As several established lenders continue to aggressively snag market share, some surprise entrants are rising to challenge the top cats, according to a survey by Apartment Finance Today.

Familiar faces like Wachovia Corp., Capmark Financial Group, Inc., Washington Mutual Bank, and KeyBank Real Estate Capital graced the Top Five in our list of lenders handling the largest volume of multifamily business in 2005, but a strong charge by Credit Suisse/Column led it to a No. 3 ranking. Rounding out the top 10 are Deutsche Bank Commercial Real Estate, CORUS Bank, New York Community Bancorp, Inc., CB Richard Ellis/Melody, and CharterMac, with Wells Fargo close on their heels at No. 11.

These are some of the results of Apartment Finance Today’s Top Multifamily Lender Survey, conducted from November 2006 to early January 2007. The survey asked for full-year 2005 and mid-year 2006 lending volumes.

Persistent weakness in the for-sale segment of the housing market, combined with strong demographic trends in primary renter age groups, increasing immigration and baby-boomer downsizing, is driving up occupancies and rents, as well as demand for new units.

A feeding frenzy of capital is increasing competition and forcing lenders to re-evaluate their approaches, with many growing more aggressive in pricing.

In such a competitive environment, many firms are consolidating to round out their product lines or expanding niche services.

Challenging market

A variety of factors are conspiring to make 2007 even more of a borrower’s market than 2006, as increased competition keeps spreads low and may force lenders to re-evaluate their risk tolerance in order to increase, or just maintain, volume.

Uncharacteristically low long-term Treasury rates, combined with some of the lowest multifamily capitalization rates in history, will continue to squeeze lenders in 2007. “Add to that the acceptance of lower equity yields by investors, the aggressive lender pricing and higher leverage and risk tolerance by lenders and you’ve got an explosive market,” said James Croft, president and chief operating officer of Red Capital Group’s mortgage banking group.

In short, the market gets more flooded with capital every day, and the waters aren’t likely to recede anytime soon.

“There is a tremendous amount of capital chasing multifamily,” said Donald King, a director of production at Credit Suisse/Column. “There is no shortage of institutions willing to purchase the higher-level risk components of these deals, and so long as that continues, you’re going to have a lot of people chasing a few opportunities.” King expects capitalization rates to stay flat in 2007.

As commercial mortgage-backed securities (CMBS) products continue to be favored in the multifamily industry, new competitive products are also emerging. “It’s clearly CMBS and now an emerging CDO (collateralized debt obligation) market that’s wielding the big stick with very aggressive underwriting and pricing, driven by their insatiable appetite for multifamily,” said Croft. CDOs are investment-grade securities backed by collections of bonds, loans, and other assets, all representing different kinds of debt and credit risk.

It’s not just the volume of available capital that’s increasing lender competition, but how it’s being aggressively—some would say recklessly—applied to the multifamily arena.

“There is some stupid money in the marketplace, and they are making irrational lending decisions,” said Howard Levine, president and CEO of ARCS Commercial Mortgage. “While you can understand the borrower going for the most proceeds, borrowers should take into account: What are their expectations for this property in 10 years?”

Since interest rates will likely increase when today’s loans come due, Levine’s concern is that some borrowers lured by interest-only products will find they don’t have the wherewithal to refinance. “They’ve just got to be prepared that it’s not always going to be as rosy as it is today,” Levine said, cautioning borrowers to “make sure they understand the economics when those loans become due.”

While this multifamily feeding frenzy continues, keeping focused can be difficult. “The competitive forces will continue to drive spreads down,” said Vincent Toye, managing director for Wachovia’s Real Estate Capital Markets group. “We just want to stick to our knitting, and the challenge will be to not get caught up in some of the crazy stuff that will get done out in the market.”


Acquisitions loomed large over the 2006 survey results, as the tight lending market led to more consolidation and growth through acquisition. With Wells Fargo’s 2006 acquisition of Reilly Mortgage Group, the No. 21 lender in 2005, the bank’s rankings should climb higher up the Top 10 ladder in next year’s survey.

But some of the top players may pull even further ahead in 2007. Wachovia’s acquisition of American Property Financing (APF), the No. 16 lender in 2005, and Washington Mutual’s acquisition of Commercial Capital BK FSB ($943.2 million in multifamily lending in 2005), likely means that those players will increase their already sizable volume levels in the next year.

