Features

Can Boston Keep Up with Multifamily Demand?

by Sarah Daniels February 11, 2020

Think Boston multifamily is overbuilt or overheated? Think again. Due to superb fundamentals and a slowing development pipeline, Boston is now regarded as the number one metro area for multifamily investment. From 2019–2030, Boston will need to add 51,007 units to accommodate population growth, an average of 4,637 units per year. Recent development (2014–2017) averaged 3,334 units per year. Population and job growth are expected to remain strong, fueling continued demand for multifamily housing and countering arguments that the Boston market is overbuilt. Many developers nationally are interested in the market. The construction pipeline for multifamily properties features organizations with headquarters as far away as Portland, Phoenix, and Dallas. The Houston-based Hanover Company, for example, has four properties totaling over a thousand units in the Boston development pipeline. Boston is a seller’s market as well, with deals typically attracting multiple bids, and it is easy to see why. For investors, Boston is a market with an average cap rate of roughly 4.5 percent. This is the same cap rate as Raleigh or Central Florida — two markets generally considered to be more volatile than Boston in the case of a recession. A Reliable Hub Becomes a Vibrant City “Historically, people …

February 11, 2020

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MBA Forecasts U.S. Economy to Slow in 2020 as Job Market Weakens

by John Nelson February 10, 2020

SAN DIEGO — The U.S. economy is likely to take a hit this year from the effects of geopolitical uncertainty and a global recession in the manufacturing sector, according to Michael Fratantoni, chief economist for the Mortgage Bankers Association (MBA). His forecast calls for U.S. GDP growth of 1.2 percent in 2020, down from 2.2 percent in 2019, and for job growth to dip from a monthly average of 175,000 last year to 150,000 this year. The unemployment rate, which currently stands at 3.6 percent and is near a 50-year low, is expected to reach 3.9 percent by year’s end. The wave of tumultuous events on the world stage have come fast and furious, the veteran economist observed. “Just recently you had the situation with the assassination of [Iran’s General Qassem Soleimani] and ballistic missiles being fired across the Middle East. Now we have got the coronavirus. We just concluded an impeachment trial. We have a presidential election. The trade wars of 2018 and 2019 are perhaps simmering down a little bit, but still a concern and still impacting a lot of decisions by private actors out there.” Such conflicts pose a threat to what has been a “remarkable” run …

February 10, 2020

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ACRES Capital Talks Alternative Lending and Its Role in a Downturn

by Sarah Daniels February 10, 2020

Mark Fogel, president and CEO of ACRES Capital, believes alternative lenders can maintain their flexibility and creativity where perhaps more traditional lenders cannot. He believes this will be important as the country continues its unprecedented upcycle, with a potential downturn threatening in the next 18 months or so. Finance Insight (FI): As an alternative lender focused on the middle market, can you tell me a little bit more about alternative lenders and your specific areas of expertise in comparison with traditional funding sources? Fogel: Traditional lenders offer an important role in most communities as a source of funding. However, they are restricted by regulations that impede their ability to take on riskier transactions and go higher on the capital stack. In this regard, alternative lenders can step in and provide capital and opportunity for those projects that are going through a redevelopment or are repurposed from their original business plan. FI: Do you lend against all property types and pursue projects in all geographical regions of the U.S.? Fogel: ACRES seeks out opportunities on an asset-by-asset basis. We do not necessarily follow market trends, but rather identify alternative situations where, from a debt perspective, our basis is low and the …

