Renter Protection and Institutional Investment in Multifamily Housing

45 Pages Posted: 27 Nov 2018 Last revised: 10 Feb 2021

See all articles by Meagan McCollum

Meagan McCollum

University of Tulsa - Collins College of Business

Stanimira Milcheva

University College London

Date Written: August 19, 2020

Abstract

The rental market has become heavily institutionalized leading to changes in the market micro structure. We assess the role of regulations associated with landlord and tenant laws for the pricing and risk of multifamily housing, as measured by the initial capitalization (cap) rate. We use granular data on commercial mortgage backed securities (CMBS) including loan defaults, loan terms, property valuation and annual net operating income (NOI). We find that, contrary to conventional wisdom, investors agree on signifi cantly lower initial cap rates in states with higher renter protection. This is not associated with lower rental income; instead a credit channel can be at play. Multifamily housing buildings in tenant-friendly states are associated with lower credit risk as they are less likely to default leading to signifi cantly lower loan-to-value (LTV) ratios and interest rates. Our fi ndings imply that renter protection is associated with lower credit risk and hence higher prices for multifamily housing in tenant friendly states.

Keywords: Multifamily rental housing, institutional investors, cap rates.

Suggested Citation

McCollum, Meagan and Milcheva, Stanimira, Renter Protection and Institutional Investment in Multifamily Housing (August 19, 2020). Available at SSRN: https://ssrn.com/abstract=3278162 or http://dx.doi.org/10.2139/ssrn.3278162

Meagan McCollum

University of Tulsa - Collins College of Business ( email )

600 South College
Tulsa, OK 74104
United States

Stanimira Milcheva (Contact Author)

University College London ( email )

1-19 Torrington Place
Department of Construction and Project Management
London, London WC1E 7HB
United Kingdom

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