Thirty percent of Cook County multifamily mortgages at risk of foreclosure, says new report

The Institute for Housing Studies at DePaul University has released a working paper, The Multifamily Housing Market and Value-at-Risk Implications for Multifamily Lending.  This new research reveals significant price declines during the past three years, a sharp increase in the rate of foreclosures in 2009, and a burgeoning risk for future rental property mortgage defaults in Cook County. 
 
Read the report
 
The research found:
 
• Prices declined 46 percent for small rental buildings (2-6 units) from their peak in the second quarter of 2006 to the second quarter of 2009.  Prices dropped 26 percent for large rental properties (7+ units) from their peak in the second quarter of 2007 to the second quarter of 2009. 
 
• Falling property values have put more than $13 billion in Cook County’s multifamily mortgages —30 percent of the area’s total outstanding multifamily mortgage debt—at risk of default.  The value at risk is $12.6 billion for small rental buildings and $747 million for large rental properties in the county. 
 
• Price declines and deleveraging imply less multifamily mortgage lending in Cook County.  New issuance of multifamily mortgage debt on large properties in Cook County fell 45 percent to $2.7 billion from 2007 to 2008 and fell again in 2009.  Similarly, new issuance of multifamily mortgage debt on small properties fell 39 percent to $5 billion during the same period and plummeted even further in the first half of 2009.
 
• As of year end 2009, multifamily foreclosures on both small 2-6 unit rental properties and large 7+ unit rental properties are estimated to have impacted more than 32,000 units in the Cook County rental market.  In contrast, there are currently about 38,000 single family units in foreclosure in Cook County.  
 
• As local lending institutions scaled backed lending to large rental properties in 2008 and 2009, Freddie Mac and Fannie Mae have assumed most of the multifamily mortgage market in Cook County.  The two GSEs’ combined share of the rental property mortgage market in Cook County has grown from 10 percent in 2000 to nearly 70 percent in 2009.  
 
• For one in eight rental apartment units, revenues are falling below operating costs for owners.   Owners of about 74,000 rental units in Chicago (13 percent of the market) are currently spending more to operate buildings than they are collecting in revenues.  These units are significantly at-risk of decreased or discontinued maintenance.