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Category ArchiveFreddie Mac

Freddie Mac’s David Leopold on the Insatiable Demand for Multifamily

Freddie Mac has been a trailblazer when it comes to affordable multifamily housing, delivering record numbers and leading the nation as the top multifamily financier in each of the last three years. David Leopold is at the forefront of Freddie’s presence in the affordable housing space, which accounted for 83 percent of eligible units financed by the government-sponsored enterprise in 2017.

Commercial Observer caught up with Leopold last month at the MBA Commercial Real Estate Finance Convention and Expo to talk about Freddie’s footprint, it’s new products and what’s in store for 2018.

Commercial Observer: Can you explain your focus at Freddie Mac?

David Leopold: One thing Freddie Mac is focused on is touching all corners of multifamily. So, in that broad scope, affordable housing means a couple of different things. It means naturally occurring affordable, which is C, B-minus, product that just happens to be affordable, and then there’s targeted affordable, which is what my team focuses on. And when I say targeted affordable, I mean properties that have at least a portion of the units with rent restrictions to maintain affordability for a long period of time. That generally means our borrowers have traded some rights to raise rents for all of some of the units in exchange for public consideration. So, that’s what we mean by targeted affordable.

Can you speak to the increased demand for multifamily and how Freddie Mac is looking to fill it?

Demand is insatiable in much of the country right now. Those areas—you know, the high-barrier to entry markets—are experiencing dramatic affordability crises and the challenge is not finding people to full the units, it’s finding enough units to accommodate that demand.

What areas specifically are of interest or have seen increased demand?

It’s more common that not just about everywhere, but it’s focused on the high-barrier to entry markets, so markets that have seen a lot of growth or a lot of job opportunities. That generally coincides with more people wanting to live in those markets because there are more job opportunities.

I know Freddie has introduced new products recently. Can you talk about that?

We invested in the platform with a real focus on innovation. And, there’s two specific programs that are advancing the current platform and there’s wholesale, new businesses that we’re developing. In terms of advancing the existing platform, we’re continually tweaking our products. Specifically, in 2017, we spent a lot of time and effort to increase our volume in cash-preservation deals, so these are generally refinancings or acquisitions of deals that have existing restrictions on them, and the owners would like to keep them affordable. So, our job is to help provide the senior debt at a efficient, but aggressive, levels to help them maintain that affordability and also keep the units decent and up-to-date and so forth. Last year, we did over $2 billion of that and that goes K-deals. So, we’re using the strength of our conventional business to source low cost of capital to keep our rates low for affordable. Last year it was very successful.

Can you speak to what you’re doing in the tax-exempt space?

We’ve really driven innovation there. Historically, we were a bond shop, so the diversification of our product set was really going from bonds and into other things—cash preservation. But, at the same time, we really focused on that core competency and tried to wring out any fat there is in terms of tax-exempt finance. That was a multistage process: We went from publicly issued bonds to tax-exempt loans (TEL). That’s a huge step because that’s a direct placement product and there’s no public issue, so now you have fewer transaction costs. Since then, we’ve continued to augment. At first we were doing immediate tax-exempt loans, now forward (executions) have actually become a bigger growth engine that immediates. We also just added what we call Flex TEL (flexibile tax exempt loan), which is a float-to-fixed version and makes it more efficient for rehabs. To the extent that we can get closer to the deal and not need a construction lender for rehab, we want to do that because that drives costs down and helps us reach more borrowers and helps us preserve more units. So, TEL has been tremendously successful, not only because of the innovation on the front end, but also in the way we source capital on the backend.

What are some challenges facing the affordable housing market going forward?

The biggest is that deals are getting harder to do because costs are up—hard costs are up across the board. Interest rates are rising. And, these deals take subsidy. The ability to restrict rents comes at a cost and that cost demands some form of public subsidy, which is hard t come by. I mean, budgets are tight and rates are up, right? And specifically, tax reform has also reduced the value of low-income housing tax credits, which is the single biggest capital subsidy in the business. What we saw last year was that the likelihood of tax reform was bad enough. The market perceived uncertainty and investors pulled back, so there was less demand for credits and value went down. That happened again in November, when the market was trying to figure out where the corporate tax rate would ultimately land. So, there was a fairly material disruption in tax equity markets, making deals harder to do. Now that tax reform is done and we know what the corporate rate is, so the markets are back but they’re back at a lower value per credit. The specifics there are that tax credits are worth less per tax credit so you need more credits to equal the same amount of subsidy, and more credits per deal means fewer deals. So, that’s been a challenge.

