Why HALL Structured Finance Doubled Down on Multifamily

HALL Group, the parent company of hall structured finance (HSF), was one of the largest multifamily owners in the U.S. in the 1980s. HALL Group has long-since segued into other types of real estate, while HSF has grown to become a premier lender, primarily in the hospitality sector.

However, with the COVID-19 pandemic making banks less aggressive on the multifamily front, HSF is stepping in to help fill the void. Commercial Observer’s Partner Insights team spoke with HSF Vice President Brad Ferguson to learn more. 

Commercial Observer Partner Insights: Talk a bit about HALL’s long history in multifamily and how the company has distinguished itself in that area over the years.

Brad Ferguson: Back in the eighties, we were one of the largest multifamily owners in the U.S. Eventually, we sold our multifamily portfolio and diversified. Many of the same executives who were responsible for the multifamily portfolio now run our lending business, HSF, so our team understands the multifamily industry from all angles. We understand the operations side and the value behind it.

We’ve been lending to multifamily for 25 years. We became more aggressive in the multifamily sector recently, because, when COVID-19 hit, many of the multifamily lenders pulled out of the market and focused on their existing portfolios, or continued to pursue loan opportunities but on a more conservative, loan-to-cost ratio. This gave us a great opportunity to expand our market share of the multifamily lending sector. Right now, we’re trying to do as many high-quality, multifamily deals as we can this year.

What differentiates HSF from its competitors in this area?

We provide high-leverage, non-recourse loans. A lot of banks and some of our competitors don’t offer as high of leverage, and they may be full recourse. We only require a completion guarantee. High leverage is very attractive to a lot of borrowers. We’re a one-stop-shop, where borrowers don’t have to go out and blend different lenders, so it’s a cleaner loan program for many developers.

What changes has HSF made to increase its focus on the multifamily program?

We’re being more aggressive on terms — we’re providing increased leverage. We’ve been actively pursuing multifamily for years, but I think as the banks pulled back, they provided an opening for us to further expand our program. We are also offering a flexible, pre-payment penalty that allows the borrower to exit out of our loan relatively quickly after construction. It allows them to refinance fairly quickly after construction, which is very attractive.

What geographical areas will HSF be covering?

We like the southern states, because we have done many deals in these markets and are familiar with them. Texas and Florida have been two of the company’s most attractive states to lend in. But we lend nationwide, focusing on strong primary and secondary markets with multiple demand generators.

Are there any other important parameters of HSF’s multifamily loan offerings that people should know about?

We understand multifamily, and we get what sponsors and developers are going through, so we try to work as best as we can to be flexible on some of our deal points in our loan program. We’re probably a little bit more flexible than other shops out there.

Are there any particular subsectors of multifamily that HSF is particularly interested in?

We like to do what we’ve done right in the past and stay that course. Traditional, Class A multifamily is the sector we’re focused on. That’s not to say we won’t look at other product types, but that’s our bread and butter and where our core focus is at the moment.

Why has HSF chosen to unveil this program now?

Because the banks have pulled back in response to the pandemic, it has allowed us to further expand our loan program in this space. It’s also because, during times of crisis, banks become more conservative, and we’re a bit more risk adverse than others, so we think multifamily is a great product to focus on at this time. Historically, it has maintained values and it’s been a relatively safe haven for investment and lending.

Does the company’s increased participation in multifamily signal a vacuum elsewhere in the market?

There’s more uncertainty — no one knows exactly how aggressive the markets will be when they come back fully. Everyone has their expectations, but another good thing about construction is that most of these projects won’t be built for another 15 to18 months, provided we close today, and by that time, COVID should be long gone and the market should be back to some normalcy of health. I don’t think there’s a vacuum, necessarily. I just think people are being conservative because there’s so much uncertainty out there right now.

Let’s talk about some of the big multifamily deals that HSF has completed so far.

The Vantage Apartments in St. Petersburg, FL was a great project for us, and for our borrower as well. We financed the Millennium at Citrus Ridge in Kissimmee, FL; and Holleman Village in St. Petersburg, FL — that was a student housing project. And we recently closed on the Glades II Apartments near Corpus Christi, TX.

These are all Class A apartments. Class A’s are somewhat competitive, but if you have the newest and best product on the market, you can usually achieve higher rents and become a market leader.

Does HSF intend to build on its multifamily program as we emerge from the pandemic? Or do you think that may be a smaller portion of the business, since it was in response to the crisis?

I think it gives us a foothold to expand the program. I expect that we will tailor our loan program to current market conditions as they continue to evolve. This will be a permanent lending platform, and we will be expanding it as the crisis continues to come to an end.

Anything else you would like to say about HSF’s multifamily program?

We’re looking to do approximately $600 million in new construction loans this year. We’re lending up to 75 percent of cost and are looking to finance as many high-quality projects as we can this year. We’re hoping to have a very successful year.