There is a lot to discuss when it comes to multifamily and financing. Sustained demand, combined with macro issues, place a continued spotlight on the availability of capital for investing in, and building, multifamily assets. Connect Media recently queried Hunt Real Estate Capital’s Managing Director Kevin Chadwick on current trends and outlooks in the multifamily lending space.
Q. How did 2018 look for multifamily loans?
A. 2018 was another banner year for multifamily financing. Trends driving the market include an abundance of capital available for sound real estate transactions, and pressure from owners/buyers to place equity and find new opportunities. A continued economic expansion, low interest rates, positive job creation, in-migration to urban core markets and a continual increase in the “lifestyle” renter who chooses to rent over home ownership, have all contributed to a robust apartment market. These trends will continue into 2019, although growth is forecasted to proceed at a slower pace with new development tapering out over the next few years.
Q. Interest rates continue to be an ongoing topic. Is the increase impacting lending activities?
A. Rising interest rates have caused some concerns with borrowers. As spreads between market cap rates and the cost of capital have narrowed, borrowers have had to be more selective and creative (think value-add) in finding new opportunities. And, with so much recent uncertainty in the market, most borrowers have been rushing to lock in interest rates as soon as possible. I’m not sure about the direction of interest rates in the future, but certain borrowers can lower their cost of capital by borrowing against stable assets and contributing more equity upfront. Finding multifamily deals that fit into Fannie Mae, Freddie Mac, and HUD/FHA buckets can also lower a borrower’s cost of capital.
Q. The partial government shutdown continues. How is this impacting financing activities?
A. The partial shutdown has slowed down processing on FHA/HUD loans. Closings are proceeding on all transactions with firm commitments issued before December 21, 2018. No applications were being accepted or processed during the first 30 days of the shutdown. This will have a substantial impact on first quarter production. The best thing a borrower can do is have reasonable expectations, be organized, and work with their lender to have packages ready for submission when the government reopens.
Q. Overall, what can we expect in 2019?
A. I think we will see more of the same in 2019 as what we experienced in 2018. Urban and healthy suburban markets will remain the most active – especially in markets with the most job growth such as Oregon, Washington, North Carolina, Arizona, Idaho, Utah, Colorado, Nevada, and Texas. Yes, there is an abundant supply of capital to finance multifamily construction and investment. The hard part is finding good deals that make sense.