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On Sept. 16, the Federal Open Market Committee increased interest rates by 25 basis points — the first hike in more than three years.
While this environment may create some short-term pains for multifamily owners, supply is low and economic growth is strong overall, said Evan Kinne, CEO of AXCS Capital, parent company of the nationwide real estate finance advisory firm George Smith Partners.
“When both of these aspects are coupled together, we may see some good rent growth,” he said. “There’s some excessive short-term pessimism right now about what rising interest rates mean, given how good the broad consumer economy looks like today.”
Kinne will speak on the Capital Markets Update: Debt, Equity and Financing Strategies panel at Bisnow’s Nov. 18-19 Southern California Multifamily Annual Conference at the Hyatt Regency in Long Beach. The panel will dive into financing strategies and how multifamily borrowers view the capital stack. Click here to register.
In a conversation with Bisnow, Kinne shared his perspective on the interest rate hikes, how owners can approach multifamily financing, and GSP’s client-focused approach.
Bisnow: What capital markets trends are currently on your radar?
Kinne: Broadly speaking, people are dealing with a very rapid rise in interest rates right now. Because of that, there's an implied likelihood that cap rates will increase as well, even if the two aren’t perfectly correlated.
Commercial real estate is looking at what the recent rise in the long end of the yield curve means for owners and transactors today. When tying that to the capital markets, it means debts are repricing and borrowing costs are going up. It could also be more challenging for asset owners who have been holding out and just making it through the last three or four years with the hope that they were going to see an easy rate environment ahead.
I think there are some aspects of the economy that may positively shift sentiment and, in turn, maybe interest rates look a little bit better.
Bisnow: How should owners approach financing?
Kinne: Owners and anyone else looking for financing should approach it with an open mind. There's a lot of capital in the marketplace today, making spreads very tight. This means people may potentially take risks for not a huge return. The dramatic increase in underlying interest rates does make everything more difficult.
I don't think there's one ideal structure, but I do think that if you're looking to do a fixed-rate loan, you may also want to look at floating-rate and short-term loans. There was consensus at the [September] Federal Reserve meeting that we are likely to see a bunch of increases on the short-term rates in the future, but we may not see those. We are seeing some of our clients look toward rolling the dice and possibly doing bridge loans, which generally price over short-term rates.
People should also look at other capital sources beyond agency debt for multifamily. Life insurance companies are very aggressive right now, as are some banks. People need to place their risk. There's no perfect structure, but we're seeing plenty of capital activity despite the fact that rates are high.
Bisnow: How do you help multifamily clients navigate debt and equity financing?
Kinne: In addition to being managing principal of GSP, I'm also the CEO of its parent company, AXCS Capital.
GSP helps people across the country manage their immediate needs on the financing side. We think of ourselves as an advisory firm, not a mortgage brokerage firm. We get into the weeds of every deal — underwriting, presenting our findings to our clients and working through potential financing structures from top to bottom, and then looking into the market.
AXCS Capital has investment vehicles for deploying capital as preferred equity in multifamily. We're interested in co-general partner equity as well and looking at other lending structures in that space.
We're seeing a lot of growth at GSP. We are a nationwide capital markets advisory firm, and we're solely focused on the capital markets and debt and structured products for CRE owners. We have a strong focus on the implementation, and we leverage technology to help deliver a better experience to our clients.
Bisnow: What do you think will be the hottest topics of conversation at the event?
Kinne: I don't think anyone's going to escape this rate conversation, which is unfortunate because real estate is a business of execution on underlying assets and a business of asset selection within a cross section of a larger market. For some reason, the global macro conversation is something that's almost inescapable when you have rates moving so quickly.
I predict that people are going to be highly focused on what the long end of the yield curve looks like. Right now, until we see Congress rein in spending, we're going to be creating a lot of debt, and we have to figure out how to deal with that.
Bisnow: What do you hope attendees will take away from your panel?
Kinne: I'm an optimist. Despite the hard times today, I hope people see some opportunities for the long run that they’re interested in. I'm a big believer in the U.S. as the economic powerhouse of the world. Rates are high on a relative basis to where they were some time ago, but they're not out of line with the long-term trend. As things reprice and maybe rates are where they need to be, I'm very confident in our ability to generate economic output that benefits everybody in our country.
This article was produced in collaboration between George Smith Partners and Studio B. Bisnow news staff was not involved in the production of this content.
Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.
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