Pub. 6 2016-2017 Issue 5

18 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S Multifamily Loans: How Much Is Too Much? FEATURE ARTICLE GLENN MARTIN, REGIONAL DIRECTOR, PROMONTORY INTERFINANCIAL NETWORK Following the SEC’s initial announcement of the rule changes, there was a subdued response from institutional investors. M ultifamily lending has been a robust market the last several years. Denver has grown considerably in terms of new project completions. In fact the Denver metro market has outpaced the National amount of new apartment completions by nearly 2 full percentage points. In part the heated building of multifamily is in response to our growing employment change year over year which also exceeds the National average. In fact Denver metro has oupaced the National job growth market since 2010. While the market appears to be responding to the increased demand it has left some banks wondering how much is too much of this mul- tifamily asset class? Bank regulators have their own way of communicating their thoughts on this topic. On December 18th of 2015 the OCC released a statement in response to the substantial growth inmany CRE asset and lendingmarkets citing a rising concentration in banks and an easing of CRE underwriting standards. The intent of the memo was to reinforce that banks should exercise prudent risk-management and mind their CRE concentration risk. In the Denver market our headline growth has made the lending enviornment for both new construction and existing multifamily abundant. Out of 30 National Markts Denver has the following rankings: According to HUD’s Office of Policy De - velopment and Research, the rental housing market is slightly tight with an estimated rental vacancy rate of 4.1 percent, a sharp decrease from 7.1 percent in April 2010. Denver has become known as a “lifestyle” destination for young workers and families which helps to drive the in migration. The majority of the projects completed fall under the newer and higher rent categories A+ or A properties based on amenities and location. The projected “lifestyle” properties com- prise 6.3% (6,809 units) of the total units completed while the rental based on need properties are only 2.1% (2,810) units which serve the work force market.