So, how do you face that challenge?

Product development is a huge part of my job and a huge value that are platform creates. Every time we develop or tweak a product in targeted affordable towards helping borrowers maximize whatever subsidy is in the deal. If our product can help generate more free money, that money can go farther, and we can do more deals. That’s how we think about it. In a market disruption, we can continue to innovate our product sets.

Can you speak to Freddie Mac’s growth over the last year, having hit record highs?

We had record growth in our targeted affordable business, and that’s $8.6 billion this year, from $5.6 billion last year (2017), so we feel good about that. Also, we’re targeting more units. We need to do well and be sustainable as we continue to invest, but also do well and make sure we’re meeting out mission. If you look at the number of very low income units produced by the platform, the amount of growth and the amount of borrowers we touched, are tax-exempt loan is now in 32 states across the country, so we’re feeling really good about that growth.

What’s in store for 2018?

In 2018, we’re going to re-enter the tax credit equity markets and we’re going to invest no more than $500 million, and starting in the next 60 days, we’re going to be launching our first fund and will enter the market as a proprietary investor with established syndicators and a goal of as close to $500 million as we can get.

Source: commercial

Atlanta REIT Broadtree Seals $100M Credit Facility, Eyes Expansion

Real estate investment trust Broadtree Residential has lined up a $100 million line of credit from J.P. Morgan Chase, according to an announcement from the firm.

Broadtree, which boasts a portfolio of five Atlanta-area multifamily developments totaling more than 1,500 apartments, aims to use the funds to bolster balance-sheet flexibility as it looks to expand beyond Georgia’s state lines.

In the past, Broadtree “had predominantly financed our assets with government-sponsored entity debt,” said Ryan Albano, Broadtree’s chief financial officer, referring to loans secured by agencies like Fannie Mae and Freddie Mac. “That’s certainly attractive from a cost-of-capital perspective, but we wanted to create some balance-sheet flexibility and get this line in place so that as we grow in scale, we can eventually migrate into the unsecured borrowing market.”

J.P. Morgan’s credit facility will be available for Broadtree at a floating interest rate above Libor, with adjustments built in depending on assets’ leverage profiles, Albano said. The balance sheet flexibility it provides should help on two fronts.

First, it could grant the REIT the financial ammunition to contemplate a northward expansion.

“We’re predominantly a Southeast-focused private REIT, with all of our office assets today in the Atlanta market. But we’re considering opportunities that stretch up into the Mid-Atlantic,” Albano explained.

Second, the balance-sheet flexibility the facility provides could go a long way toward bolstering Broadtree’s credibility when it comes to closing deals.

“I think it has benefits from a surety-of-close perspective,” Albano said. “Sellers in an acquisition, they want to know that the buyer is ready and willing to close. It will certainly help us as we’re making offers.”

A representative from J.P. Morgan Chase declined to comment on the deal.

Source: commercial

Hunt Mortgage Lends $187M on Affordable and Student Housing Portfolio

Hunt Mortgage Group has provided $187 million in financing to Atlantic Housing Foundation (AHF) for a portfolio of affordable and student housing properties in Texas, Florida, and South Carolina, Commercial Observer has learned.

The package includes $102 million in variable-rate taxable financing from Freddie Mac, $83 million in fixed-rate financing through Fannie Mae’s tax-exempt bond execution—which uses a mortgage-backed security as collateral for a tax exempt bond issuance—and $2 million through a variable-rate execution from Hunt Mortgage. This was the first time the execution was used to finance student housing, according to the lender.  Hunt Mortgage also provided additional project financing for the remaining property.

The portfolio comprises more than 3,500 units of affordable and student housing across 16 properties.

Dallas, Texas-based AHF promotes and preserves affordable housing for low- and moderate-income families, and currently owns and operates 7,600 apartment units in 30 apartment communities. The non-profit organization intends to reinvest over $14 million of this financing’s proceeds back into the properties in order to make green and other improvements.   

