The capital markets are rapidly changing in the multifamily sphere. Speakers at Bisnow’s Austin multifamily event yesterday broke down how.
1. Debt is tightening up. A lot.
JLL managing director Scott LaMontagne (left, with Urbanspace’s Kevin Burns) says equity is more available than it used to be, but debt is becoming extremely difficult to line up. That’s because a lot of lenders are saturated, The Sutton Co chairman Mac Pike says. The heavy pipeline in recent years means many of the players have already allocated their multifamily loans (especially since regulators recently started cracking down on banks with a high percentage of multifamily loans) and need to trade some off their books before placing more money. Regulators are also asking banks to get multiple participants for loans, and major lenders don’t want the syndication risk, according to Endeavor managing principal Jamil Alam.
Compounding all of this is the fact that multifamily loans are much larger than they used to be, Lynd CEO Mike Lynd Jr. says. Ten years ago, a garden-style community might require a $30M loan. Today, those are looking for $65M, and almost nobody wants to give a loan that big, regardless of location, property type or fundamentals. Construction debt is the hardest to get, but Mac says there’s always money for high-quality projects; it’s the marginal projects that struggle. Scott says nonperforming (or watchlist) oil and gas loans are also impacting multifamily; banks that operate heavily in oil and gas are having to allocate money elsewhere in case those go south.
Pictured is our development panel: Scott, Mac, Mike, ARA Newmark senior managing director Matt Greer, Jamil and DCI Engineers principal Kris Swanson.
2. Cap rates are compressing still.
FourPoint director Kevin Dufour says cap rates are down to 4% for infill properties and 5% in the suburbs, and sales prices are breaking records. (Biggest splash: The Catherine.) CWS Capital Partners partner/CIO Mike Engels says cap rates seem low until you look at your other options; comparing real estate transactions to the 10-year Treasury makes the rates look great.
Pictured is our investment panel: Mike Engels, Berkadia SVP Andy Hill, Woodworks senior national director Scott Lockyear, Kevin and Hunt Mortgage Group VP Carl Pankratz.
3. Freddie and Fannie are getting more aggressive.
Carl expects lending to pick up, especially from the GSEs. They expanded their lending cap by $4B, and are giving discounts and exemptions to projects that hit special criteria. (One program exempts projects that are LEED certified or improving energy use through value-add from the $34M cap; another gives discounts up to 22% to projects providing affordable housing.)
4. The cast of characters is changing.
Berkadia SVP Andy Hill (right, with Presidium Group’s Cross Moceri) says new players are entering the market or expanding the asset class/geography of deals they do. Each type of lending is dealing with different regulatory pressure. ARA Newmark senior managing director Matt Greer says 75% of groups bidding on his deals recently are ones he hadn’t heard of.
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