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Walker & Dunlop: Small Balance Lending Presents New Financing Option for Turbulent Market

Walker Dunlop Private Lending SBL

Following a similar move in June and July, the Fed implemented its third consecutive interest rate hike of 75 basis points in mid-September. This is the biggest three-month interest rate swing since 1994. What does this all mean for investors in the small balance lending (SBL) segment of the multifamily sector?

The combination of rising interest rates, inflation and market uncertainty tempts borrowers to sit on the sidelines until conditions improve. Turbulent markets also limit financing options, as many lenders and capital sources tend to become cautious and pull back.

But the need for capital transcends market cycles and seasoned multifamily investors know that rate hikes are nothing new. We’ve been here before with interest rates of nearly 7 percent in the 2000s and a record high of nearly 20 percent in the 1980s.

The business of real estate investing never stops. New acquisition opportunities arise as distressed owners are forced to sell, cap rates settle to more conservative levels and the market shifts in the buyer’s favor.  All things considered, now is the time to seek new investment opportunities. In fact, Warren Buffett once offered the timeless advice that it is wise for investors to be “fearful when others are greedy, and greedy when others are fearful.”

Despite this, the availability of capital — or lack thereof — has historically limited investor ability to take advantage of this phase of the market cycle. Reliable financing options that endure through both up markets and down cycles are few and far between.


Walker & Dunlop and Kayne Anderson Real Estate have joined forces to launch Walker Private Lending — a non-recourse loan program promising dependability and certainty of execution in any phase of the market lifecycle. With a focus on full-term interest-only lending, Walker Private Lending helps investors achieve more loan proceeds and increase cash flow for loans starting at $2 million.

The new partnership with Kayne Anderson expands Walker & Dunlop’s direct lending capabilities and is designed to complement its existing Fannie Mae and Freddie Mac offerings.


Walker Private Lending’s Interest-Only SBL Loans at a Glance

For multifamily investors, it’s all about having more options. Walker Private Lending’s interest-only loans are ideal for investors looking to maximize cash flow on stabilized multifamily properties of five or more units. For a full outline of program parameters, check out our Walker Private Lending Term Sheet.

Walker Private Lending Term Sheet

Breakdown of Benefits

Certainty of execution:  Whether you are refinancing an existing loan or looking to finance an acquisition, certainty of execution is key. As the originator, underwriter, closer, and servicer of all Walker Private Lending loans, Walker & Dunlop is your partner from quote to close and beyond — promising not only certainty of closing, but also certainty of the terms you can expect at closing.

Higher proceeds: When compared to a conventional loan constrained by an amortizing debt service coverage requirement, our proprietary program’s interest-only loans put more emphasis on debt yields and support a loan amount 5-8 percent higher on average — meaning more proceeds at closing.

Higher cash flow: Excluding principal from your monthly loan payment means a lower monthly payment amount and higher net cash flow. Those monthly savings can instead be used to reinvest capital into your property in a meaningful way, such as funding improvements or offsetting unforeseen expenses.

Flexible pre-payment: Walker Private Lending loans offer a variety of flexible prepayment options including fixed percentage, declining prepayment structures. Prepayment flexibility gives investors the advantage of knowing what their prepayment premium will be at any given time should they wish to sell or refinance before the end of their loan term and often results in a lower prepayment premium relative to yield-focused structures, which fluctuate with the market.

Walker Private Lending Case Study: MQ Apartments Refinancing

The utility of interest-only loans in the current market isn’t just theoretical. Our team has already been resolving borrower challenges from coast to coast with the new product.

The Opportunity

Managing director Jared Sobel recalled how the sponsor first contacted him in 2020 — a year with its own set of formidable challenges. “The goal was to finance the acquisition of a 92-unit multifamily asset in Fuquay-Varina, North Carolina, a vibrant community whose population had more than doubled over the past 10 years.”

“After the COVID-19 pandemic hit, lenders tightened their debt service coverage ratio requirements, and the borrower was unable to secure conventional financing,” Sobel said. Ultimately, after shopping around for capital, the sponsor was able to secure financing from the seller.

Fast forward to 2022. The sponsor needed to refinance their existing loan with the goal of $9.8 million. But Sobel and the sponsor now faced a new obstacle: rising Treasury rates. “Traditional financing with amortizing debt coverage constraints led to insufficient proceeds by over a million dollars. We needed another solution,” Sobel said

Solution

Fortunately, Sobel had a new product to present to the client through Walker Private Lending. It was an interest-only, fixed-rate loan with the advantages of a non-recourse product and flexible prepayment.

“The client was intrigued, and I was very excited about the product as well, as I don’t believe there’s anything quite like it on the market,” Sobel said.

“We believed in the property, and this further supported our efforts to get aggressive on the credit.”

Results

With Walker Private Lending, refinancing for this asset resulted in an expedited closing —  under 45 days — and funding proceeds over its original goal of $9.8 million. The sponsor will now benefit from a five-year fixed-rate, interest-only loan providing the sponsor with extra cash flow for operations, improvements and enhancements.

“It was great to see this deal come full circle,” Sobel said.

“The business is evolving more than ever today,” he said about the current lending environment. While he’s still a big advocate for agency financing — especially with Walker & Dunlop, a top ranked Fannie and Freddie lender in the nation — he also recognizes the value of expanding one’s options and having a plan B ready when necessary.

“This product is intended to complement agency financing, not compete with it. Agency lenders must have other capital to stand out in this highly competitive space,” say Sobel. Walker Private Lending fills that role. 

— By Alison Williams, Walker & Dunlop Senior Vice President and Chief Production Officer of Small Balance Lending. Walker & Dunlop is a content partner of REBusinessOnline. For more articles from and news about Walker & Dunlop, click here.

Take the Next Step. Walker Private Lending offers multifamily investors a new financing option — one they can depend on regardless of the market cycle. For a helpful comparison of financing options in the current market, including Walker Private Lending, check out their Financing Guide. If you are interested in exploring real-time quotes tailored to your property — check Walker & Dunlop’s online quote tool.

Content Partners
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‣ Lee & Associates
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‣ NAI Global
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‣ Walker & Dunlop

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