“AHF is a seasoned multifamily group that has owned and developed affordable and student housing properties since 1999,” Paul Weissman, a senior managing director at Hunt Mortgage Group, said in prepared remarks.  “In addition to providing high-quality affordable housing to low and moderate income families, AHF has awarded nearly $5 million in collegiate scholarships to working families since 2006 and provided 15,000 hours of social service programming in 2017 alone. Our organizations’ mission alignment makes Hunt Mortgage Group and AHF a perfect partnership.”

Michael Nguyen AHF’s president and CEO commented:  “It was a pleasure working with Paul and his team at Hunt Mortgage Group.  Their intimate knowledge of the Fannie Mae and Freddie Mac processes helped pave the way for a successful, albeit very complicated transaction.  Their experience and capabilities showed as they work to anticipate issues and helped closed the financing under a very tight timeline.”

Source: commercial

CMBS Servicing Issues Still the Strongest Headwind to Growth

The Future of CMBS panel at the MBA’s CREF/Multifamily Housing Convention & Expo in San Diego was a lively debate between market participants, who agreed that 2017 was a solid year for the product and that risk retention was, well, much ado about nothing.

CMBS issuance reached $90 billion last year with single-asset, single-borrower issuance increasing by 80 percent to $38.5 billion and essentially moving the market—but the panel’s overall consensus was that issuance volume will be down in 2018. With that in mind, panelists discussed the sector’s current state of play and its strongest headwinds to growth.

Would an overhaul or repeal of the Volcker Rule—part of the Dodd-Frank Wall Street Reform and Consumer Protection Act and implemented in the wake of the global financial crisis in an attempt to reduce risk in secondary market trading—boost the CMBS market? Ted Borter, the co-head of the real estate financing group at Goldman Sachs, said no doubt, but there’s a bigger “mega issue” hampering the CMBS industry’s growth right now that must be tackled, stat: its servicing.

“It’s very frustrating to lose a deal to a life company because of CMBS servicing issues,” Borter said. “Borrowers prefer banks and life companies because of the servicing and also the certainty of pricing,” he said, adding that changing the borrower experience is “going to take time, but everyone in CMBS is making a huge effort.”

Dan Bennett, the head of capital markets at LoanCore Capital, said his firm is working hard to improve the borrower experience and expand the universe of those who transact in CMBS by actively playing various roles within a CMBS transaction. In addition to originating deals, LoanCore is a B-piece buyer and controlling holder. As deal-by-deal examples of happier customer service experiences are available, that too will help the industry grow, Bennett said.  

Freddie Mac has developed a servicing standard of its own and is “keenly focused” on the borrower experience, said David Brickman, the head of the agency’s multifamily division. Freddie Mac is also focused on improving the economics of the servicer so that servicers are incentivized to provide better customer service.

Brickman said that the ultimate benefit in improving the customer experience could be attracting higher quality borrowers and, consequently, investors to CMBS deals.

For now, Borter said he finds it “embarrassing” that requests to servicers take so long to be addressed, and Goldman Sachs is tackling the issue head-on in three ways.

First, it has a servicer liaison who receives all requests sent to the servicer so that Goldman Sachs is able to monitor responsiveness and whether servicers are abiding by timelines.

Second, it’s looking at servicer compensation. “As an industry we have rammed down servicing fees so you get what you pay for and the servicer ends up charging the borrower,” Borter said. “But if the servicing fees are upped, those nuisance fees will go away.”

Lastly, Goldman Sachs is focused on clarifying the language in servicing documents to make it easier on the borrower and looking at the removal of some of the (many) borrower touch points in a CMBS deal.

The number of parties written into pooling and servicing agreements that must weigh in or approve actions throughout the life of a CMBS deal can also complicate things and cause delays to borrowers, said Erin Stafford, the managing director of global CMBS at DBRS. For example, when the rating agencies are asked to opine on any change in conduit deals, “it can add two weeks to the [approval] process,” she said.

Once the source of much anxiety, risk retention—now 14 months old—has turned out to be “much ado about nothing,” Borter said. Its implementation has, however, further consolidated the business down to the top 10 issuers who have the balance sheet to hold that risk, he said.

