Sara Havlena
Agency lenders, banks, life companies, conduits and private money lenders are all seeking multifamily loans this year and with so much competition in the space, lenders will have to drop loan minimums in order to win deals.
Expect small-balance multifamily lending to be a highly desired segment throughout the rest of the year, especially with low interest rates and as the economy continues to rebound from the pandemic.
“We’re seeing a return to more normalized lending criteria, and we believe this will continue,” said Frank Lutz, EVP and chief production officer at Agency Lending at Arbor Realty Trust. “As small-balance loans typically fall within the workforce housing classification, we expect the agencies will remain fully committed to the segment and supportive of their experienced lending partners like Arbor.”
Lutz added that the solid performance of this segment during the pandemic will only increase its attractiveness within the broader lending community.
“This is good news for borrowers as long as new entrants do not overheat the market.”
Matthew Cohen, associate at Maverick Commercial Mortgage, said bank lenders will increase production in a significant way year over year primarily due to the pandemic, but also because they expect agency lenders to be extremely busy in the upcoming years.
“This will only exacerbate the already arduous and time-consuming process of closing with agency lenders,” he said. “When compared to agency lenders, certain banks can offer a timelier and less document-intensive closing process.”
Including the end-of-debt service reserves, Cohen added that future changes to underwriting requirements might include an increase in leverage and tightening of spreads as more capital chases multifamily lending opportunities.
“Lenders will adjust their underwriting as they keep a keen eye on FOMC meetings and their decisions on interest rates which are expected to rise towards the end of 2023,” he said. “This could impact loan-to-value and DSC requirements.”
Multifamily borrowers have also seen a shift in the top markets for multifamily lending.
“There is strong growth and demand in the Southeast and Texas, while at the same time properties on the East Coast and West Coast remain in great demand,” Lutz said. “We have also seen incredibly steady and solid performance in the Midwest as well.”
Some of the more attractive markets on the agency debt side are top markets that have the potential to receive affordability discounts, said Will Perry, analyst at Grandbridge Real Estate Capital. In turn, this will produce a more attractive rate for borrowers.
“An example of this market would be the Chicago MSA,” Perry said. “In my experience, SBL lenders aren’t going to shy away from any market as long as they see a path forward for the deal, but they will stray away from markets that require further vetting from agencies (Fannie/Freddie markets of concern) – Houston is an example of this.”
