Multifamily Financing Trends for 2021

Although 2020 was a period of adjustments during a pandemic for all industries, hesitant lenders and equity investors have been keeping their eyes wide open on multifamily as one of the more sustainable property types. 

As we recover in 2021, the pile of cash sitting on the sidelines should begin to flow, and multifamily will be one of the main recipients of that capital, followed by industrial. For now, multifamily will be beset by some of the challenges impacting commercial real estate in general. Here are the major trends that will influence the capital markets in 2021:

1. INCREASED MULTIFAMILY 

Construction loans in the multifamily space have seen increased popularity during the pandemic and will likely continue to attract lenders from all points of the capital industry. Along with industrial, multifamily has been a top-performing property type for rent collections and investment volume.

CBRE Research predicts U.S. multifamily investment volume will reach up to $148 billion next year, which would be a 33% gain over the 2020 estimate of $111 billion.

Banks have capped around 50% of cost during the pandemic. This has left capital providers with other opportunities.

2. CMBS FINDS COMFORT ZONES

Commercial mortgage-backed securities have been very stressed in 2020 but will do better in 2021 as investor demand continues to return. Because of the demand in investors and lower spreads, CMBS should pick up market share on product that is desired by investors, such as industrial, multifamily, long-term leased office, grocery or low-leveraged leased retail and conservative hotels.

Investors in commercial real estate and CMBS will bounce back to stability by focusing efforts on businesses that are reliant on travel and group congregation (mainly lodging and regional malls in commercial real estate).

There is a growing opportunity for collateral in multifamily, industrial, office, self storage and some lockdown-resistant retail that could be comfortably underwritten into CMBS deals.

3. ASSISTANCE FOR RECOVERY 

How developers and property owners get to the other side of the pandemic will depend on their ability to stay afloat, and many will rely on the rescue capital being raised to profit from the disruption in the hotel and retail markets.

There has been an immense amount of money raised to invest in distressed propteries and that can be invested through purchasing distressed loans or buying foreclosed properties by putting preferred equity in place if the current property owner just needs a slug of cash to sort of getting through the pandemic.

Distressed buying and lending has gained traction during this first quarter and is expected to pick up in the second quarter of 2021. Banks and funds are throwing the towel on forbearance agreements with borrowers and selling the loans.

Bridge lending will account for a lot of the distress and rescue investing. There’s going to be a massive amount of bridge lending for distressed assets about to come online heavily coming from retail and hotels.

4. CAPITAL GALORE

Unlike the Great Recession, which was devoid of capital, this market is awash in both equity and debt seeking yield.

Not only are multifamily rates in the historically low territory but lenders are also seeking industrial opportunities, though spec development is more conservative and will have a greater equity requirement. Refinancing stabilized industrial is as attractive as it’s ever been.

Just behind multifamily and industrial, lenders have shown a new appreciation for suburban office. Locations that may have been on the chopping block are now keepers.

Many tenants with leases up for renewal are rotating into their suburban locations. 

5. URBAN - SUBURBAN SHIFT

The pandemic has taught us that many jobs can be done remotely. The suburban office is expected to recover faster than urban office following the mass exodus from some of the major cities to the suburbs.

The young adults who relocated back to live with their parents to save money are more likely to move back into the cities once the offices reopen. They want to get back to a social setting and make in person connections to push them ahead in the game. Recruiters will use this strategy to attract new talent especially towards the Gen Z age group. Millennials are reaching the point in their life where urban living is loosing its glamour and often traded in for larger housing options in less-dense submarkets.

6. HIGHER RESERVES

Based on a more conservative analysis of rent growth and lease-up periods, the amount of time borrowers need to sock away carry costs until their properties are cash-flowing will generally be higher than before the pandemic.

The increase, however, can be substantial—a reserve that might have been 18 months before the pandemic could now be 20 months, 24 months or even 30 months, depending on the situation.

