Multifamily Investment Sales Broker at Marcus & Millichap
P: 630.570.2246
Randolph Taylor


As has been the case for much of the recent crisis,  borrowers are continuing to try to capitalize on favorable rates to refinance apartment properties—that is, when they can find lenders willing to close deals.

Long term interest rates—like the yield on 10-year Treasury bonds—fell below 1 percent at the start of the economic crisis caused by the spread of the coronavirus in March 2020 and stayed below 1 percent well into mid-summer.

Freddie Mac and Fannie Mae lenders have proven to be consistently willing to make loans to qualified apartment properties with interest rates fixed at a spread over these historically low-interest rates. Other types of lenders, including many banks and life insurance companies, have been more cautious.

Long-term interest rates fall to new historic lows

On July 28, the benchmark yield on 10-year U.S. Treasury bonds was 0.58 percent. It has hovered around 0.6 percent and 0.7 percent for several months. In comparison, in the months before the crisis, the benchmark yield hovered between 1.5 percent and 2 percent.

“The outlook is for a continuation of low rates through the end of the year,” says Tony Solomon, senior vice president, and national director of Marcus & Millichap Capital Corp. “Could rates fall even lower?  Sure, maybe a little, but they are very low now and we know that there is an ‘open window’ of various capital sources for the right asset and borrower.”

However, many lenders have become much more selective about the loans they are willing to make—even though the number of potential borrowers has shrunk sharply in the crisis caused by the COVID-19 pandemic. Relatively few investors are eager to borrow money to buy apartment properties at the high prices sellers still expect. And though low-interest rates create a huge motive to refinance, many properties still have years left before they can prepay their old loans without expensive defeasance or yield maintenance arrangements.

“Most lenders really heightened their inspection of an applicant’s creditworthiness and liquidity,” says Solomon. Those lenders that did stay in the market also increased their ‘insurance’ by requiring various escrowed reserves of approximately six to eighteen months of principal, interest, property taxes, and insurance, many requiring add equity to cover those reserves.”

Agencies still rule

Lenders of all types are likely to make fewer loans to apartment properties in 2020 than they did the year before—but for  Freddie Mac and Fannie Mae lenders, the decline in lending volume is likely to be less dramatic.

“Freddie Mac and Fannie Mae have been very supportive of the market,” says Mitchell Kiffe, senior managing director and co-head of national production for debt and structured finance for CBRE Capital Markets, based in McLean, Va. That’s partly because of Freddie Mac and Fannie Mae’s mission to provide capital at all stages of the real estate cycle. “They are designed to be countercyclical.”

Apartment borrowers still get the lowest interest rates on permanent loans from these agency lenders. “We have seen some rates from the agencies over the past few weeks for well-located, well sponsored multifamily properties even dip into the sub-3 percent range,” says M&M’s Solomon.

In select cases for low-leverage loans,  Fannie Mae and Freddie Mac are both offering interest rates as low as 2.5 percent. They set higher interest rates of 2.75 percent to 3.25 percent for loans that cover more of the value of a property, according to CBRE.

“If you are a long-term holder, that is pretty hard to decline, even if you have to pay a pre-payment penalty,” says Dave Borsos, vice president of capital markets for the National Multifamily Housing Council.

Life companies struggle to make deals

These low-interest rates are a burden to life insurance companies. “The life companies are back on a conservative basis,” says Kiffe. “However, they cannot generally bear loans at those very low-interest rates… 2.75 percent is about as low a coupon rates as they can offer.”

Life companies have also developed a habit of lending to apartment properties. They made more permanent loans to multifamily properties than any other type of commercial real estate, over the past few years according to the American Council of Life Insurers. They keep returning to apartments, even though they can get much higher interest rates by making loans to other kinds of commercial real estate, like grocery-anchored shopping centers.

Banks fall behind

Banks generally prefer to make loans with shorter terms and floating rates. Some make longer-term loans to apartment properties—but even that has become less common in the crisis caused by the coronavirus.

“Big banks, by and large, are not making loans to apartment properties,” says Kiffe. “They are only making capital available to their best customers.” That’s partly because of capital requirements that force them to keep billions of dollars in reserves as the economy weakens, to cover risks including loans made under the federal stimulus program.

