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

The two government-sponsored enterprises are on track to match 2019 origination volumes.

Freddie Mac and Fannie Mae are on track to lend nearly as many dollars to apartment properties in 2020 as they did in 2019. They have even loosened rules created in the early months of the COVID-19 crisis that required new multifamily borrowers keep enough reserves on hand to ensure they could make loan payments for as long as 18 months.

“These guys are going to do everything they can to backstop the market,” says Richard Katzenstein, senior vice president and national director of Marcus & Millichap Capital Corporation, based in New York City. “They are looking to put out as much capital as they can.”

In the first months of the crisis, Freddie Mac and Fannie Mae asked new borrowers to reserve enough money to pay the debt service on their loans for between six and -18 months, including both payments of principal and interest. Those reserve requirements are now often waived for new loans that are not as large as the maximum the agencies allow.

Overall Freddie Mac and Fannie Mae accounted for about $140 billion in multifamily lending activity, about 38 percent of the $364.4 billion of all multifamily lending, according to the Mortgage Bankers Association. And while lending for commercial and multifamily properties were dropped 48 percent in the second quarter compared to a year ago, loans backed by Fannie Mae or Freddie Mac only were down 5 percent year over year. 

“Once you go up to the maximum proceeds—80 percent of the value of the property—then they want the reserves,” says Katzenstein.

Freddie Mac and Fannie Mae lenders have not added other requirements on multifamily borrowers. In contrast, for homeowners, they have added a 50 basis point fee on new home loans that refinance existing mortgages that are delivered to the GSEs as of December 1, 2020. The fee will help cover likely losses to the portfolio of home loans in difficult economic times to come.

“There is nothing like that on the multifamily side,” says Dave Borsos for the National Multifamily Housing Council (NMHC).

On the volume side, both government-sponsored enterprises are on track to match 2019 origination volumes. That’s a stark contrast to many other parts of the commercial real estate finance and investment world where there have been steep drops in activity year-over-year. It also comes amid the  FHFA continuing to lay the groundwork for the agencies’ exits from conservatorship.

“The industry entered the current recession on solid footing and is well-positioned to absorb the impacts of the recession due to substantial growth over the past several years,” says Steve Guggenmos, vice president of Multifamily Research and Modeling at Freddie Mac.

Other types of lenders, including banks, life companies, conduit lenders, and others, are expected to make 20 percent to 40 percent fewer loans in 2020 compared to the year before, according to Freddie Mac.

“While we anticipate the total multifamily volume [from lenders of all types] to decrease in 2020, Freddie Mac is supporting lending liquidity as other market participants moved to the sidelines,” says Guggenmos. Even though relatively few borrowers are now seeking financing to buy apartment properties, Freddie Mac and Fannie Mae are replacing much of the acquisition financing they usually provide with refinanced loans to apartment properties.

“Interest rates are historically low,” adds Borsos. “Freddie Mac and Fannie Mae are still very active in the marketplace.”

Freddie Mac offers 10-year loans that cover 80 percent of the value of an apartment property to strong loan sponsors with interest rates fixed at 230 to 245 basis points over the yield on U.S. Treasury bonds, with a floor on Treasury bond yields of 50 basis points, according to Marcus & Millichap.

Other types of lenders also offer competitive interest rates but at lower levels of leverage. “Interest rates offered by banks are competitive. But they are dialing back the loan-to-value (LTV) ratios… maybe not 70 percent, maybe 60 percent of 65 percent,” says Katzenstein

So far, the economic crisis has not caused measurable damage to the multifamily loans held by Freddie Mac and Fannie Mae. The number of their borrowers who have missed loan payments and asked for forbearance has not grown much, despite the economic chaos caused by coronavirus, according to NMHC’s analysis of data from the government-sponsored entities. “There is some uptick in the beginning, but it’s been level from then on,” says Borsos.

Of the borrowers that have asked for forbearance on their loans, the vast majority (75 percent) are small loans of just a few million dollars each. “These may be mom and pop investors in apartment buildings,” says Borsos. “Those may be the ones that are struggling.”


Source: National Real Estate Investor Bendix Anderson | Aug 26, 2020

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.