Advice From a Lender: SunTrust Exec Adam Oates

SunTrust Community Capital President Adam Oates discusses what multifamily investors need to be aware of and his company's strategies going forward.

adam oatesSunTrust Community Capital is a wholly owned subsidiary of SunTrust Bank and provides debt and equity capital for real estate projects and businesses that economically benefit communities throughout the SunTrust footprint.

As president of the company, Adam Oates leads his team in helping investors and developers achieve their vision through changing and often challenging market conditions.

Although SunTrust Community Capital has a geographic focus on the southeastern U.S., it also follows clients across the country, whether clients focus on residential or commercial real estate, including multifamily, office, industrial and retail.

Oates recently spoke with MHN about what he’s experienced in 2017.

What have you seen so far in 2017 when it comes to multifamily investment opportunities in your area?

The institutional buyer has returned in 2017 after ceding ground to more local buyers last year. Our borrowers are fielding more calls from interested purchasers.

What do you see as the major trends in your sector? What is on your radar?

From a capital perspective, everything is moving more slowly. Lease-ups are generally on budget, but behind on timing. Payoffs and refinances are taking longer to achieve, but mainly because stabilization is taking longer. Lenders are at or near their hold positions on multifamily, so we’ve seen some lender push into other food groups, particularly industrial. 

There’s an affordability crisis in the United States, and it isn’t being addressed by Class A construction which requires $2.00/SF+ rents. We’re seeing municipalities with an increasing focus on inclusionary zoning and developers beginning to talk more about affordability and workforce housing.

What’s your biggest piece of advice with today’s current market?

Patience. Good projects are getting harder to find all the time. There’s capital building up on the sidelines, but we want to see sponsors with the discipline to wait for the right opportunity and not just rush to “feed the machine.”

Looking ahead to the next six months, what are three things that you are keeping an eye on?

Construction Costs. They keep going up and it’s putting a strain on financial viability of projects. In particular, after Hurricanes Harvey and Irma, we expect a labor and materials shortage in the southeast to compound the existing cost escalation. Nailing down costs for projects in the pipeline is going to be difficult.

The rent ceiling. We’ve seen concessions creep into a number of our markets. After seeing many markets break through into pricing levels that previously hadn’t been achieved, then continuing to accelerate, we see several markets that appear to be at a peak or plateau.

Land pricing. With the continued upward trend on many commodities and labor, land basis is one of the levers that needs to move to increase the number of viable projects out there.  So far, we haven’t seen land sellers budging much.

What was your strategy going into 2017, and how is it playing out now that we’ve reached fall?

Our strategy was to try to maintain close to our same level of exposure to multifamily, but to lower our leverage point as we recycled capital. With the acquisition of the Pillar platform at the end of 2016, we also hoped to leverage our construction dollars to create more fee-generating opportunities in the permanent loan markets. We are seeing fewer construction deals than expected that meet all of our investment criteria, and the ones that do have many competitive suitors. However, the in-house capabilities to bring agency executions through Pillar are putting us in a more competitive position to chase the right construction and bridge loan opportunities.

What do you feel is the most important thing that investors need to be aware of in today’s multifamily environment?

Understanding supply. When we see dynamics of oversupply in a particular market, there’s almost no sponsor or leverage point that can make the project a compelling place to deploy debt capital.