“Local and regional banks are still lending, though spreads have widened and the leverage is down,” says Kiffe.

Source: National Real Estate Investor Bendix Anderson | Jul 29, 2020

About Marcus & Millichap Capital Corp.

Marcus & Millichap Capital Corporation (MMCC) is a leading source of real estate capital nationally. In 2019, the firm sourced and closed $7.8 billion in commercial debt and equity structures through 1,944 capital markets transactions across the U.S.

Our team of experienced professionals provides financing for a full range of property types and loan amounts. We position each property optimally to source capital and leverage state-of-the-art systems to execute with maximum reliability.


Whether you are seeking to pull cash out of an asset, reduce monthly payments, or secure better loan terms, our capital sources can provide the optimal refinancing package in both loan terms and loan proceeds. By aggressively sourcing funds through our network of different types of lending institutions, we are able to obtain the best capital fit to meet clients’ objectives.

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Multifamily Investment Sales Broker at Marcus & Millichap
P: 630.570.2246
Randolph Taylor


Private money lenders offer viable solutions for the CRE market to get deals done quickly and efficiently.


Undeniable COVID-created inertia is driving the commercial real estate market today, with innovative approaches surfacing to consummate transactions.

The fear and anxiety, hope and fulfillment of dreams, and confusion and uncertainty being felt by society as a whole are certainly impacting those invested in the commercial real estate life cycle.

Sellers, buyers, lenders, and borrowers all are experiencing the impact of the worldwide pandemic pause. It’s impossible to escape.

On one hand, sellers fear that the longer their properties are on the market, and as the pandemic and recessionary economy linger, values will decline.

On the other hand, for many sellers who see the glass as half full, they hope and envision values quickly will increase, as the pandemic wanes and the US economy fully reopens.

Buyers want the economy to reopen quickly, yet they hope the stalled economy will give them leverage to negotiate lower pricing on transactions.

Borrowers wish they will be able to secure forbearances from their lenders, but fear that this relief may be short-lived. If the economic impact lingers, even when businesses fully reopen, many tenants – especially retailers selling to consumers – may still be unable to pay rent for several months. This, in turn, will negatively impact a given property’s net income, and ultimately, its short-term resale value.

Fully aware and fearing that time kills deals, lenders, and mortgage brokers are mediating between countervailing forces and the immediate, innate need to keep transactions moving forward.

At the same time, many lenders have put deals on hold, grinding to a halt promising transactions in a not-that-long-ago flourishing landscape. Lenders that have chosen to remain active have been overwhelmed with bottlenecks, as their production pipelines crawl through obstacles created by current market dynamics.

So, where does this leave everyone? Confused for sure, and in many cases, paralyzed by the unexpected and far-reaching nature of current events.

Despite this confusion and paralysis, options abound for the market to move forward.

This is where private debt comes in. Private money lenders offer viable solutions for the commercial real estate market – for borrowers and brokers, lenders, and investors – to get deals done quickly and efficiently.


Why private debt?

Private money lending has always thrived during economic downturns.

While the coronavirus pandemic and its widespread economic effects are historically unprecedented, tightening standards and restricted liquidity in the conventional lending space are not new. During cycles when conventional lending opportunities contract, private lending expands, as borrowers and investors alike look for new options.

It’s important to note, however, that private debt is not fully immune to the damage caused by the severe economic impact of COVID-19. In the last couple of months, a number of private debt funds and capital providers either temporarily or permanently shuttered their operations due to a freeze of their capital sources, poor underwriting practices, and/or non-performing loans, resulting from a coronavirus-related forbearance or default.

For those that are fortunate to be actively lending today in the private debt environment, the landscape is riddled with market delays, stemming from rate renegotiations, expanded due diligence, short- term extensions on maturing debt, re-underwriting loans, and arbitraging greater spreads for investors. In addition, since private money – perhaps wrongfully so – tends to be the choice of last resort, there’s the perennial shopping for cheaper debt by traditional lenders.

Despite those unavoidable delays, most purchases and refinances currently in the market require the execution speed that only private lending can deliver— agility that is proving quite beneficial.

