I have been to several real estate conferences this year and the common theme is optimism. There is more capital in the marketplace today than since 2007. Many investors are trying desperately to get their money into real estate. Many lenders have increased their allocations for 2013 and are looking to lend on quality real estate projects.
So who is lending in 2013? First, Fannie Mae and Freddie Mac were directed to cut back their lending 10% from their 2012 levels. Is this a major cause of concern? I don’t believe so because both Fannie and Freddie had record lending years in 2012 that would be in their top 5 all-time. By decreasing 10% is still is a top-tier lending year for them. Will they become more selective? Yes, they probably will.
Who will benefit from this? The Life Insurance Companies and Conduits. Life Insurance Companies have become major players for lending on multifamily projects and directly compete with Fannie Mae and Freddie Mac. They are consistently winning lower leverage loans and loans where the terms are not the typical 10-year product. If a borrower wants 5, 7, 12, or 15-year or longer money, the loan will likely go to a Life Insurance Company (note: Fannie Mae does have a new 12-year product, which will be very competitive).
Let’s not forgetting HUD. If someone wants a 35-year fixed rate loan and has some patience, the HUD loan rates are still extremely attractive. The operative word here is “patience”.
What about conduits? CMBS 2.0 is back in full force. The CMBS market lent $231 Billion in 2007, and then went to practically zero dollars loaned in 2009. Last year the number was $48 Billion of CMBS issuance. The first quarter 2013 has had tremendous deal flow. Initial projections for 2013 were in the $60-$65 Billion range, but if CMBS maintains its current pace, they will better these projections.
CMBS spreads were almost 100 basis points above the market 12-months ago. Today CMBS rates are also very attractive and spreads have compressed to where CMBS can compete with the Agencies and Life Companies. CMBS will also pick-off some loans that Fannie and Freddie don’t do.
We know the interest rate environment is still very attractive. I recently quoted a lower leverage 5-year loan at a sub 3% rate. 10-year rates are 3.50% – 4% depending on the deal, property type, borrower strength and leverage (all subject to change should Treasuries increase).
If you looking for new debt there couldn’t be a better time to take your loan to market. If you are looking to refinance a property or an acquisition preparation is a key to your success. Create a file with the last three years income and expense information, a trailing 12 month breakdown, current rent-roll, ownership chart/info and be prepared to answer questions.
A lot of due diligence goes into a loan, but at these interest rates, it certainly is worth the time and effort. No one can predict when rates will go up (and not many people think they will go lower). So if you are ready, it certainly continues to be a great time to be a borrower.
NOTE: This article was written by David Garfinkel of Northmarq Capital exclusively for Multifamily Insight. Please note that David is a NorthMarq Capital employee and the views and opinions expressed here are his own exclusively and do not represent the official views of the company. David can be reached at firstname.lastname@example.org.
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