The phrase “stabilized asset” will take on even greater importance in 2009, as lenders prioritize cash-flowing properties over those in transition.
For KeyBank Real Estate Capital, that means scaling back its appetite for construction and mezzanine loans and building on the success of its agency lending programs.
The company began emphasizing its agency platforms in early 2008 when it became apparent that the conduit side of the house was no longer a viable option.
In 2007, KeyBank processed $337 million combined in Fannie Mae and Freddie Mac financing, accounting for just 14 percent of its overall multifamily volume. But last year, the bank's agency lending volume grew a whopping 300 percent, to $1.5 billion, making up 43 percent of its overall multifamily volume. The company originated about $650 million in Fannie Mae and $850 million in Freddie Mac financing in 2008.
“Now that the commercial mortgage-backed securities [business] is gone, there's obviously a lot more pressure on the agencies to continue to fill the capital markets void,” says Dan Walsh, an executive vice president who heads multifamily production for KeyBank. “But we're anticipating that they'll play a huge role on the capital markets this year, and we'll be a part of that.”
The agency loan surge helped to offset the fall-offs in construction, mezzanine, and conduit lending in 2008. Overall, the company lent about $3.8 billion to the multifamily industry in 2007 and was at about that level again in 2008.
Building the niche
KeyBank will put more emphasis on its seniors housing programs in 2009. The company saw a big increase in seniors housing, lending just less than $500 million in 2008. In fact, KeyBank didn't process any agency seniors housing loans in 2007, but it was named the No. 2 Freddie Mac lender for seniors housing transactions in 2008.
KeyBank has a health-care lending platform with dedicated offices in Cleveland, Seattle, and Tampa, Fla., that provides balance-sheet executions for acquisition, new construction, and bridge loans. And the company has a dedicated team of seniors housing originators focused on agency loans.
Like most banks, KeyBank will scale back its on-book lending volumes in 2009. The company will target its balance-sheet construction lending only to the best projects from developers with whom it has deep relationships, and it will put more emphasis on its Federal Housing Administration program as a source of construction financing.
The move away from unstabilized properties in 2009 is not unique to KeyBank—all lenders have grown much more conservative on shorter-term loans for transitional assets due to concerns about the economy.
Fannie Mae and Freddie Mac also have de-emphasized shorter-term executions by raising the prices and making the underwriting more stringent on short-term deals. This privileging of stabilized deals is also a reflection of the government-sponsored enterprises' move away from portfolio lending toward securitized deals through Fannie Mae's Mortgage-Backed Securities and Freddie Mac's Capital Markets Execution programs.
“The overwhelming preference is for longer-term executions on existing, stabilized assets,” says Dave Shillington, head of agency lending at KeyBank Real Estate Capital. “Those executions that require more balance-sheet capital will be de-emphasized, and longer-term stabilized assets that can be more readily structured for an eventual sale in the secondary market will be the top priority.”