The last few years have been busy for Mike McRoberts and his team at PGIM Real Estate Finance, where he serves as managing director and head of agency originations.
McRoberts, who spent 20 years at Freddie Mac before going to PGIM six years ago, has seen the latter company’s agency lending platform nearly triple since 2011. For 2017, McRoberts estimates PGIM, which is under the Prudential Financial umbrella, will do more than $3.8 billion in agency lending.
The company is one of a handful that's authorized to go out to the marketplace and represent both Fannie Mae and Freddie Mac with owners and borrowers who are looking for debt capital. From there, it packages the financing and sells it to the two government-sponsored enterprises.
So how has PGIM’s agency lending business grown in recent years? Here’s how McRoberts explains it:
“PGIM is known as a big institutional lender dealing with some of the larger owners out there. But what we’ve done on the agency side is we've been able to penetrate the middle market by using our balance sheet and doing a lot of bridge lending, which has been very attractive in the marketplace over the last few years.”
The company has also utilized Prudential’s other capital sources, including equity, and has brought in originators to bolster its staff.
But that type of growth can’t be expected to last forever, McRoberts adds. “Trees don’t grow to the sky,” he says. “It’s tougher to go from $3 billion up to $4 [billion] or $5 billion than it was to go from $1 [billion] to $3 billion, because I think there were a lot of things we could put in place, but I think it’s harder to grow it exponentially going forward. However, I do see a lot of great momentum over the last couple of years. For 2018, I’m expecting a lot of the same.”
And on an industry level, McRoberts is expecting another solid year in the world of multifamily, driven by millennials and baby boomers who continue to rent apartments. Housing—both single-family and multifamily—is being undersupplied in the U.S., he adds, which means there’s room to run for developers.
“We’ve got interest rates that are historically low, although they’ve moved up a little bit,” he says. “Some markets that have had a lot of deliveries will see flat rent growth. But that’s just the normal settling, and we see that new construction is settling down as well.”
And while some markets have had a lot of deliveries in recent years, McRoberts says he doesn’t see any that are in long-term trouble.
When it comes to multifamily debt, he foresees steady demand continuing, due in large part to an uptick in floating-rate financing over the past several years, which gives the owner an ability to prepay. “If you look at fixed-rate financing, that’s typically locked out to prepayment because of yield maintenance structures, and it’s very costly to prepay,” he says. “With short-term rates going up, we're seeing borrowers converting existing floating rates to fixed rate.
“With all those demand drivers and all that wind at your back, I really think next year’s going to be as good as it’s been for the last few years, and I really don’t see it declining in demand for debt,” he adds.
