The growth in demand for multifamily properties will increase future agency CMBS supply, according to an FTN Financial research report released Tuesday.

The multifamily sector will need $100 billion in annual investment for the next ten years to build ten million new apartment units, the report said. This is to keep up with the growing demand for rental properties.

The growth in demand coincides with an increase in investor appetite for this product.

Investors are attracted to the relative price stability and built-in call protection of agency CMBS which, according to the report, "make them an attractive alternative to lower-yielding agency bullets."

The report stated that comparing the spread volatility over the past year for a Freddie Mac K-Certificate and a private-label conduit CMBS — both of which were issued in 2010 and each with an average life of approximately eight years — private-label CMBS suffered greater spread volatility while the spread changes for the agency CMBS were much less pronounced.

Agency CMBS are also structured with built-in call protection that compares with agency non-callable debentures or “bullets." Yet, in the current market, a 6.2-year average life Freddie Mac K-Certificate versus a similar-duration Freddie Mac bullet can pick up an extra forty basis points of yield relative to the bullet, the report said.

"The K-Certificate also beats the non-callable in every total rate of return scenario," the report noted.


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