2.1% increase compared to May.

Dive Insight:

While multifamily starts jumped in June, the feeling in the apartment development and finance community is that it is still extremely difficult to underwrite deals. Part of the issue is the still-high delivery levels in many areas of the country. However, the amount of new deliveries in buildings with five or more units is starting to decline, according to Census figures.

At the end of June, 720,000 units were under construction, a 19.6% YOY drop and a 0.6% month-over-month decline. Multifamily developers finished an annualized 383,000 apartments in buildings with five or more units, a 39.8% YOY drop and a 21% month-over-month decline. 

With the new supply, acquiring existing properties has become more attractive for many equity investors. “You're seeing that in some markets, you can buy a new product below replacement costs,” Berkadia Managing Director Brad Williamson told Multifamily Dive.

However, Williamson said that his team is still working on construction loans, with about $2 billion closed as of this summer.

“We're doing a lot of multifamily construction and condo construction,” Williamson said. 

Williamson also pointed out that not all new construction is equal. “The garden product on the multi side pencils a lot better,” he said. “But once you get into the mid- and high-rise, those deals tend to be more expensive to build and tend not to pencil.”

Click here to sign up to receive multifamily and apartment news like this article in your inbox every weekday.