There is currently a favorable environment with price support for multifamily properties because
of the following:

There are fewer apartment buildings in better areas being offered for sale
Investor interest remains although many are more cautious
There is loan availability with record low rates

Rents appear to have stabilized after moderate declines, although recent economic indicators and
forecasts imply continued employment weakness. The Anderson “ UCLA Q3 (9-20-2011) Forecast for
California sees virtually no growth in employment through 2012 with slight improvement in 2013,
recession or not the employment situation remains horrible.
Nationally, the forecast is far worse than it was just three months ago. Outlooks from the Fed,
IMF, Pimco bond fund, and others concur, lowering 2012 growth estimates. Commodity declines over
the past six months confirm a slowdown is underway, as do trucking and shipping measures.
Unprecedented government stimulus and record Federal Reserve bond purchases have provided temporary
benefit only. Consumer demand shows little improvement and consumer confidence levels have declined
to new lows. The Conference Board survey of CEO confidence is at a two year low, as only 19% of
CEO’s expect the economy to improve next year. Importantly, given the limited benefits, it is
questionable if these policies can be resumed as increased food and energy prices associated with
Fed easing (money printing) and costs of any new stimulus add to the considerable national debt.
Many states including California are also constrained due to high debt and rating downgrades.
Questions about bank fragility have not been answered. Because of the 2009 changes in mark to
market accounting practices, there is little visibility of potential loan losses from the shadow
inventory of homes being withheld from the market by banks. In September, Realty Trac
reported a 33% increase in default notices for U.S. homes, a nine month high and the largest
increase in four years after processing issues led to a slowdown in foreclosures. California saw a
55% increase. This, in the context of slow sales and potential for further price drops is reason
for concern.
Global European based banks, per the IMF currently hold $4 trillion of sovereign debt at risk.
Policy makers having finally acknowledged the problem must now find the funding to back stop
these banks when (not if) Greece defaults in order to avoid further defaults of a growing list of
countries under credit review. The IMF has called for urgent capitalization to avoid another
credit crisis as capital levels and stock prices of these banks have declined 30%-50% since the
second Greek bailout announced on July 21st. Developing European bank stress in the context of a
regional slowdown (contraction in the case of some high debt countries) may have considerable
global ramifications on credit flow and growth.
The implications of these developing issues in a new more interconnected global economy may be
passing or long term. If it is your plan to sell in the next three to four years you may want to
begin a thoughtful assessment of your goals as investor demand and loan availability are
relatively good.
Greg Marderian has over 25 years of experiences in Commercial Real Estate, including 11 years at CB
Richard Ellis and 10 years at AOA Commercial Brokerage. To read his previously published articles
(Market Forecasting 1Q 2005 and Apartment Sales Today 4Q 2009) please Google his name. For
more information or to contact Greg, call (818) 235-1133 or
email greg@aoausa.com. DRE# 00661078.

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