Lenders Want to Lend to Multifamily Today, but Will They Feel the Same in Two Years?

How much longer can the multifamily market enjoy the extremely low interest rates? This question was addressed at the Massey Knakel Multifamily Summit, presented by GreenPearl Events this week in New York.

New York–How much longer can the multifamily market enjoy the extremely low interest rates? To what extent have underwriting been tightened as a result of the domestic and global economic uncertainty and turmoil? These are some of the questions addressed at the Massey Knakel Multifamily Summit, presented by GreenPearl Events this week in New York.

Responding to questions posed by moderator Garrett Thelander, managing director of Massey Knakal, senior debt and structured finance capital providers brushed aside any significant concerns about economic and financial troubles on the international stage and affirmed their interests in lending to the multifamily market, especially in New York City.

Fannie Mae “loves the fundamentals and long-term outlook” of the apartment sector, said Hilary Provinse, vice president‑multifamily lending, at Fannie Mae.

Apartment “fundamentals are very strong” and “seem to be getting stronger,” agreed Melissa Farrell, principal at Prudential Commercial Mortgage.

“We love the multifamily business,” said Robert Akalski, senior vice president of Capital One. Akalski said that New York City is the “number one” market, and that the company is also seeking to lend in the boroughs outside Manhattan.

Indeed, the global turmoil may have a positive effect on business. The “hesitancy and confusion” in the markets creates “an opportunity for us,” said Richard Wolf, senior managing director of Greystone.

Spencer Garfield, managing director of Hudson Realty Capital concurred, saying that his company had 30 competitors in 2007, but only three to four today. Hudson sponsors opportunities funds that provide bridge loans, and makes distressed debt acquisitions.

Akalski said that Capital One’s underwriting has remained “consistent.” But Ron Wechsler, managing director of RAIT said that underwriting for CMBS financing has indeed become more conservative since spring. Debt yields are today 10-plus percent and maximum LTVs are about 69 percent, compared to 9 percent and 75 percent respectively in the spring, he said. RAIT provides CMBS as well as bridge and mezzanine financing.

Wechsler projected that CMBS financing will become as aggressive as they were this spring by the middle of next year. He noted that CMBS has had a rough summer, but has made a healthy recovery since September, when each issuance has enjoyed tighter spreads than the one before.

Although it may be clear skies ahead for multifamily fundamentals given the continuing limitations on new construction, there may be some clouds on the horizon as regards borrowers’ abilities to refinance in the next few years.

Provinse noted that the volume of maturities on Fannie Mae and CMBS books will hit a high in 2013. “We are relying on low interest rates” as the peak maturities occur, suggested Provinse. If interest rates are not low then, “we see larger problems happening.” However, she said Fannie Mae is counting on interest rates remaining relatively favorable.

Provinse and some of the panelists agreed that the “extremely low” interest rate environment will last one to two years more.