For example, we are seeing a significant number of cash-out transactions, as some borrowers seek to inoculate their operating businesses with cash infusions to get them through the current economic hurdle.

Some borrowers are looking at this time to expand their financial coffers in anticipation of ready-made, perhaps even unprecedented, shopping spree opportunities of distressed, but quality, real estate assets.

Other borrowers may be preparing for what they believe could be a slow reopening and reintegration process, or the second wave of reinfection and more closures in the coming fall or winter seasons.


How private lenders are navigating the landscape

Private lenders are approaching the new market challenges in new and different ways.

Some private lenders are pressing the pause button to focus on managing their existing portfolios and negotiating workouts on any non-performing loans.

Others are actively transacting, but they are implementing modifications to their existing guidelines. Today’s “new normal” in commercial real estate may include all or a combination of the following:

  • Price increases
  • Reduced loan-to-value thresholds
  • Removal of vulnerable property types, such as retail and hospitality from their pipelines
  • Reduced or eliminated subordinate financing
  • Requiring or increasing interest reserves
  • Applying full recourse in instances where non-recourse was the normal

Another group of lenders is choosing to not make any changes. They continue with business as usual mentality, enduring the delays and disruption, and not adjusting for any perceived new market risks.


The impact on underwriting

For mortgage investors, the risk lies squarely within valuation. Without an accurate determination of value, lenders cannot assess how much coverage exists to protect their investments.

The pandemic and its ensuing uncertainty have put that age-old instinct of preservation of capital to the test.

Prudent private lenders aren’t standing by to see what happens. They are adjusting their valuation methodologies and underwriting standards to ensure that there is ample equity coverage to account for the new economic, political, and societal stresses on property values.

These risk-based adjustments include, singularly or in combination:

  • A blanket 20% discount on pre-COVID-19 values as a basis for as-is valuation
  • Increasing underwriting assumptions, including vacancy rates and expense ratios
  • Making cap rate adjustments

How long these pandemic-induced changes to underwriting practices and lending guidelines will continue remains to be seen.


The private money advantage

Unlike traditional lenders who are hampered by the burdens of federal regulations, private lenders are nimble and can pivot to meet a range of market demands and unique circumstances.

Whether a borrower is seeking speed of execution, a short-term bridge to traditional financing, creative loan terms, or a solution for personal hurdles, such as foreign national status, limited liquidity, bankruptcy, or a low credit score, private money always has served and will continue to meet, specific needs in the market.

During COVID-19 and the ensuing period of economic recovery, private lending for the commercial real estate market will continue to further solidify its position in the capital markets as an irreplaceable, solutions-focused financing strategy.

With the inertia-busting agility of private debt, along with the guidance of experienced, trusted mortgage brokers and advisors, commercial real estate investors and developers can continue to move forward and thrive, even in the midst of a global pandemic.

Source: GlobeSt By Elliot Shirwo | June 16, 2020, at 07:20 


About Marcus & Millichap Capital Corp.

Marcus & Millichap Capital Corporation (MMCC) is a leading source of real estate capital nationally. In 2019, the firm sourced and closed $7.8 billion in commercial debt and equity structures through 1,944 capital markets transactions across the U.S.

 Contact Us for your Commercial Real Estate Financing & Refinancing needs. 



U.S. Economy Strong, Fed Raises Rates
Multifamily Investment Sales Broker at Marcus & Millichap
P: 630.570.2246
Randolph Taylor
Multifamily Investment Sales Broker at Marcus & Millichap
P: 630.570.2246
Randolph Taylor
Multifamily Investment Sales Broker at Marcus & Millichap
P: 630.570.2246
Randolph Taylor


Big Gains Cause Concern


While rallies in oil and metals—from aluminum to nickel—faltered during the week, big gains have spurred increased speculation that inflation will pick up. Speculation over inflation has caused the 10-year Treasury yield to increase from 2.83% at the start of the week to 2.91%; the first time the 10-year yield has surpassed 2.90% since February. Investors are now nervous, wondering what happens if crude takes off and wages go higher, housing costs escalate, etc., and what will that mean for the overall economy? Continue reading “Big Gains Cause Concern”