Even as the foreclosures mess continues, a quiet shift has come over the multifamily sector, with more mid-sized buildings being snapped up at auction by private buyers and investors – raising fears among some advocates that the quick-flip culture has returned to the local housing market.
According to a Banker & Tradesman analysis of data provided by The Warren Group, the percentage of multifamily properties returning to lenders at foreclosure auction has dropped almost across the board.
In 2008, roughly 90 percent of two- and three-family properties went straight back to the lender at auction; so far in 2011, that figure has dropped to 73 percent. Changes were even more drastic when it came to mid-sized buildings. At their worst in 2007, more than 81 percent of four to eight unit buildings returned to the lender at foreclosure. In recent months, that figure has dropped to 44 percent, meaning that the majority of such properties are being bought by third-party investors.
Market Shift
The trend simply reflects a changing market, according to Alan Clayton-Matthews, an economist at Northeastern University in Boston: “Rental properties are becoming more attractive because more people are now renting.”
Long-term trends, including tightening credit standards and a wary public scarred by the recent housing crisis, are keeping more people in the rental market.
“Younger households, who might have been first-time homebuyers, have seen what’s gone on in the housing market and they’re now renters,” Matthews said. “And of course, more people have been pushed out of housing through foreclosures, and they’re going to have to rent.”
As the economy slowly begins to improve, that will “make most [investment opportunities] look better to investors, whatever they may be. So I don’t think it’s surprising that that’s happening.”
“I think if you’re looking at the real estate world in general, the multifamily area is strong and getting stronger,” said Greg Vasil, CEO of the Greater Boston Real Estate Board. “Vacancies are down, and people are looking to do rental projects. There’s money out there for acquisition, so I wouldn’t be surprised if there’s people out there looking at [distressed] properties, looking to make deals, because they see a healthy rebound coming on the rental side of things.”
But for tenants, there are some concerns that go along with a resurgence in investor interest in foreclosed properties. While lenders must show cause to obtain an eviction when foreclosing, quickly selling REO property to third party investors post-foreclosure may open up some wiggle room for new owners to break leases in order to complete renovations, said Judith Liben, an attorney with the Massachusetts Law Reform Center.
“It’s my impression that there’s fewer and fewer [tenants from] bank-owned properties coming in,” to ask for help with evictions, said Liben. Rapid turnover in ownership can also cause confusion for tenants, who may not know who to turn to if problems occur.
“Clearly, to have responsible investors buying buildings that aren’t being taken care of is a positive thing,” Liben continued. “[But] I think what people are concerned about, generally, is the return of the flippers.”
