• Video presentation covering the national economic and commercial real estate outlook
  • How shifting behaviors will impact the investment market landscape
  • Forward-looking insights for the Apartment, Retail, Office, Industrial, Hotel, and Self-Storage sectors
  • Key considerations for commercial real estate investors



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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In April 1031 exchange buyers were given an extension. The Internal Revenue Service issued guidance that said anyone who closed on a sale on or after April 1 would be granted an extension until July 15 to identify their replacement properties.

When that happened, Chris Pappas, associate director with Marcus & Millichap’s Net Lease Division, thinks the typical timeline for investing in 1031 exchange was relaxed.

“They didn’t have that urgency to move as quickly,” Pappas says. “Then, once they began to understand the market post-lockdown, then they started moving and closing transactions.”

As the July 15 deadline approached, 1031 investors started identifying deals. That showed up in June’s transaction number, according to the NNN Market Intelligence Report for June 2020 from Pappas. In the month, single-tenant sales jumped 67 percent compared to May. In all, 271 transactions were completed in June compared to 162 in May.


Going forward, Pappas wonders how much 1031 capital will be left. He says that 1031 exchange buyers only need to identify the property they’re buying by July 15. They still have 135 days to close.

With due diligence taking 30 days and closing taking 30 days, Pappas thinks most 1031 capital will be out of the market 60 days after July 15 (September 13). “Generally. you don’t see people taking that entire timeline to close their transactions,” he says. “They typically close well in advance of the 180 total days.”

Right now, Pappas says there is still a critical mass of people that are processing their transactions. But once September arrives, there could be a lull. Going forward, he thinks investors should be cautious until the exchange buyer pool benefitting from the July 15, 1031 extensions are entirely removed from the market.

In addition to an increase in transactions, June also saw the resurgence of activity in Florida. After tallying $18.7 million in May in May, dollar volume rebounded 267 percent to $88 million in June, according to the NNN Market Intelligence Report for June 2020. June’s total transaction velocity fell just short of April’s 280 transactions.

Overall, the South attracted 40 percent of all investment. The Texas/Oklahoma and West regions dropped in dollar volume for the second straight month, while the Mountain region jumped from $52 million in May to $120 million in June.

Despite those increases, COVID-19 continues to weigh on the sector. “With respect to demand for net lease real estate, there has also been a huge decrease in transactions across all product types nationally,” Pappas says.

Investors continue to prefer quick-service restaurants (69 transactions), dollar stores (61 transactions), and pharmacies (45 transactions). Those properties made up 64 percent of all June transactions. Pharmacies accounted for 29 percent of total dollar volume in single-tenant net lease, while quick-service restaurants came in second at 19 percent of dollar volume in the sector.

“The market also experienced an uptick in sales tenanted by automobile and gas/convenience tenants and a decline in bank tenanted assets,” according to the NNN Market Intelligence Report for June 2020.


Source: GlobeSt By Les Shaver | July 21, 2020 at 02:51 PM


Join the Marcus & Millichap Multifamily Forum Chicago & the Midwest in a re-imagined, all-digital, online conference format.

About this Event

>> Conference website: greenpearl.com/multifamily/chicago/

Global pandemic, massive unemployment, nationwide social unrest. 2020’s free trial period has expired, and we are stuck with this lemon. How do we make lemonade out of it?

Join the Marcus & Millichap Multifamily Forum: Chicago & the Midwest in a re-imagined, all-digital, online conference format. Spanning ten days from July 21 through July 30, the conference has been organized in brief, easy-to-consume portions to minimize disruption to your work and personal life. Join live to interact directly with speakers through the Q&A feature, or view the recordings on your own time. Either way, don’t miss the group networking discussions that will allow you to connect with your peers directly to forge new connections and reestablish existing relationships.

Reasons to Attend:

  • Find out what top multifamily owners, managers, developers, and investors are thinking and doing in the Midwest markets
  • Get the latest information on equity and debt financing for multifamily properties
  • Learn how the pandemic has affected your peers’ business and what they are doing about it
  • Pool your ideas on reopening plans and social amenity usage best practices
  • Discover the current thinking regarding future distressed buying opportunities
  • Explore how multifamily value add rehab is changing in light of the public health crisis
  • Identify new technology that is now suddenly more useful and relevant
  • Connect directly through one or more of the group networking discussions or the happy hour

What You Get:

  • 6 panels organized on different days to minimize the disruption to your schedule
  • Links to recordings of each panel to allow you to view or review when you like
  • Access to online group networking discussions (sessions are limited in size)
  • Access to the online group happy hour (limited in size, first come first serve)