Through the first five months of 2014, the capital marketplace for commercial and multi-housing real estate has continued to demonstrate great depth and efficiency. Owners, buyers, and (once again) developers are enjoying the availability of competitive financing from the deepest pool of capital sources seen since before the economic downturn.
An interesting trend we’ve observed at HFF is the increased volume of loan transactions by life insurance companies and banks relative to other capital sources. According to a Mortgage Bankers Association survey of commercial and multihousing loan originations, there was an 18 percent increase in life insurance company lending, and a 55 percent increase in commercial bank loan volume in the first quarter of 2014 over last year’s first quarter.
Life insurance companies are highly motivated to grow their real estate investment allocations, as a majority of these portfolio lenders are underweight in real estate compared to equities, fixed income and alternative assets. Life companies offer attractive non-recourse financing options (up to 30 years, fully amortizing) for long-term owners, with the ability to lock in low interest rates at loan application. Many life companies are also offering forward rate locks as far out as 12 to 15 months.
Life companies are also winning business through competitive construction-to-permanent loan programs. Multihousing has been the preferred product, however HFF has also been active in placing life company construction-perms on select hospitality, credit tenant, and pre-leased office and retail developments.
Banks are increasing lending due to near all-time highs in cash deposits. Some banks are offering non-recourse financing for low and moderately leveraged assets in an effort to win business.
Don’t count out the GSE’s (Government-Sponsored Enterprises) in the multihousing arena. Fannie Mae and Freddie Mac have roared back in recent weeks by tightening spreads and getting more aggressive in specialty areas such as affordable, seniors and manufactured housing.
The securitization market remains healthy with more than 30 CMBS originators offering attractive non-recourse financing at aggressive leverage and competitive rates. The CMBS segment offers solutions for borrowers who don’t want to sign bank guarantees, and assets that may not be candidates for life company financing.
Debt funds and mortgage REITS have reduced their pricing to deploy capital. These bridge lenders are able to offer higher loan proceeds on non-stabilized properties with future funding requirements.
The good news is that today there are capital sources for virtually every type of real estate transaction profile. We anticipate this will continue as more cash-heavy lenders seek to capture reliable risk-adjusted returns on income-producing real estate.
HFF (Holliday Fenoglio Fowler L.P.) and HFFS (HFF Securities L.P.) are owned by HFF Inc. (NYSE: HF). HFF operates out of 22 offices nationwide and is a leading provider of commercial real estate and capital markets services to the U.S. commercial real estate industry. HFF together with its affiliate HFFS offer clients a fully integrated national capital markets platform including debt placement, investment sales, equity placement, advisory services, loan sales and commercial loan servicing. For more information visit hfflp.com or follow HFF on Twitter at twitter.com/hff.
-Submitted by Zach Koucos, director of HFF.