7. PRICE DISCOVERY

There will be greater price discovery in 2021, but it will be uneven. Multifamily, industrial and some of the more specialized property types—like self storage and data centers—have gotten a lift from the pandemic. Retail and hotel assets, on the other hand, will need to brace themselves for a longer recovery.

Retail rents will see long-term changes, and in places like New York City are likely to be completely repriced. Hotels, another casualty of lockdowns, are being repurposed to multifamily in states like Texas and Florida but won’t be rescued so easily in instances where zoning and/or unions prevent such conversions.

Even if the prices come in low initially, those prices will likely recover pretty quickly because there’s a lot of equity on the sidelines to buy.

8. WAREHOUSE LENDING

Given the extreme uncertainty and exposure to nonperforming property types like hotel and retail, many banks pulled back on their warehouse lending—credit lines that are extended to borrowers and then sold on the secondary market either directly or via securitization. But lenders are expected to reinvigorate their warehouse businesses.

While banks will come through the pandemic seeing a good performance to their last dollar in their warehouse lending, borrowers may not see a full recovery.

Learn more about how Private Client Investments, Inc can help you in 2021.

Top 7 Questions Trust Deed Investors Need to Know At The End Of The Year

We recommend that you prepare for some of the best transactions of 2020. 

Each year most private real estate lenders expect to coast and relax during the holiday season since borrowers are consumed with family, relaxing and eating— they are pausing their business activities; this scenario, however, rarely occurs since frequently we are often called upon to extend some immediate, end of year loans that is both safe and attractive: Borrower often need quick, end of year closing to buy-out partner, complete final business contracts or have special tax consideration that need fast capital.

Here are the 7 most important end of year TD Investor considerations to maintain readiness:

7. Have I inspected the assets that my other loans are on at least once this year?

6.  Have I learned more about the business, the broker or the marketplace this year?

5.  Have I started to tally my collected interest earned on each loan I made for my taxes this year?

4. Am I up-to-date on my trust deed(s) status with my broker, servicer and investing partners? Do they know what I want?

3.  Are there any payoff letters (demands) , extension requests or other end-of-year acts I must perform?

2.  Are there any last minute transactions that I can participate that will provide a premium yield due to an EOY closing?

1. Am I available to make quality decisions and am I liquid?  Can I move my money, execute a wire, transfer funds and access my accounts?

What You Need To Know About Commercial Bridge Loans

Sourcing immediate funding for your new commercial property acquisition can be stressful, especially if banks are taking too long or demanding too many papers causing delay after delay.  The stress can be unbearable.  Loan programs are abundant and options for many loans are advertised everywhere...with tons of promises about rates, fees and especially loan closing timeframes, however, there is one other option that might be better suited to your situation. That is another kind of loan called commercial bridge loan. Here is what you need to know about bridge loans to acquire or even refinance your apartment building, land, industrial or retail building:

What is a commercial real estate bridge loan?

A bridge loan is short-term financing used by a borrower until he or she can obtain permanent financing.  In the situation of you and your perfect investment property, taking out a bridge loan would help you buy that dream asset before you sell your current real estate. The goal is to acquire the new asset before selling the old asset or to get a quick loan instead of waiting 3 months to get bank financing. 

Why Commercial Bridge Loan

Oftentimes commercial bridge loans are used when a property needs significant renovation before it will qualify for permanent financing. Bridge loans are perfect for ongoing construction and rehabs.  Once completed, banks will be happy to make the permanent loan.  Other reasons a borrower might want to consider a bridge loan are:

• Low occupancy rates in the property or NO occupancy are often called an “unstable asset”.

• The borrower’s credit profile needs improving.

• The borrower can’t wait for permanent financing due to contract stipulations.

• Incomplete ownership or project team in place or even a partner buy-out.

Commercial bridge loans can be used for the purchase or refinance of office buildings, hotels, retail property, multifamily housing, including apartment complexes, and even for raw land that will be developed for commercial purposes.

