Insight on the state of the multifamily capital markets from the Mortgage Bankers Association CREF/Multifamily Convention and Expo
The Mission Capital team spent President’s Day Weekend at the Mortgage Bankers Association (MBA) CREF/Multifamily Convention and Expo in San Diego…and the overall consensus is that commercial real estate lenders, acquirers, and investors continue to seek multifamily properties more than any other asset class.
Not all deals, however, are equal in the eyes of capital sources. Certain multifamily deals are more difficult to finance.
Construction and renovation projects remain the most challenging. The uncertainty of project funding schedules, significant capital expenditures, low occupancies, and a lack of in-place cash flow eliminates many capital providers from participating in these types of transactions. Agency financing is not available for these projects either, as it requires a 90-day history of 85%+ physical occupancy and 70%+ economic occupancy.
By removing Fannie Mae and Freddie Mac from the equation and adding a strong mortgage broker, owners and operators can essentially “auction” their project to the lender with the best terms and lowest rates. Hundreds of viable lending options exist with a wide variety of rates, terms, structures and capital stacks from every type of lender: bridge to agency, CMBS conduits, debt funds, hard money lenders, and mortgage REITs, as well as money-center, regional, and community banks.
Here are some examples of how conducting an “auction” process amongst lenders results in materially better economic and non-economic terms for Mission Capital’s borrower clients:
Queens Plaza South
Long Island City, New York
- Senior & Mezzanine:
- $148.5mm Senior
- $40mm Mezzanine
- 90% LTC – Mid single digits blended rate
- Added Value:
The Borrower achieved 90% leverage by allowing the land lender to be subordinate to the construction lender. The Borrower was able to dictate final terms by having multiple higher rate construction lenders competing in the final “auction.” Mission negotiated a pay and accrue feature, versus borrowing the full interest reserve that reduced the capital stack by over $4.0 mm. The lower total capital stack reduced the equity required for the transaction.
Multifamily with Retail – Construction
Seattle, Washington
- Senior Construction Loan:
- $97.5mm
- 65% LTC
- High 200’s over LIBOR pricing
- Added Value:
The Borrower received offers from multiple banks, insurance companies, and debt funds for senior and mezzanine construction financing. The Borrower was able to decrease the spread from an existing relationship lender due to Mission’s “auction.” Financing offers gave the Borrower multiple points of negotiating leverage with relationship lender on proceeds, term, rate, structure, and recourse.
The Equitable Building
Baltimore, Maryland
- Senior Bridge Loan:
- $34.3mm
- 70% LTV
- Low 300’s over LIBOR pricing
- Added Value:
The Borrower received proceeds to fully refinance the Property and received a $3.0mm earn-out structure. The Borrower saved $1.55mm, after Mission’s advisory on the prepayment of the in-place debt. The Borrower saved an additional $125,000, as Mission negotiated a favorable interest rate cap purchase schedule.
Hollywood/Koreatown Portfolio
California
- Senior Permanent Loan Proceeds:
- $79.8mm over 11 loans
- Term:
- 65% LTV
- Term: 10 years Interest Only
- Low 400’s WACC
- Added Value:
The Borrower was given the ability to upsize the loan 180 days following closing even though standard agency lenders do not typically allow upsizes prior to the loan’s first anniversary. Individual loans provided the Borrower with flexibility and ability to avoid cross-collateralization. Closing with a single lender significantly decreased closing costs. Mission provided the Borrower with higher leverage options from non-agency capital sources- a necessity given a volatile agency market at the time of close.
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