The Richmond metropolitan area, with a population of 1.3 million, is bursting with multifamily development. The growing MSA contains more than 72,000 apartments units (45 percent Class A) and has 2,018 units under construction with another 5,826 in various stages of pre-development. On top of all this activity, the overall market occupancy remains at 96 percent.
The fuel for these conditions comes from the many amenities in the market, from the University of Richmond and a robust sports scene to the proximity to Atlanta, the Atlantic coast and Washington, D.C., as well as the encouraging employment picture.
The city’s unemployment stands at 5 percent compared to the U.S. average of 6.3 percent; since 2000 the city’s population has grown by nearly 15 percent. These conditions allow property owners to leverage this diverse and sustainable market for multifamily investments.
Richmond development also benefits from the attractive interest rates, which remain low despite having climbed 80 basis points since late January. Along with monitoring this upward trend, news earlier this month from the Federal Reserve of a rate hike will serve as a caution sign for investors. Whether we see this hike in the next couple of months, or not until 2016, rates remain ideal for developers and owners in the Richmond market.
Freddie Mac, Fannie Mae
After an aggressive first half of the year, Freddie Mac and Fannie Mae look to originate about $40 billion of multifamily each in 2015. Together, the two will combine to do about 30-33 percent of the total multifamily market’s financing.
Keith Wells, NorthMarq Capital
Mike Lowry, NorthMarq Capital
Freddie Mac is closing fixed rate financing on 10-year terms, and Fannie Mae is offering their most competitive rates on FHFA-mandated affordable properties (LIHTC, and HAP), manufactured housing, and small properties (5-50 units). Fannie Mae is also offering material discounts on rates for conventional properties that meet Fannie’s requirements for “affordable” rents.
Other Lenders in the Market
• The CMBS market is mainly closing five- to 10-year deals at 180 to 200 basis points above the swap at 75 to 80 percent financing.
• The life companies are providing loans of 10- to 30-year terms with amortization matching and even getting to 40 years. We are seeing LTV with these lenders at around 65 to 75 percent.
• Banks are currently lending on shorter terms with recourse but will stretch to seven- and 10-year terms at floating and swapped rates.
Recent loan placements have included self-amortizing 10-, 20- and 25-year loans with Fannie and life companies. The rates have been in the low 3 to 4 percent range. Acquisition financing with CMBS lenders provided 79 percent financing on 10-year and 30-year structures with low 4 percent rates. Student, urban and suburban properties are in demand by all the lending groups. FNMA and Freddie Mac are currently focused on providing financing for smaller property and lower income properties to fulfill the mandates.
As we progress through 2015 into 2016, expect multifamily to be at the top of the list for lenders/investors in the Richmond MSA. There are opportunities for forward commitments, but will include premiums of three to five basis points per month after 90 days.
— By Keith Wells, Senior Vice President-Managing Director, and Mike Lowry, Senior Vice President-Producer, NorthMarq Capital. This article originally appeared in the August 2015 issue of Southeast Real Estate Business.