Bennett agreed that there has been very little impact, except for a slight slowdown in the market while it figured things out.

The GSEs are exempt thus far from the risk retention rules, although that could change, Brickman acknowledged. For now Freddie Mac is focused on developing an increasing stable of B-piece buyers who understand Freddie’s product who are committed the space. “We will not sell to opportunistic investors,” Brickman said. “We’re looking for multifamily experts.”

Source: commercial

Cortland Partners Nabs $50M Acquisition Loan for First Phoenix Foray

Atlanta-based Cortland Partners has secured a $49.6 million loan to acquire its first Phoenix-area property: a 412-unit multifamily complex called Arrowhead Summit, according to an announcement from Walker & Dunlop, which structured the deal.

The Freddie Mac acquisition loan takes advantage of a flexible structure known as “float-to-float.” For three years, Cortland will owe only interest at a floating rate while it finishes a renovation of the property. After that, the company will embark on paying off a separate seven-year floating-rate loan, including two years of interest-only payments.

“Walker & Dunlop and Freddie Mac proved to be outstanding partners in helping us close our first deal in Phoenix,” Mike Altman, Cortland’s head of investments, said in a statement. “We are thrilled about this acquisition and look forward to not only transforming Arrowhead Summit but also growing our footprint in the greater Phoenix market.”

Cortland plans to pour $9 million into renovating the property, in the northwest suburb of Glendale, Ariz., over the next two years. The management company aims to upgrade energy efficiency and add to in-unit amenities, including new kitchen fixtures, fireplaces and thermostats that can connect to the Internet.

It also aims to up the rent. Today, 800-square-foot one-bedrooms let for between $950 and $1,200 per month, while 1,100-square-foot two-bedrooms go for just under $1,400.

“We are confident that Cortland’s substantial construction, development and operating experience will ensure a successful repositioning of Arrowhead Summit,” Walker & Dunlop’s Stephen Farnsworth said in prepared remarks. “[Cortland] has a fully integrated platform…which allows them to successfully execute large-scale renovation projects such as Arrowhead Summit.”

Representatives for Cortland, Walker & Dunlop and Freddie Mac were not available for further comment.

Source: commercial

Freddie Mac’s David Brickman on GSEs’ Special Role and the Outlook for Multifamily

A financier with a public-service outlook. It almost sounds like a contradiction in terms. Nevertheless, that’s the tightrope that David Brickman, the executive vice president who leads Freddie Mac’s multifamily business, must walk every day. The University of Pennsylvania and Harvard University graduate, a year shy of his 20th anniversary with the agency lender, answers to an intricate pair of overlapping mandates: earn a sensible economic return from loan activities while assertively promoting liquidity and affordable housing even during economic crises.

If those responsibilities wear on Brickman, it doesn’t show. At the Commercial Finance Real Estate Council’s annual conference in Miami last week, the energetic mortgage executive walked Commercial Observer through his thoughts on the business with enthusiasm borne from a flourishing multifamily sector in the United States.

Commercial Observer: How does Freddie Mac understand its mission?
David Brickman: We have liquidity, stability and affordability tattooed on our forehead. Those are our three mandates. But our business model resembles that of a direct lender. We make all economic decisions relating to loans and all credit decisions. We think that that model makes us that much more “real estate people.”

How is your group organized?
We have a regional model, different than people’s typical view of government-sponsored entities. In New York, our staff is very much made up of New Yorkers, real estate people. When it comes to providing liquidity, we compete like a lender. The other lenders perhaps wish we would compete a little less. But we take very seriously the view that we’re supposed to act like a private lender.

To what extent does the affordability mandate limit what kinds of deals you’ll get involved in?
We will do deals that aren’t, per se, affordable. But we will proportionately lean in and be more aggressive and do more, if it’s got higher affordability. It’s a more nuanced model than just yes or no, but it’s absolutely there in the sense that the more affordable a project is, the more important it is to get involved.

So is that the primary driver of your decision-making?
As a business matter, I want to earn a reasonable rate of return on what we do. We view ourselves as a fiduciary, and I think we’ve been a good fiduciary for our shareholders—mainly the U.S. taxpayer.

