Competition to Finance Multifamily Will be Keener than Ever in ’15

San Diego—Multifamily lending is the still dominated by Fannie Mae and Freddie Mac, but other lenders are increasingly important in the space, according to a recent report by JLL. The GSEs posted a slightly smaller market share in 2014 compared with the previous year, according to Faron Thompson, leader of JLL’s multifamily debt financing platform. “Other lenders are becoming competitive, but the agencies will maintain their edge with the introduction of new products including a small balance loan initiative, manufactured housing program, tax-exempt loans and value-add products,” he said.

All together there was about $55 billion in lending for multifamily projects and acquisitions in 2014, and JLL expects this year’s total to be at least that much, if not more. According to the company’s latest research, the investment community remains enamored with the sector, leading lenders to duke it out to secure debt yields.

Fannie Mae and Freddie Mac will remain competitive, particularly for opportunities with top sponsors and well-located, stabilized assets, and are expected to match 2014’s transaction volume, JLL predicts. Their average loan-to-value ratio is 70 percent and in some cases 80 percent. Life companies often find themselves going head-to-head with GSEs to finance high-quality assets, backed by strong sponsorship in primary markets. These balance-sheet lenders typically provide leverage at 65 percent or lower.

CMBS lenders do best when it comes to higher-leveraged, fixed- and floating-rate loans, the company explained. The conduits often loan up to at 80 percent, and will go higher when structured with mezzanine debt. Although the least active among current lenders, the conduits compete effectively on B and C assets and in secondary markets. Banks are competitive alongside CMBS for floating-rate, non-recourse structures and typically provide leverage up to 65 or 70 percent. They’re known for providing some of the most competitive pricing on transitional loans for construction, redevelopment and renovation.

According to the 2015 Mortgage Banker Association’s survey of the top commercial and multifamily mortgage origination firms, every major lender group is expected to increase originations this year. Leading the way is CMBS, with 89 percent of respondents anticipating a loan issuance increase of more than 5 percent. Banks rank second with 56 percent expecting an origination increase greater than 5 percent, followed by Freddie and Fannie (46 percent) and life companies (41 percent).

Respondents of the Urban Land Institute’s “Emerging Trends in Real Estate 2015” hold the same sentiment: the majority notes that lenders are ready to take on more risk in order to secure yield. “Every lender is in every other lender’s business, making this environment as competitive as it has ever been,” the report noted.