Less Capital Allocations for Multifamily This Year

By Keat Foong, Executive EditorOrlando, Fla.— In the current environment, it may be more imperative than ever that multi-housing developers have to “play smart.” The fact of the matter is, capital suppliers are concentrating their attention on only certain deals, confirms Martin Kamm, managing director of Jones Lang LaSalle, a real estate investment manager and advisor. Kamm says lenders are looking for well-capitalized developers with whom they can build a strong relationship. If you do not fall into this group, it may be harder to get the debt financing you want. “Lenders want to focus their allocations on relationships tested by time. They will say, ‘They appreciated me when the conduits were here.’ They want to build deeper relationships with developers with the promise of future business as opposed to the lower-capitalized, one-off-deal, guy,” says Kamm. Kamm say many capital sources’ allocations for multifamily this year are equal to or slightly less than before for last year. He notes multifamily alone among the commercial real estate sectors has the benefit of Fannie Mae and Freddie Mac stepping in to provide liquidity. But Kamm observes that about half of the insurance companies his company has surveyed are cutting back “a little” These players still have money to invest, but they are placing their capital in other types of assets. The other 50 percent of insurance companies are saying they still see relative value in multifamily investments and they will generally continue investing at the same levels in 2008, Kamm indicates.  As far as conduits, although “plenty” of conduits are still quoting, the spreads are extremely wide. As Kamm says, the conduit market is dead for now. “CMBS volume is about 20 percent of what it was in 2006. And conduits are supplying only long-term fixed rate financing.” Conduit floating rate financing is essentially dead for now. Players say they think the conduit market will rebound in the fourth quarter. Meanwhile, many financing companies that rely on the conduit financing channel are trying to stay afloat in the next six months. “Their goal is to keep the best people when the market is down,” says Kamm. Other financing companies consider this a great time to attract talent. “Over the past 20 years, it had been difficult to hire qualified people,” says Kamm. “For the first time, these companies have an opportunity to hire high quality people.” Kamm notes, however, that in an environment of greater financing selectiveness and failed condos, some developers are looking to increase their acquisitions activities. “When the equity investor is looking at the sector, that may indicate the beginning of the bottom of the market.”