February 10, 2020

HUD Section 232 Summary Statistics - Fiscal Year 2019

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HUD Lean Lenders Reflect on Memorable Year for Seniors Housing

by Sarah Daniels February 10, 2020

Despite enduring a federal government shutdown for 35 days that temporarily put a crimp in loan processing, the HUD/FHA Section 232 mortgage insurance program used to finance seniors housing properties rallied to post a solid performance in fiscal year 2019. The volume of loans closed during the 12-month period that started Oct. 1, 2018 and ended Sept. 30, 2019 totaled $3.7 billion. That’s up from $3.6 billion the prior fiscal year. The HUD/FHA Section 232 program — more commonly referred to as the HUD Lean program — helps finance nursing homes and assisted living facilities, as well as board and care facilities. The Lean process developed by HUD in 2008 is a methodology based on the Toyota model to increase efficiency by reducing waste. In short, the goal is to eliminate historical inefficiencies in the processing and approval of HUD loan applications. Dissecting the data Although the government shutdown that occurred in late December 2018 and January 2019 resulted in the program’s loan count dropping from 317 to 288 on a year-over-year basis, the average loan amount increased 14 percent during the same period to reach a record high of nearly $13 million. “This was driven not only by some …

February 10, 2020

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Walker & Dunlop Looks to Modernize the Multifamily Valuation Business with Apprise

by Sarah Daniels February 5, 2020

Technology and data are here to make things easier, faster and more accurate than ever before. However, some industries have lagged behind. This inspired Walker & Dunlop and its data science partner, GeoPhy, to fulfill a need in the market related to multifamily valuation. “We built Apprise because we saw a significant opportunity to improve a critical part of the underwriting and valuation process that has largely gone unchanged for decades,” says Brad Savage, Chief Product Officer for Apprise by Walker & Dunlop. “It is the natural and needed progression of any industry to harness the power of technology to make its practitioners more efficient and more informed. This is something we’re seeing in nearly all industries, except commercial real estate valuation…until now.” Apprise by Walker & Dunlop integrates data feeds and business processes that cover 80 percent of the steps in the traditional appraisal process. This can often result in appraisals in five days or less, compared to up to three weeks for traditional reports. The process is powered by GeoPhy’s Automated Valuation Model (AVM), which automates data feeds and can pre-populate relevant fields, preventing errors or duplicate entries that can happen with manual submissions. Selection bias is also reduced with the …

February 5, 2020

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Berkadia’s David Leopold on Tackling the Affordable Housing Crisis

by Sarah Daniels February 5, 2020

It’s no secret America is in a housing crisis, but the problem is easier to identify than it is to tackle. David Leopold, senior vice president and head of affordable housing for Berkadia, believes it can be tackled, however, if the industry’s best and brightest can collaborate on a nationwide strategy. Finance Insight (FI): What is your view on the affordable housing market? Leopold: It’s an exciting time in the affordable housing market. There’s massive demand for affordable housing nationwide, which means new opportunities for innovation and new needs to be fulfilled. There’s also a real sense of urgency and commitment galvanizing players across the industry to pursue innovative solutions that will result in decent, affordable and safe housing in every single community across the country. This extends to developers, lawmakers, real estate professionals and beyond. It’s a tall order, but this work is essential to the well-being of our communities. FI: Speaking of tall orders, what are some of the challenges facing the affordable housing industry? Leopold: Rent control is certainly a hot topic and will remain one in the year ahead. Last year was a significant chapter in the rent control debate, with comprehensive statewide reform enacted in …

February 5, 2020

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CMBS Loans Face Few Refinance Hurdles

by Alex Patton February 3, 2020

A total of $109.6 billion of CMBS mortgages are up for refinancing over the next two years, with $57.6 billion coming due in 2020 and $52 billion the following year. Single-asset, single-borrower CMBS transactions represent 66 percent of this total, while conduit loans account for 29 percent. These are two of the largest deal types in CMBS. Short-term loans against hotels account for $31.7 billion, or 28.9 percent of the total coming due. That’s the result of the heavy acquisition and brand consolidation activity within the hotel segment in recent years. Office and retail comprise 21.6 percent and 23.2 percent of the total coming due, respectively. While interest rates have remained extremely low for the past two years, helping keep the incidence of maturity defaults low, the risk is that rates will increase, which could lead to a rise in defaults. (The 10-year Treasury yield stood at 1.8 percent as of mid-January compared with 2.7 percent a year earlier.) Analysis & Findings Trepp has reviewed the $31.6 billion of conduit loans maturing from now through 2021 and examined whether they would pass certain refinancing thresholds based on prevailing loan-to-value (LTV) and debt-service coverage ratios, as well as debt-yield requirements. We …