For Wachovia, the APF acquisition was key to its designs on the New York City GSE multifamily lending market, where its past efforts were muted by APF’s domination. Overall, “the acquisition doubled our size in multifamily,” said Ed Hurley, managing director for Wachovia Multifamily Capital.

“Previously, we were not a significant factor in the New York City landscape,” Hurley said. “In fact, I had a competitor walk up to me at a meeting after the acquisition was announced and say ‘So, you finally figured out how to compete with [APF] in New York?’”

Pending acquisitions will also shake up the competitive landscape in 2007.

Credit Suisse/Column was one of the surprise players to break into the Top 3 in this year’s list, partly attributable to its surge in GSE activity, where the company improved more than 20 percent over 2005. The company broke into the agency business at the end of 2003 when it acquired Standard Mortgage, based in New Orleans. “We’ve been taking that small regional player and turning it into a national platform,” said King.

This growth strategy continued in 2006, when Credit Suisse/Column acquired Guilford Capital, a tax credit syndicator, a complement to its Fannie Mae, Freddie Mac, and FHA products. “We expect that will have a significant impact on our production next year,” King said. The acquisition also gave the company the expertise to develop new affordable housing products, such as private-placement proprietary debt for low-income housing tax credit (LIHTC) deals, King said.

Similarly, PNC’s MultiFamily Capital Group concentrates on affordable housing: Its affordable products accounted for approximately $1 billion of its $2.4 billion in overall multifamily lending in 2005.

While PNC offers Freddie Mac and FHA products, its agency lending business may expand soon. In October, the company made a $6 billion offer to buy Baltimore-based Mercantile Bankshares, a Fannie Mae DUS lender. As of press time, the deal had not closed, and the company was mum on the pending acquisition, but did say that it is attempting to expand its agency offerings in the first quarter of 2007.

Fast-growing CharterMac, the No. 10 lender in 2005, continues to expand by acquisition as well. In August 2006, it acquired ARCap Investors, LLC, which manages a $2.8 billion portfolio specializing in high-yield CMBS as well as direct real estate loans.

Focus on niche areas

The tightening market environment also has lenders looking to less competitive niche areas, like student, seniors, and affordable housing, to grow or even just maintain volume.

Credit Suisse/Column plans to focus on affordable housing and HUD deals in 2007. In fact, the company believes that such deals will offer it the most bang for the buck, as market-rate margins continue to get squeezed.

“We think that profitability levels of HUD and the affordable side are better in general than what you’re seeing in the straight market-rate acquisition rehab,” King said. “There are fewer competitors out there; you don’t have all the Wall Street firms with all their CMBS chasing that business.”

Led by its GSE business, the company is moving west, having opened offices in Northern California and Southern California in 2006. The company recently received Freddie Mac approval in California and Hawaii, and expects to receive the national Freddie Mac affordable license soon.

“As a company, we are investing in this agency finance space and it’s paying off,” said King. “On my side [GSE lending], I have target goals which would be probably up another 20 percent over 2006.” In 2006, King’s division handled about $860 million in multifamily loans.

For its part, KeyBank is poised to climb up the ranking ladder in 2006, shattering its 2005 multifamily volume. As of mid-year 2006, the bank had financed $4.884 billion in multifamily lending, putting it on pace to eclipse the $7.255 billion in loans the organization made in 2005.

KeyBank attributes that surge to the strength of its CMBS business in 2006. But paradoxically, the lack of CMBS competition in niche areas also will help the firm.

Gary Alex, FHA program director at KeyBank, said that 2006 was great for his side of the business, which nearly doubled its 2005 lending volume, led by FHA healthcare products. “I would attribute that to the strengthening multifamily rental markets, and to a fairly significant increase in our FHA healthcare business,” Alex said. “The health of the assisted living industry just improved fairly significantly during 2006.”

The FHA healthcare industry doesn’t see nearly as much competition as other multifamily sectors, Alex said. “It’s a niche that the FHA has very little competition in,” Alex said. “CMBS is not a big competitor in healthcare; there’s not that much capital chasing that asset type.”

Red Capital Group also will focus on expanding niche businesses that complement its core GSE lending business, “such as bridge and acquisition loans and mezzanine lending, and construction lending which provides us with permanent loan opportunities,” said Red Capital’s Croft. “We also try to focus on less competitive niches, such as students and seniors and affordable housing.” The company is one of Fannie Mae’s top seniors housing lenders, a segment which accounts for about a third of its overall multifamily business.