What level of risk can you tolerate on your balance sheet?
We want to distribute the significant majority of risk, given that we are owned by the taxpayer. We look to support affordability. For any business activity we do, I like to ring all three bells to some extent: If there’s no affordability, I should earn a little bit more money on it. If it’s affordable, maybe I can earn a little bit less return. When it comes to liquidity, the good news is that we were able to do that while achieving the other objectives [during the financial crisis]. We were able to earn a reasonable return during that period of time. Our market share grew during the crisis, and then it shrank again after.

How would the market be different if the government-sponsored entities disappeared?
We actually did an extensive analysis of this in 2012 or 2013. We concluded that if you were to get rid of Fannie Mae and Freddie Mac, mortgage rates would go up by about 50 to 100 basis points, cap rates would go up by a similar amount, construction activity would decrease significantly in the short term, and there would be a diminishing supply of multifamily for some time. As a result, multifamily rents would be higher, all else being equal.

So the data vindicates your job.
It’s certainly a reasonable thing to ask: Do we need Fannie or Freddie? Some have suggested that there’s no economic consequence to [our presence], and I think we’d probably say, no, that’s not accurate. If you get rid of us, that would hurt the multifamily market.

With such high student-debt levels and stagnant wages, are young Americans less interested in homeownership than their parents were?
Those factors certainly contribute, as does the shift to information-based employment, which lends itself to a little bit more urbanization. I think there is a trend toward delayed marriage and delayed childbirth, which aligns with renting longer. I’m not sure that any fewer Americans will own a home today than in the past, but maybe they will own a home for a lower percentage of their lives. The idea of millennials renting more, I think that’s true, but what’s really happening is that people are just a little older when they transition into owned housing.

What’s Freddie Mac’s role in the commercial mortgage-backed securities realm?
We have our own type of securitization called K-deals. Those are exclusively multifamily. Other than that, we don’t participate in regular conventional CMBS. Over 90 percent of what we’re doing these days will turn up in some type of securitization. And we will never commingle our collateral with anyone else’s.

Why the 90 percent level?
We aspire for it to be 100 percent. I’d like to distribute risk on everything we do. In the past, we used our balance sheet, our retained portfolio, to buy and hold loans. Our retained portfolio has been shrinking because it’s been mandated to shrink by the Treasury Department and the Federal Housing Finance Agency. We haven’t had the ability to hold much on the balance sheet. What we don’t securitize tends to be loans that are difficult to securitize.

Source: commercial

The Formidable Fannie and Freddie: Is Multifamily Lending Set for a Slowdown in 2018?

Lenders under the umbrella of the Fannie Mae Multifamily Delegated Underwriting and Servicing (DUS) program have been setting records over the last couple of years, stepping to the forefront of the lending arena and delivering substantial amounts of debt across all multifamily property types.

Freddie Mac funded 198,000 apartment homes in the third quarter and took on $43 billion in mortgage funding in November 2017 alone, according to a Freddie Mac monthly volume survey.

In the current multifamily market environment, that volume and competition could create a problem, and a slowdown may be on the way. Analysts warn of overly competitive markets, stagnant rents in gateway cities, compressed cap rates, plateaued absorption rates and an oversupply of certain assets (such as luxury condominiums), culminating and pumping the brakes on the sector in 2018. Add to the mix the demand to meet millennial taste and you have quite the conundrum cocktail.

The amount of outstanding debt guaranteed by Fannie Mae has increased each year since 2013 to $246 billion through the second quarter of 2017—or roughly 20 percent of the market share of outstanding multifamily debt, according to a second quarter debt market report from the agency. Freddie Mac Multifamily—which doesn’t rely on DUS financing and focuses more on home ownership and affordable housing—held 16 percent of the market share to complete a 36 percent piece of the total multifamily debt pie.

The Federal Housing Finance Agency (FHFA) twice adjusted the lending caps for Fannie Mae and Freddie Mac in 2016, leading Fannie Mae to set a record for deal volume at $55.3 billion—up from $42.3 billion in 2015—while supporting 724,000 units of multifamily housing—the highest volume in the history of its DUS program. Wells Fargo Multifamily Capital and Bethesda, Md.-based firm Walker & Dunlop led the lending charge with $11.7 billion and $6 billion in loans, respectively. Fannie swiftly surpassed its 2016 record in November 2017, registering $57.7 billion in new business.