February 3, 2020

Features Multifamily

Berkadia: Interest Rates, Election Campaign Will Have Greatest Impact on Multifamily in 2020

by Katie Sloan January 29, 2020

Commercial real estate experts at Berkadia are bullish on the multifamily industry moving into 2020, according to findings from the 2020 Outlook Powerhouse Poll, which surveyed 150 of the firm’s investment sales brokers and mortgage bankers in December 2019 on their outlook for the year ahead. Both investment sales brokers and mortgage bankers pointed to interest rates and the presidential election as having the greatest potential impact on multifamily investment and financing in 2020. Meanwhile, 91 percent of mortgage bankers expect Government-Sponsored Enterprises (GSEs) such as Fannie Mae, Freddie Mac and HUD to be the most active financing providers in 2020. In a related question, 89 percent of all respondents agreed that ongoing discussions around GSE reform will have a major impact on the way the entities conduct business. “With the presidential election in sight, we are closely monitoring new developments in Washington,” says Ernie Katai, executive vice president and head of production at Berkadia. “The continued uncertainty around GSE reform has paved a wide, prosperous road for institutional investors and other nontraditional lenders to enter our industry, creating overall strong deal volume and available capital throughout the market.” The top two subjects to watch this year are affordable housing …

January 29, 2020

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Millennials Move the Multifamily Market — But is Their Reign Almost Over?

by Sarah Daniels January 29, 2020

Gregg Gerken, head of U.S. Commercial Real Estate at TD Bank, appreciates what millennials have done for the nation’s multifamily market. Factors contributing to multifamily’s success in recent years include millennials’ desire to live close to where they work and play, their tendency to delay marriage and kids and their social preferences that often involve roommates or the sharing economy. However, millennials are growing up — and many are aging out of the rental market. For many, those delayed life milestones are upon them. Other generations are waiting in the wings, but will they be enough to sustain the current level of multifamily supply and demand? Gerken tackles all of this and more in the Q&A below. Finance Insight (FI): Multifamily has been a strong performer for a while now. Do you expect this to continue in 2020 and beyond, particularly as millennials start to enter their traditional marrying and childbearing years? Gerken: For 2020, multifamily will continue to be a strong performer. When you look at the long-term demographic trends, however, this activity will trail off a bit as the millennial generation starts to age out of the key renter cohort, which is between the ages of 25 and …

January 29, 2020

Features Loans

Exclusive Survey Reveals Lenders Bullish on Multifamily, Industrial

by Jaime Lackey January 28, 2020

The apartment and industrial sectors are clearly the darlings of the commercial real estate lending community. According to an exclusive online survey of direct lenders and financial intermediaries conducted nationally by France Media, 82 percent of respondents identify the multifamily sector as providing the most attractive financing opportunities for lenders in 2020, while 67 percent cite industrial real estate (Figure 1). A closer look at the fundamentals of the multifamily and industrial sectors helps explain why lenders favor these two property types. In its 2020 U.S. Real Estate Market Outlook report, CBRE Research forecasts multifamily demand to remain sufficient enough to absorb most of the new supply and to lower concessions in oversupplied markets. More specifically, the brokerage services giant projects multifamily completions will total 280,000 units in 2020, on par with an estimated 281,000 units delivered in 2019. While CBRE forecasts the multifamily vacancy rate to edge up 20 basis points to 4.5 percent in 2020, it is expected to remain under its long-term average of 5.1 percent. Despite some softening in the industrial and logistics market, overall fundamentals will remain strong due to continued e-commerce penetration and demand for logistics space, predicts CBRE. Supply is expected to outpace …

January 28, 2020

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