While rent hikes in 2013 probably won’t match the robust rates seen the past couple years, rock-bottom debt pricing should continue unabated in 2013.
Given the Fed’s commitment to prevailing monetary policies, the low-rate environment won’t retreat any time soon–the federal budget’s looming fiscal cliff notwithstanding. Meanwhile the budding re-emergence of Wall Street conduits should help keep other conventional apartment lenders quoting tight spreads, multifamily finance pros agree.
“Any concern we may have about higher (interest) rates or wider (apartment) spreads would be beyond 2013,” relates Matthew Rocco, national production manager with Grandbridge Real Estate Capital. “So we may see one of the best years ever in terms of debt costs and availability.”
Indeed, 2013 promises a continuing borrower bonanza with permanent, bridge and construction quotes usually coming in below 4 percent.
Rocco and others do caution that certain underwriting policies may tighten up a bit at as single-family homes–and the active construction pipeline–absorb some of the resilient renter demand. For instance stalwarts Freddie Mac and Fannie Mae are already becoming somewhat more restrictive with early-term interest-only periods than they were just a few months back, observes Phillip Wintner, CFO at Kennedy Wilson Multifamily.
Wintner notes that 10-year fixed deals from the GSEs tend to be in the 3.5 percent vicinity at higher leverage, with tighter spreads available at more conservative loan to value ratios. And Fannie’s magnetic adjustable program is proving particularly attractive, floating in the “low-200s” basis point (bp) range over Libor.
Meanwhile, life companies are quoting fixed-rate deals in the high-2, low-3 percent range for five- and 10-year transactions, “very competitive” with Fannie and Freddie at the 65 to 75 percent loan to value (LTV) level, according to Jeffrey Erxleben, senior vice president with NorthMarq Capital.
And as balance-sheet lenders, they can inherently be more flexible customizing key terms than agencies or conduits selling into securitizations–such as prepayment penalty schedules and term lengths.
Prevailing CMBS bond-buyer demands going into 2013 leave conduit lenders with a distinct pricing disadvantage relative to Fannie, Freddie, the FHA and life companies, with coupons now generally in the mid-4 percent range, Erxleben adds. Hence in addition to their generally greater willingness to play secondary and tertiary markets and loan against lesser-quality collateral, they compete through higher leverage often running to 85 percent LTV, along with faster closings.
And local and regional banks can also be quite competitive these days in the permanent multifamily mortgage arena with five-year fixed-rate transactions–and even 10-year deals at institutions comfortable holding paper that long, Erxleben relates.
Logically, banks rank among leading players in bridge lending, typically quoting floating rates in the mid-200 bp range over Libor, Erxleben notes. Non-bank financial institutions will also be active in this product, generally quoting floaters at 250 to 300 bps over Libor, with leverage limits typically amounting to 80 percent of cost with an exit target of 75 percent of the post-improvement value, adds Rocco.
On the construction debt front, bank rates in the coming year seem likely to float in the “low-200s” over Libor, with proceeds typically running to 80 percent of expected costs, Rocco specifies.
