What You Should Know About Multifamily Financing!

Multifamily financing is showing strong growth trends and these are the trends that investors should expect!

Since the end of the 2007-09 recession, the commercial real estate industry has experienced a strong growth. The property prices have grown stable and vacancy rates have declined time after time. The commercial real estate outlook report for Q3, 2017 by NAR stated that even as fresh completions bring more supply to many markets, the multifamily sector will still likely see a vacancy rate decline from 6.6 percent to 6.1 percent. It also stated that commercial fundamentals are expected to maintain an upward trajectory. According to Marcus & Millchap’s 2017 U.S. Multifamily Investment Outlook, it was projected that 2017 will bring 371,000 units to the market, outpacing last year’s total of 320,000 rentals. While multifamily continues to hold its position as a stable investment with rental upside, the market is witnessing increased multifamily trade this year than prior years. Market experts say that the multifamily is one sector that catches the attention of equity capital. The market has a significant amount of equity capital, especially for value added and opportunistic deals, despite the fact that investors are being more selective.

It is clear that the multifamily market is certainly enjoying a golden era. Interestingly, as per the reports by MBA, in the first quarter of 2017, the amount of commercial real estate loans outstanding topped $3 trillion. The commercial and multifamily mortgage debt outstanding rose by $37.6 billion to $3.01 trillion, a 1.3 percent gain from the fourth quarter of 2016. It was also shared by officials that almost two-thirds of the growth came from increases in multifamily mortgage debt outstanding. So in this blog, we look at several key trends that investors should expect in multifamily financing in the years ahead. Here are some:

Lender appetite for multifamily

High occupancy rates, overall stable asset class, steady rent growth are some factors that continue to attract strong investor interest in multifamily, which will further drive lender appetite for multifamily in the year(s) ahead.

Increasing demand

A market report shared that while the national vacancy rates are projected to increase slightly with new deliveries, the vacancy rate of multifamily is still considerably lower in comparison to other asset classes. At the national level, strong occupant demand has fueled multifamily construction in the major metropolitan markets throughout the United States.

Underwriting will be fundamentals based

When it comes to financing a multifamily property, it is expected that the lenders will still apply the location rule. It will typically favor markets with strong employment and population growth. In addition, lenders will also evaluate the market’s development pipeline in order to monitor the projected vacancies resulting from new construction.

Availability of capital

For assets that meet the aforesaid criteria, there will be ample sources of capital available to finance multifamily investments. Experts say that most lenders feel that the multifamily market is at the correct pricing. Lenders will still continue to finance multifamily by evaluating each property on a case-to-case basis. Many lenders are still very conservative in their underwriting. Banks, for example, are willing to finance assets in strong locations, but taking a more cautionary approach in the evaluation process. In such a scenario, we suggest borrowers make their case stronger for lenders, and work only with experienced professionals for the most optimal financing solution.

Interest rates

There are a number of political and economic factors that will impact multifamily financing in the years ahead. Reports say that the interest rates for permanent loans on most types of multifamily properties have fallen 20 to 30 basis points since the beginning of the year. It is the growing uncertainty about federal policy that is keeping long-term interest rates down. At the same time, it is certainly a favorable environment for multifamily investors to secure attractive capital for an acquisition or a refinance. Lenders are hesitant to lock in rates while the borrowers are looking to lock-in lower rates. So it will be very helpful to go to multiple sources in order to secure the best aggressive terms.

Thus, multifamily as a whole will continue to perform well and remain a solid investment target for investors. To help the brokers and borrowers find the most competitive financing solutions, we help them with the first step of knowing a commercial property's value. In addition to it, we also enrich brokers and lenders with tools for better loan deal flow and centralized processes! Click to explore more!