Fannie Mae, Freddie Mac, and the FHA continue to fuel the lion’s share of multifamily transactions. But balance-sheet executions from the private sector are increasingly muscling in on the agencies, a sign that the capital markets are returning to health.

Life company lending activity across all sectors in the third quarter was 154 percent higher than it was in the third quarter of 2009. At the same time, Fannie Mae and Freddie Mac lending activity in the third quarter declined 16 percent compared to the third quarter of last year, according to the Washington, D.C.-based Mortgage Bankers Association.

This trend coincides with an improving sales volume, which reached $8.5 billion in the third quarter, a 63 percent rise from the second quarter and the biggest quarterly gain in five years, according to New York-based market research firm Real Capital Analytics. “Life insurance companies have been more active on the portfolio side with the higher-quality assets,” says Ben Thypin, senior market analyst for Real Capital Analytics. “And regional banks are being more active as well with the lower quality assets.” 

Who's At Bat?
MetLife was the eight-largest lender for apartment transactions through the first nine months of the year, according to Real Capital Analytics. And it's not just MetLife: The third quarter saw a $70 million loan from New York Life for the mixed-use Xchange in Secaucus, N.J.; meanwhile, State Farm lent $65 million to Equity Residential’s Liberty Tower in Arlington, Va. in the third quarter.

Prudential, too, has also been active, lending about $553.4 million for multifamily through its balance-sheet program, while also originating $353 million through Fannie and more than $800 million though the FHA, through the end of September.

Banks are also stepping up—in fact, six of this year’s top 10 lenders to date are banks—though their loan volume as a sector still pale in comparison to the agencies, according to Real Capital Analytics.

New York Community Bank and Wells Fargo have been particularly active on the balance-sheet side this year, ranking as the fourth and fifth top lenders, yet each has only lent about 10 percent of what either Fannie or Freddie had done through the end of September. The other Top 10 lenders of the year include HSBC, Deutsche Bank, Sovereign Bank, and Capital One, according to Real Capital Analytics.

Pricing Trends
Cap rates continued to fall in the third quarter by an average 15 basis points (bps), but the compression is more acute for garden apartments.

Garden properties have seen a 55 bp decline in cap rates this year, averaging 6.8 percent at the end of the third quarter. In contrast, mid- and high-rise apartments have seen cap rates move up this year by an average 47 bps, ending the third quarter at 6.5 percent.

The fourth quarter is shaping up to be a return to the industry’s traditional busy season, and that momentum is expected to carry over into next year.

“We’re only a little over a month into the fourth quarter, and things are moving at a pretty good pace,” Thypin says. “I think 2011 will be greater in volume than 2010, but as for any significant increase in pricing, it’s a little too early to say.”