But the company will not bow to market pressure to alter its risk profile. “We’re looking to grow 20 percent over the prior year, while at the same time refusing to sacrifice or compromise our credit and underwriting standards,” said Croft.

Getting flexible

CWCapital’s multifamily lending activities accounted for about half of its $3 billion in overall multifamily volume in 2006. That figure was a marked improvement over the $996 million in multifamily transactions it financed in 2005.

Given the increasingly competitive landscape, the company took a different approach to boost market share in 2006. “We got a lot more flexible in the kinds of loans we were willing to do,” said Michael Berman, president of CWCapital.

For instance, in 2006, the company produced approximately $200 million of multifamily bridge loans, up from just $80 million the year before. “We also did a couple of large balance-sheet new-construction condominium loans,” said Berman. “That was something we had not done previously.” Prior to 2006, the company mostly financed stabilized assets, but the loans made in 2006 “were highly structured and were generally turnaround assets,” Berman said.

The company’s conduit business grew more competitive in 2006, closing about $270 million in fixed-rate conduit loans, more than five times the amount it handled the year before ($50 million). As a result, the company’s securitization team grew more creative. “In 2006 we did three CDOs, which really gave us some cutting-edge financial technology to be creative in multifamily,” Berman said. The company plans to leverage its CDO product in 2007 to produce new bridge loan programs for multifamily, particularly seniors housing.

Berman said the firm will concentrate on fixed-rate products in 2007 since floating-rate debt is relatively more expensive these days.

“We’re using different kinds of mezzanine structures, sometimes using fixed-rate first mortgages with floating-rate mezzanine,” Berman said. “We’re doing more five-year loans with prepayment flexibility as opposed to the standard, fixed-rate 10-year defeasance kind of a loan that we saw more of in previous years.”

LIHTC market correction

Also fueling the competitive landscape is the fact that the LIHTC market isn’t what it used to be. Don Giffen, who concentrates on affordable housing as an executive vice president of PNC’s multifamily capital group, sees his biggest challenge as navigating the somewhat turbulent waters on the capital side of the tax credit business.

“The affordable submarket saw some pretty significant changes in 2006, as the yields finally made their long-predicted reversal and credit prices started dropping” said Giffen. “I think we will see 2006 as the year of correction in the low-income housing tax credit world. The tax credit dollar will not raise as much equity as it did a year ago.”

But overall, 2007 is shaping up to be a good year for multifamily developers, who will be able to pick and choose between financing options as lenders duke it out for every bit of business they can get.

Apartment Finance Today’s Top 25    
Multifamily Lenders’ Annual Lending Volumes    
  Year ending Dec. 31, 2005 Jan. 1–June 30, 2006
  (in millions of dollars)  
1. Wachovia $14,657 $7,057
2. Capmark Financial Group Inc. 11,654*
3. Credit Suisse/Column 9,568 5,333
4. Washington Mutual Bank FSB 9,242*
5. KeyBank Real Estate Capital 7,255 4,884
6. Deutsche Bank Commercial Real Estate 6,425 3,553
7. CORUS Bank 5,343 1,995
8. New York Community Bancorp, Inc. 5,167 2,251
9. CB Richard Ellis/Melody 4,525 2,714
10. CharterMac 3,600 1,700
11. Wells Fargo 3,448*
12. Prudential Mortgage Capital Co. 3,184* 2,295
13. Citigroup 2,652*
14. ARCS Commercial Mortgage 2,539 864.2
15. PNC 2,414*
16. American Property Financing 1,854 (now part of Wachovia)
17. Red Capital Group 1,821 1,160
18. Bank of America Corp. 1,703
19. U.S. Bank 1,620 850
20. Collateral Real Estate Capital 1,488 744.3
21. Reilly Mortgage Group 1,390* (now part of Wells Fargo)
22. Green Park Financial 1,188 226.1
23. NorthMarq Capital, Inc. 1,074
24. CWCapital 996 680
25. MMA Financial 970.6
* According to the Mortgage Bankers Association’s 2005 Multifamily Annual Lending Volumes ranking, released Nov. 15, 2006. Note that the MBA’s survey did not take into account conduit business.    
NOTE: The 2006 Mid-Year Rankings reflect only those companies that provided Apartment Finance Today with data. If you’d like to be included in next year’s list, contact Jerry Ascierto at