Fannie also leaped headfirst into senior housing, financing a record $4 billion through the third quarter of last year to prepare and account for an aging Baby Boomer population. Freddie, on the other hand, reeled in a record $1.8 billion in profits in the third quarter of 2017, according to a financial report from Freddie Mac CEO Don Layton.

“Multifamily is still the safest asset,” said Sol Kinraich, the founder and managing principal of New York-based MLK Real Estate Capital. “We still have plenty of markets that are millennial driven, like [Austin, Texas], Seattle, Pittsburgh and [Nashville, Tenn.] It’s definitely a trend we look for in evaluating multifamily opportunities.

“You still see the concentrated ownership of homes or that participation rates are at all-time lows because millennials aren’t committed to home ownership,” Kinraich added. “Some of our clients have been interesting in that they’re tailored in certain submarkets exclusively to millennials.”

In two 2017 Gallup surveys, 21 percent of millennials said they’ve changed jobs (even relocating and moving to other gateway cities) within the past year, and another survey of 15,000 adults released in February 2017 shows that 43 percent of employed Americans spend at least some time working remotely. These factors—migration and the desires of people to work from the comfort of home—have boosted lending interest in the multifamily sector.

“At the beginning of the cycle, lenders like Greystone and Arbor Realty Trust and others recognized the need for multifamily bridge product in order to prepare a borrower or property for agency financing,” said Joseph Cafiero, the president of New York-based firm CREMAC Asset Management. “You can see that [Net Operating Income] growth is in negative territory in some cases and growth in NOI is diminishing in others—through the tapping out on dollars per square foot or because expenses are exceeding the growth of NOI.”

That may ring true as lenders aren’t overly optimistic at the start of the New Year. In Fannie Mae’s Mortgage Lender Sentiment Survey for 2018, released on Dec. 26. 2017, lenders generally provided negative outlooks for profit margins in the multifamily category over the next three months.

“The bubble has formed, it’s just a question of when it pops,” Cafiero said. “The multifamily sector has long been recognized as the most stable or least volatile sector to invest in. The transaction volume in the sector, availability of cheap debt and extremely low cap rates fueled the bubble. Stagnant NOI growth, especially in the rent-regulated area will eventually lead to significant losses for those properties that experience compression in net cash flow. This will also lead to landlords reducing services they provide to multifamily properties, and then it will be more difficult to keep up properties like they should, which will erode the value of the property.”

Lenders cited competition, consumer demand, staffing challenges and market trend changes as the primary reasons for their negativity, according to the Fannie Mae survey. Additionally, the share of lenders who expect to see growth in refinance mortgage demand over the next three months fell to the lowest reading in a year across all loan types.

“Key trends have persisted throughout this year,” Doug Duncan, a senior vice president and chief economist at Fannie Mae, said in the report. “Lenders who see declining profits outweighed those, noting improvements in the bottom line for the fifth consecutive quarter. Three-fourths of those seeing deteriorating profits cite competition as the most important reason—a survey high—compared with only about one-third two years ago.”

Most of the competition for Class-A properties is in urban areas where there has been sufficient growth, immigration and infrastructure investment and lower cap rates, according to a third quarter 2017 multifamily investment analysis from JLL. Urban centers have seen an uptick in construction, which has essentially worked to soften some gateway markets as landlords have been forced to lower rents to meet demand.

“Multifamily has historically been a safe haven [developers and investors] migrate to with a thesis supported by the national need for housing,” Cafiero said. “Multifamily has always been the least volatile sector in commercial real estate because it’s not subject to the same market and economic influences whereas the office market is subject to a business cycle and retail is subject to factors such as consumer spending. Hotels are subject to business and travel while the office market sometimes influences hotels because if business flourishes, more people travel.”

