Competition Hot in Multifamily
Carl Gaines Sept. 6, 2012, 3:36 p.m.
Record-low mortgage rates have helped to fuel the nation’s refinancing activity for residential homes. In July, the number of mortgage applications filed hit a three-year high. Freddie Mac also reported that 30-year, fixed-rate mortgages averaged 3.49 percent for the week ending July 26.
Likewise, attractive rates are fueling financing in the multifamily market, where financing for low-leveraged rental buildings has reached its lowest levels in decades. The result? Fierce competition among lenders looking to provide financing for the asset class, particularly in the Big Apple.
Interest rates as low as 3 percent for five-year financing, 30 to 35 year amortization at par, non-recourse are being offered. And borrowers are taking advantage of seven- and 10-year fixed-rate financing, which is being offered below 4 percent.
Commercial/multifamily mortgage origination volumes during the second quarter of 2012 were up 25 percent compared to second-quarter 2011 levels as well, according to a Mortgage Bankers Association survey that also charted a 39 percent increase from the first quarter of 2012.
“Commercial and multifamily mortgage lending and borrowing continued to pick up in the second quarter,” said Jamie Woodwell, MBA’s vice president of commercial real estate research. “Every major investor group increased their lending.”
In fact, each and every day lenders from around the region are knocking on the doors of owners of rental properties soliciting and offering low-cost financing. Some of the newest for this asset class include Connecticut-based People’s United Bank and Montebello, N.Y.’s Provident Bank.
“We are focused on growing our commercial real estate business, particularly in the multifamily segment, across the metro New York market,” said John Costa, executive vice president, commercial banking for People’s United Bank.
Competition is, and will remain, keen for these new entrants who will have to offer exceptionally low rates to compete with leaders like Investors Bank.
“We were fortunate to begin financing multifamily apartment buildings back in 2008 before it became the lending choice for many banks,” said Domenick Cama, senior executive vice president and COO of Investors Bank. “While it’s true the combination of lower rates and more competitors has driven down spreads, we remain committed to this business.”
One of the most active lenders to this asset class is the commercial term lending division of JPMorgan Chase. The Head of East for CTL, Jason Pendergist said, “Our Chase commercial term lending business provides the Greater New York-area, Boston, D.C. and Philadelphia markets with term financing to owners and investor of income producing buildings with five or more units.”
Astoria Financial, the holding company for Astoria Federal Savings and Loan Association, joined the ranks of lenders for this asset class in 2011. It reported in its latest earnings report that from March 31 to June 30, 2012, its combined multifamily commercial real estate loan portfolio increased $361.2 million, or 58 percent annualized, to $2.8 billion.
New York Community Bank continues to be number one in the New York City region for multifamily. The company reported as of June 30, 2012 that multifamily loans were up $417.1 million from March 31 and $753.5 million from December 31. And it had $1.8 billion in the pipeline.
James Carpenter, senior executive vice president and chief lending officer at New York Community Bank, said that the bank has been a leading multifamily lender in the area for decades. “While there have been many market participants over the years, no one has remained as consistently committed to multifamily finance,” he said.
“Multifamily properties are a preferred asset class for Mercantil Commercebank because of their low risk profile and acceptable risk adjusted returns,” said Paulo Garcia, vice president of commercial real estate at the bank. “This is particularly true for New York City, where the multifamily market held up and, in fact, continues to climb to new record highs.”
Loans on commercial real estate, especially for multifamily residential properties, helped Signature Bank to record a record $45.3 million in net income for the second quarter of 2012. Loans at the bank increased a record of $664.9 million, or 9 percent, to $8.03 billion for the second quarter. Over the first half of the year, they grew $1.8 billion, or 17.2 percent. Not surprisingly, the increase in loans for the quarter was primarily driven by growth in commercial real estate and multifamily loans, as well as the launch of the bank’s specialty finance business.
The banks are also in constant competition with the GSEs.
One of the most active players in the GSE arena is Beech Street Capital. “It’s interesting how strong it is, despite persisting unemployment and flat income growth,” said Mike Edelman, senior vice president, production management at the firm. “A lot has to do with demographics. You also have the disruption associated with the housing crisis, so there’s a lot more renters by choice.”
Also competing for multifamily is the resurgence of financing from Wall Street CMBS and conduit lenders. Competition is keen from Deutsche Bank, Cantor Commercial Real Estate, JP Morgan and Ladder Capital, as well as Goldman Sachs.
Record-low financing is fueling the investment sales market, too. “This is the best investment sales market we have seen in five years,” said Robert Knakal, chairman of Massey Knakal Realty Services.
Nonetheless, while rates fell to record lows—even below 3 percent in July—there are clouds on the horizon. During the first 15 days of August, pricing of the 10-year Treasury note rose 30 basis points. And higher yields on these notes will result in higher costs for long-term financing and impact investment sales.
But for now, as rates continue to be at all-time record lows, prudent borrowers should, and will, lock in long-term permanent financing for all asset classes.
- J.P. Morgan Chase
- Robert Knakal
- Massey Knakal Realty Services
- John Costa
- Mercantil Commercebank
- Mike Edelman
- People’s United Bank
- Jamie Woodwell
- Cantor Commercial Real Estate
- Freddie Mac
- Provident Bank
- Investors Bank
- Goldman Sachs
- Domenick Cama
- Paulo Garcia
- James Carpenter
- Astoria Financial
- Astoria Federal Savings and Loan Association
- Signature Bank
- Ladder Capital
- Deutsche Bank
- Jason Pendergist
- New York Community Bank
- Beech Street Capital