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March 9, 2021 RE Capital Markets Insights: Finding Financing for Multifamily Development in Lease Up

 

As we draw close to the one-year anniversary of the start of the Covid-19 pandemic, its impact continues to reverberate throughout the commercial real estate industry. While the real estate market is constantly in flux, the pandemic has added an extra layer of instability on top of those normal market changes.

Among those most impacted are multifamily developers that broke ground prior to the pandemic on projects which were completed in 2020.   Stymied by a pandemic-related slowdown in leasing, these properties have taken longer than projected to stabilize and are now facing maturing construction loans.  As a result, developers of these projects find  themselves in need of takeout capital through either a refinance or a sale. Fueled by historically low long-term interest rates and investor appetite for multifamily assets, transaction volume increased late last year and has continued into 2021.

Financing for the acquisition of stabilized multifamily assets has been dominated by Fannie Mae and Freddie Mac in recent years. However,  the Agencies have not been competitive in financing properties that are in lease up as they curtailed those lending programs at the onset of the Pandemic. This has created an opportunity for Life Companies to provide hybrid long-term financing to investors.

These hybrid fixed-rate loans can be best described as a combination of bridge and fixed-rate vehicles.   At a small premium to traditional  permanent debt, life companies see it as an opportunity to capture the multifamily business that otherwise would have been lost to Fannie Mae and Freddie Mac. Consequently, we have seen the life companies fairly aggressively competing in both their pricing and terms. 

One of the more aggressive life companies is offering the following terms multifamily acquisitions in lease-up:

  • Loan Amounts: $20M – $100 M
  • Pricing: Around 3% fixed
  • Term: 10 years
  • LTV: 65% of Stabilized Value
  • Min Occupancy at Funding: 20%

If you have a pending transaction in need of financing, contact a member of the Dekel Capital Executive team to discuss how we can assist in getting your project over this hurdle and finding the best capital source for your needs.