How a bridge loan works. 

A bridge loan can be issued by a few specialized banks or a private lender such as Private Client Investments, Inc  and can be structured in different ways, but generally the money is used to pay off your old  mortgage or trust deed. Your agreement may require you to make monthly payments on the bridge loan, or it might be structured as upfront or back-end lump-sum interest payments. The bridge loan is meant to be short term that might last from a few months up to as long as a year.  Sometimes bridge loans are referred to as “gap loans”.

To help you understand what a bridge loan might look like and how it might be used, here is an example:  You own a building worth $1,000,000 and you still owe $250,000 on it, and you're going to buy a $500,000 building, you might take out a $500,000 bridge loan using your $1mm asset as collateral.  You have used your equity in your big asset to get the money to pay all cash for your new asset.  Once closed, you can go back to your bank and get a permanent loan on the second asset and take that money to pay down your bridge loan.  The main thing is that you did not have to wait a long time and go through a bunch of issues with the bank and could close immediately with your bridge loan.

How Much Can You Borrow On A Bridge Loan?

In general, in a bridge loan you may borrow up to 70% of your asset’s value, but no more.  Interest rates and fees are quoted after a loan application is received and underwritten.

The benefits of bridge loans

• A homebuyer can buy additional real estate while selling an existing asset on the market with no contingencies.

• Might gain a period of payment free months.

• Can still buy a new asset even after removing the contingency to sell under certain circumstances.

• Acquisitions for any assets are immediate.  Very little qualifying.

• Sellers like quick, cash closings.

The Cons of Bridge Loans

• With a higher interest rate, bridge loans tend to be more expensive.

• To qualify, borrower must have a sizable equity and a good standing credit rating.

• The stress of handling two mortgages at once plus the bridge loan interest if your home takes longer to sell than anticipated or other unexpected delays.

In summary, bridge loans are an option for you to consider when purchasing new real estate. At Private Client Investments, we will walk you through all your options and discuss the consequences in depth to help you make the decision that’s best for you.

Ready to learn more about the bridge loan process? Contact us to explore a variety of topics on all aspects of real estate financing, investments, buying and selling.

Second Trust Deeds Explained

When the money stops flowing — the party is over.

This is precisely what you don't want to happen, especially when you are in the middle of financing or refinancing a commercial property, expanding your business, or settling urgent and timely financial matters. 

Whether you qualify for a bank loan or not, another option exists that can move you forward with your financial endeavors: An option that provides immediate capital for your time-sensitive or complex cash-out transaction.

Junior Financing 101

Knowing how second debt financing operates is essential if you’re ready to jump at the chance to secure a second trust deed private loan from a leading investment firm.

In its pure form, all deeds of trusts (whether first or second liens) are legal documents of a financial loan agreement between two parties. The deeds of trusts are promissory notes that the borrower will repay the lender in a fixed timeframe. In the case of real estate, the property is used by the lender as a pledge of security.

The second deed of trust allows a property owner to borrow additional funding beyond and subordinate to the first trust deed. The second trust deed effectively acts as a junior lien to the first.  Acquiring junior debt on your asset using private party money usually is quick, efficient, and reasonably priced.

Significantly More

Private Money Second Trust Deeds offer so much more to the borrowing community than do banks.  Consider the following:

As you can see, second trust deeds from private lenders offer substantial versatility compared to second trust deeds provided by banks.  

There isn’t a project that you can’t accomplish with a $1.5 million max loan from a private money second trust deed. Furthermore, when time is of the essence, short closing and loan processing times with private money second trust deeds are the best financing options available.

How Private Client Investments, Inc Can Serve You 

Private Client Investing is here for you if you require a second trust deed for a real estate loan in California. Private Client Investments, Inc  offers seamless funding solutions through rigorous underwriting, due diligence, and attention to every detail. Through Private Client Investing, you can harness the power of private money second trust deeds to accomplish your financial objectives.