National apartment vacancies ticked up to a seasonally adjusted 4.5 percent in the third quarter, breaking out of the 4.1 percent to 4.4 percent range that’s held steady over the last 18 quarters as the absorption rate fell to a five-year low, according to data from REIS. Still, apartments topped the list of occupancy gains across all property types at 94.1 percent in the second quarter, according to a report from National Center for Real Estate Investment Fiduciaries (NCREIF) Director of Research Sara Rutledge.

Cap rates for apartments ticked up slightly to 4.35 percent in the second quarter of 2017 but were still near historic lows. NOI growth remained stagnant at 5 percent, representing a slowdown in growth from a double-digit figure two years ago, according to Rutledge.
“What’s most interesting is the impact of this NOI compression,” Cafiero said. “The point is it’s beginning to look as if the return no longer makes sense for an investor. If you buy multifamily today at a 3 percent cap rate, you’re getting 3 percent return. At some point, you have to charge less management fees and cut costs to maintain a return.”

Apartment pricing is now just 3.4 percent higher than a year ago, which marks a new low for the current cycle, according to a Ten-X Commercial Real Estate Volume & Pricing Trends report from this past December.

With an oversaturated market in terms of assets and players, banks have been steadily tightening their standards for commercial real estate loans backed by multifamily properties, according to data from the Federal Reserve’s October 2017 Senior Loan Officer Opinion Survey on Bank Lending Practices.

But that doesn’t mean there aren’t opportunities. Deal volume has been down in many markets across the country, but the opportunities are available. Investors are looking for where there’s sufficient enough job growth, wrote Karlin Conklin, an executive vice president of Private Equity of Investor’s Management Group and a principal of IMG Northwest, in a September 2017 report for Multi-Housing News.

“It has been a resounding investment and there’s still a tremendous amount of capital available,” Kinraich said. “The retail sector has been under significant turmoil and a lot of retail transactions have been frozen as people are hesitating to deploy capital. We have clients who have sold their retail portfolio and are looking to deploy capital into multifamily. So, that’s one particular reason we’re bullish.”

Apartment lending, in particular, accounted for a hefty share of total deal volume, claiming just over 36 percent and showcasing its popularity among investors, according to the Ten-X third-quarter report.

An upside to a softening market: Some analysts expect older, renovated Class-B multifamily properties built in the 1970s to 1990s and situated in suburban areas to attract demand. Others, like Conklin, aren’t so sure the market will be able to meet suburban demand.

“From a risk and reward perspective, acquiring 1980s and 1990s Class-A properties that can hold up if we get a pullback is very attractive,” Kinraich said. “I think from a top-line-growth-revenue perspective, owners and operators have somewhat lost their purchasing power because there are a lot of concessions in gateway markets where there’s been an added supply of multifamily product and landlords have lost power.”

Kinraich added, “A lot of our clients in certain gateway markets just can’t buy product because of the pricing, and so they’re going to secondary and tertiary markets where they’ve played in the past. People are trying to make things work by exploring other markets.”

The FHFA lowered Fannie and Freddie’s lending cap for 2018—$35 billion for each enterprise, down from $36.5 billion in 2017—under the assumption that the originations market will be smaller than in 2017.

While the multifamily sector is still brimming with opportunities, analysts suggest patience, astute underwriting and cautious optimism as we venture into 2018.


Source: commercial

TF Cornerstone Lands $144M Wells Fargo Refi for 45 Wall Street

Wells Fargo has provided TF Cornerstone with a $144 million Freddie Mac financing package to refinance the developer’s residential skyscraper at 45 Wall Street, according to property records filed today with New York City Department of Finance.

The loan, which closed on Dec. 15, replaces a $134 million Fannie Mae loan that was assigned to J.P. Morgan Chase on Nov. 30. Wells Fargo’s $144 million Freddie Mac refinance paid that loan off, and the bank provided an additional $9.8 million in proceeds, records show.

buildingphoto 55 TF Cornerstone Lands $144M Wells Fargo Refi for 45 Wall Street
Entrance to 45 Wall Street. Courtesy: CoStar Group.

J.P Morgan provided a modification in the form of a first mortgage in order to give the borrower time to refinance its maturing Fannie Mae debt—which was then assigned to Wells Fargo two weeks later.

