The need to deploy equity and return to lending in order to procure yield is driving capital providers back towards active involvement in both the debt and equity markets serving apartment investors, said panelists at the MFE Conference in Las Vegas last week. In particular, life insurance companies are becoming very competitive to the GSE lending provided by Fannie Mae and Freddy Mac.
“They are providing very competitive product, particularly on 65 percent or less, low-leverage deals,” said McClean, Va.-based CBRE Capital Markets senior managing director Mitchell Kiffe, who joined Los Angeles-based CityView president and chief operating officer Sean Burton; Bethesda, Md.-based Oak Grove Capital vice president Tony Washington; and New York City-based Centerline Capital Group senior managing director of mortgage banking William Hyman on the panel moderated by National Multi Housing Council president Doug Bibby. “All of the life company executives like commercial mortgages again. They are sitting on a lot of cash, and they need yield.”
Indeed, the CMBS market is in effect rebuilding itself as capital providers seek to invest monies from recovering balance sheets and unused equity funds created in anticipation of an unrealized wave of distressed asset opportunities. “It’s a CMBS rebuild,” Hyman said, “but its one that is being rebuilt with 2003 and 2004 credit standards.”
Hyman also noted that alleviation is also being seen in the tax credit markets, where traditional investors including banks, insurance, and utility companies see opportunity in the virtual abandonment of the market by the GSEs.
Multifamily capital also continues to eye the development market as rent fundamentals improve in a real estate sector noted for its extreme lack of incoming supply. “We are seeing a lot of opportunity funds continuing to move towards development,” Burton said, “and some of the funds being raised today are targeting development as well, with mid-teens gross and low-teens net for core-plus and value-add investments, depending on where you draw the line between those asset classes.”