Boston-based multifamily and seniors housing lender CWCapital closed out 2010 with $2.75 billion in loans made through its agency lending platform. Representing record-setting growth across the company's Fannie Mae, Freddie Mac, and FHA lending verticals, the production was highlighted by $1.8 billion in GSE originations; more than $900 million worth of originations through the firm's FHA program; and the largest LIBOR swap refideal for Fannie Mae (at $388 million).
So it's no wonder that CWCapital projects its 2011 loan closings to exceed $3 billion. As the company pushes for increased market share, CWCapital's managing director of Fannie Mae and Freddie Mac programs, Donald King, sat down with Apartment Finance Today to talk about the industry and his firm's growth trajectory.
MFE: Congratulations on some really great production in 2010. Can you point to anything specific in the market that's really powering finance opportunities?
KING: From a general standpoint, the interest rates that Fannie and Freddie are lending at today, even though they're higher than they were six months ago, are still at historic lows. We're still firmly under 6 percent for fully levered 10-year debt, and we're at those levels at a time when, generally speaking, we're seeing property performance improve across the country.
MFE: Change is afoot at Fannie and Freddie. What are your expectations for how the agencies are likely to be transformed, and what impact would that transformation have in the multifamily lending space?
KING: I think the role Fannie and Freddie have played on the multifamily side has been very substantial. Multifamily is the only commercial real estate sector where there was sufficient liquidity for the market to continue and move forward. That was all Fannie and Freddie— and we're talking about market share in the 80 percent– plus range.
The multifamily business has also been an extremely well- performing and profitable business for both GSEs. For politicians to do something to jeopardize that, to me, doesn't make a lot of sense.
I do think there will be change, and I do think there will be more regulation, but I think the implementation of that is going to be moderate and measured over a period of years.
MFE: Do you expect continued challenges obtaining construction lending from HUD?
KING: We've heard that the total FHA pipeline being processed is in the $17 billion range, and that's enormous. There's no question 2011 will be a record year for HUD in terms of the construction lending it does. With underwriting at 83 percent of cost, it's still an attractive deal relative to other options. It does take longer to apply, but it has attractive pricing and attractive leverage. We're seeing more and more banks come back into the space, but at more conservative loan-to-cost ratios of 65 percent. As this continues, I do expect they'll begin to climb the leverage curve back up to the 75 percent range. At that point, the FHA program will lose some market share.
MFE: What are some of the greatest untapped markets for CWCapital as they relate to new geographies, new product types, and new types of multifamily lending businesses?
KING: We've been implementing a fairly aggressivegrowth business plan that we really began in 2007 and that will continue into 2011, expanding primarily through acquisition and/or new hires, in order to fill in the geography of the country. Probably our highest priorities from a geography standpoint are to have a larger presence in Texas, Northern California, and New York City. We'll continue to be as opportunistic as we can.
MFE: Do you expect to see any large transactions in 2011?
KING: There are still a lot of large deals and potentially large portfolio deals we could see come up this year. Some of those opportunities, particularly on deals that were securitized in 2005 to 2007, will include a need for recapitalization. There's increased demand for apartments and a lack of new supply, so property transactions will continue, and a lot of the larger deals that we've all read about in the past two to three years are moving toward a place where a recapitalization will begin to make sense. That may or may not start to happen in 2011, but it's going to happen at some point.