Lenders Still Chasing Multifamily Loans, Says MBA

Lenders Still Chasing Multifamily Loans, Says MBA

Lenders are still eager to make loans on apartment properties, and grew their multifamily lending business again in the third quarter of 2014.

“There has been a strong appetite to lend to multifamily in the last few years,” says Jamie Woodwell, vice president of commercial/multifamily research for the Mortgage Bankers Association (MBA). The total amount of outstanding debt supported by multifamily properties grew $16 billion to reach $940 billion in the third quarter, according to MBA’s Commercial Real Estate/Multifamily Finance Quarterly Databook.

That’s good news for borrowers as lenders struggle to offer lower interest rates and more attractive underwriting terms to lure new business.

Agency lenders were very active in the third quarter, making up for a slow first half of the year and bringing their total multifamily mortgage debt outstanding to $399.6 billion, a 2 percent increase from the second quarter of 2014.

“It’s a bit of a surprise how strongly the government-sponsored entities picked up their volume in the second half of 2014,” says Mitchell W. Kiffe, co-head of national production for debt and equity finance with CBRE. Agency lenders, which provide Fannie Mae, Freddie Mac and Federal Housing Administration program loans, fought back in the third quarter, after falling behind banks and life company lenders earlier in the year.

Banks and thrifts also grew their multifamily loans outstanding by $7.8 billion to $289.0 billion, a 2.8 percent increase. “Banks have a strong appetite for multifamily,” says Woodwell.

Life insurance companies grew their multifamily loans outstanding by $0.8 billion, to $55.3 billion, a 1.5 percent increase.

Conduit lenders shrank their loans outstanding by 0.3 percent, to $74.2 billion.

What’s on offfer

“They clearly want to do more multifamily lending,” says Kiffe. Conduit lenders are the most competitive source for higher leverage loans, with loan-to-value (LTV) rations of 70 percent or greater. Conduits also offer more interest-only loans. They are active in smaller property markets and more willing to work with sponsors who may not have long track records.

Life company lenders still offer the lowest interest rates for low-leverage loans (with LTVs  below 60 percent), with spreads of 125 to 140 basis points over Treasury, according to Kiffe. Fannie Mae and Freddie Mac lenders are also offering highly competitive underwriting terms for loans with LTVs in the 65- to 80-percent range, with spreads 165 to 195 basis points over Treasuries.

Overall, mortgage interest rates keep dropping, even though the U.S. economy finally seems to be in a period of stronger recovery—and that’s good news for borrowers too..

A stronger economy usually pushes interest rates up, but the world economy is weakening, with deflation in Europe and slower growth in China. That’s driving investment dollars to the United States. The benchmark yield on 10-year U.S. Treasury bonds fell to 1.82 percent Jan. 23, from 2.47 percent six months prior. The spread between benchmark interest rates and the total interest rate borrowers pay has stayed relatively stable over the last six months, says Kiffe.

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