Commercial real estate has taken a huge change post covid. The common question that most investors and homeowners would have is whether lending institutions are backing different kinds of loans. However, it could be seen that many investors are rushing to buy multi-family apartments.
This is because they are finding a lot of help from private lenders who are willing to finance their deals. This is good news for multi-family investment opportunities.
In a post covid scenario where most people are trying to move away from their standalone buildings. They either move into co-living spaces or multi-family properties, this might be the best time for CRE investors to start investing in multi-family properties.
The post covid world has encouraged more people to move into co-living spaces and has also made it possible for many remote workers to work from anywhere that is to work from many coworking spaces. Multi-family property owners also have a good time converting their buildings into co-living spaces and make the best out of the opportunity.
The competitive market rates for multi-family property loans in the market are the cherry on the cake for all those investors who want to invest in multi-family properties.
Even Fannie and Freddie are planning to scale back on their multi-family loans, encouraging more private lenders in the market to pick up their market share.
The interesting thing to note here is that Freddie Mac and Fannie Mae lenders are more eager than ever to lend money to investors for Multi-family properties at some of the lowest interest rates.
Richard Katzenstein, the senior vice president of Marcus & Millichap Capital Corp, said –
“The assumption is that insurance companies, CMBS lenders and banks are going to be able to compete at a much better level”.
He further suggesting that the Federal Housing Finance Agency has been wanting to do this for many years and now have the opportunity because of all the liquidity in the market.
Loans are readily available in the market, and many apartment investors are now not faced by fhf, which has forced Freddie Mac and Fannie Mae to slow down their lending. For this reason, life companies, banks, and conduit lenders are all willing to take any slack in the market and fill the gap.
Caps on agency lenders tightened.
Feds have tightened the caps on agency leaders. Meaning, Borrowers will not be able to rely upon Freddie Mac and Fannie Mae for their permanent financing needs for multi-family properties as compared to 2020.
The Feds have tightened their limits on the lending caps for Freddie Mac and Fannie Mae. For the more the fhf a has also bought in a new set of rules. It can be said that Freddie Mac and Fannie Mae will still use the same tool that they have used for many years, which is to charge slightly higher interest rates. The two learning giants offer loans that cover up to 80% of the loan value of an apartment property.
The average coupon rate for a Freddie Mac high leverage loan was around 3.5 % to 3.25%, along with a minimum debt service coverage ratio of 1.25x according to M&M. As in most cases, the minimum debt service coverage ratio is the limiting factor.
Multi-family properties, however, do not have enough income in proportion to the price of the property to make payments on a loan that is that large. Despite the ups and downs that came with the coronavirus, the cap rates for multi-family properties are still often less than or equal to 4%. With the cap rate of around 526 %, we can expect an 80% LTV loan.
Katzenstein says, “They will hit their caps but not run out. They manage this stuff to the penny” when commenting about the rates offered by Freddie Mac and Fannie Mae.
Thus, it can be concluded that the rates to be offered by Freddie Mac and Fannie Mae are likely to rise in 2021 as they slow themselves to stay under the cap set by FHFA slightly.
Charging slightly higher interest rates from Freddie Mac and Fannie Mae must give other kinds of lenders leverage and a good chance to compete. This is why many private lenders in the market are happy to lend multi-family property loans at competitive rates.
Life insurance companies are also probably going to start lending a little more. Life insurance company lenders have historically offered multi-family lenders the best rates in the market carrying the lowest interest rates for low leverage loans.
In a post covid world – these lenders are again offering loans at super competitive rates. However, the size of the loans is often smaller, and it covers only 55 to 60% of the property value compared to 65 to 70% in the past.
The consequence of agency lenders charging high rates will widen the opening for such insurance companies, banks, and many private lenders to roll out good deals. Thus, many small players in the market now have an opportunity to strike and compete for the best market rate deals.