The 27-story, 493,187-square-foot residential high-rise building—located between William and Broad Streets in the Financial District—was built in 1958 and is comprised of 435 residential and five commercial units, according to PropertyShark. Eight of the residential units are vacant, according to TF Cornerstone’s website. Monthly rents at the property run from $2,845 for studios to $6,849 for three-bedrooms.

The building’s use was converted from office to residential in 1996, and is the former headquarters of Atlantic Insurance Company, according to CoStar Group. Chase Bank and Tourbillon are the building’s largest commercial tenants, occupying 8,341 square feet and 2,952 square feet, respectively.

Representatives for Wells Fargo and for TF Cornerstone did not provide comment before publication. 


Source: commercial

Hunt Mortgage Group Lends $25M to Refinance Poughkeepsie Apartments

The Kamson Corporation has sealed a $25 million Freddie Mac loan to refinance an apartment complex in Poughkeepsie, N.Y., Commercial Observer can first report.

New York City-based Hunt Mortgage Group provided the 30-year loan—with a seven-year fixed rate—on the development, Mountain Brook Apartments. Shloime Goldstein, of Brooklyn’s Skyline Capital, brokered the deal.

Mountain Brook, located at 134-154 Innis Avenue, is about two mile northwest of downtown Poughkeepsie. Its 17 buildings, built in 1965, comprise 288 one-, two- and three-bedroom  rental apartments, totaling 242,000 square feet. The site also features a playground and a small swimming pool.

Since purchasing the complex in early 2016, Kamson has “implemented a capital-improvement program that includes roof replacements, apartment renovations and installation of a security system which has helped successfully improve overall operations,” Steven Cox, a managing director at Hunt Mortgage Group, said in a statement. “The refinance will enable the borrower to implement additional capital improvements and possibly acquire more multifamily assets in and around the New York City metropolitan market.”

Mountain Brook is nearly fully occupied, according to the lender.

Median residential rents in Poughkeepsie have risen slightly this year, up about 8 percent from last September to $1,800, according to Trulia. Sixty-eight percent of residents are homeowners, and the median household income is just under $64,000.

The city marks the northern terminal of Metro-North Railroad’s Hudson line. A rush-hour one-way trip to Grand Central Terminal takes about 100 minutes.

Representatives from Hunt Mortgage, Kamson and Skyline Capital did not respond to requests for comment.


Source: commercial

M&T Closes $50M Freddie Mac Loan on AVR Realty’s Long Island Apartment Complex

M&T Realty Capital Corporation has closed $50 million in Freddie Mac permanent financing for The Reserve at the Boulevard a 240-unit multifamily property Yaphank, N.Y.—on behalf of AVR Realty Company, Commercial Observer has learned.

M&T Bank provided the project’s construction financing.

The Reserve at the Boulevard apartment complex is located at 1 Reserve Drive in Yaphank. It is the first phase of The Meadows at Yaphank—a sustainable mixed-use master-planned community that is currently being constructed at the site of the former Parr Meadows Race Track on Long Island.

When complete, the project will include residential, retail, office/flex properties as well as restaurants and a hotel.  

The development aims to “feel like a peaceful haven in the woods,” according to the property website. Property amenities include a pool, a fitness center, a yoga room, a dog run and a coffee bar.

“AVR continues to excel in providing sustainable mixed-use projects to market,” said Lily Ann Marden the director of finance at AVR Realty Company. “M&T provided both the construction and permanent financing for this project, offering a ‘one-stop’ financing experience. We appreciate their commitment to the revitalization of this neighborhood.”

Michael Chavkin, a managing director at M&T Realty Capital Corporation led the transaction, along with Celeste Burgos, a senior relationship manager at M&T Bank.

“We are extremely pleased to have provided financing for Phase One of this unique project,” Chavkin said in prepared remarks. “AVR is improving a formerly underdeveloped area of Long Island, encouraging economic growth and offering a variety of new housing options to residents in this market.”

There’s no sign of M&T slowing down for the holidays. Earlier this month, the lender provided an $80 million mortgage on the former St. Mary’s Hospital building at 170 Buffalo Avenue in Brooklyn as well as being a co-lead arranger with Natixis on a $195 million senior loan for SL Green Realty Corp. and PGIM’s Tower 46 at 55 West 46th Street in Manhattan. 


Source: commercial