“We had a great 2007, and we are expecting to have an even better volume this year,” says Tim White, president of Calabasas Hills, Calif.-based multifamily lender PNC ARCS, which lent approximately $2.5 billion into the multifamily space last year, almost entirely through Fannie Mae and Freddie Mac. “It's difficult to say that anything in 2008 was financially great, but multifamily continues to be a bright spot in lending among other commercial real estate classes.”
According to the MBA, the top lenders in multifamily last year included Wachovia, Washington Mutual, Deutsche Bank Commercial Real Estate, Capmark Financial Group, and Wells Fargo. Wachovia and Washington Mutual were bought out by Citigroup and Wells Fargo, respectively, due to an inability to navigate the subprime foreclosure crisis, but little change is expected in the multifamily debt markets. “In general, our expectation is that the multifamily lending business has been a good business for those institutions,” says MBA vice president of commercial real estate research Jamie Woodwell. “We would expect them to continue to see it as such.”
Grubb & Ellis/BRE Commercial broker Gary Goss agrees. “I don't know that consolidation sends any shock waves into the lending space at all,” says Goss, who works in the La Jolla, Calif., office of the Santa Ana, Calif.-based real estate investment and advisory firm. “The more important question is what is going to be the catalyst for transactions. It seems the reason that lending is down is the gap between buyers and sellers. What is going to make that close?”
Indeed, the lack of deal flow in the multifamily space might be the primary factor affecting lending volumes as the buy/ask spread has shown few signs of compression despite an expectation that a portion of assets and deals are distressed due to the broader economic recession. Borrowers looking for debt also need to adjust to changes in terms and underwriting. “Most LTVs are down to 60 or 65 versus 75 to 80,” says Daniel Lisser, managing director for Irvine, Calif.-based Johnson Capital, a Freddie Mac and FHA lender. “Within that, the agencies continue to be the first choice for both borrowers and brokers. From a proceeds point of view and a spreads point of view, they are the most attractive program.”
Goss adds that the Washington Mutual unit and a lot of smaller lenders are still aggressively selling debt, in addition to the vast reservoirs of lending available via the agencies. “We are processing record volumes right now,” confirms Michael McRoberts, Freddie Mac's national head of underwriting and credit and vice president of multifamily. “The capital markets contracted; the conduit business went away; and all that multifamily business is coming to Fannie and Freddie. While acquisition demand volume is down, our piece of what is out there has gone up dramatically. We'll exceed what we did last year.”
