Lenders Are Fiercely Competitive on Financing Deals

Article originally posted on Globe St. on June 12, 2019

Lender appetite for multifamily deals has not waned. In fact, lenders remain fiercely competitive on multifamily product, and that includes construction financing opportunities, particularly for experienced developers and sponsors. Consumer demand is fueling the market activity along with new loan products, like green financing, for multifamily.

“Lenders continue to be very interested in multifamily projects, as consumer demand and rents remain strong in many markets,” Jennifer Bojorquez, a partner at Troutman Sanders, tells GlobeSt.com. “The appetite for permanent financing on multifamily projects remains strong, and lenders continue to experience a lot of competition for these deals.  The deal flow for construction financing also remains steady, and we’re continuing to see a number of new deals, albeit with experienced multifamily developers.”

Green programs from Fannie and Freddie have also contributed to an increase in lender appetite for multifamily deals. “In recent years, the GSE’s have offered meaningful rate reductions and additional loan proceeds for projects that incorporate renovations for energy efficiency and water conservation,” adds Bojorquez. “I’m seeing a good number of deals with such green renovations. Provided that the green deals hit specified requirements, they do not count toward the agencies’ lending caps.  We’re also seeing a growing number of standard construction deals with affordability components, as a shortage of affordable housing persists and local governments prove to be laser-focused on the issue. Many new deals also include commercial elements, consistent with consumer demand. Lenders are adapting their underwriting to account for these product changes.”

This has created a great dynamic for borrowers, who are able to shop loan programs to secure loan programs and attractive terms. “There are many more lenders in the market today than there were five years ago, and, as stated above, competition is fierce,” says Bojorquez. “Explore your options.”

Low interest rates will only help to fuel momentum. This year, interest rates have dipped back down and many anticipate the Fed will cut rates in July. “There is a good amount of uncertainty in the market, fueled by trade tensions and slowing job growth,” says Bojorquez. ‘Overseas economies have also experienced slow growth in recent months, and inflation remains low. Many are predicting that the Federal Reserve will be cutting rates in July. Given the various factors at play, I’m inclined to agree.”

Still, market activity isn’t guaranteed, and Bojorquez says that over the next 12 months, lender appetite will be market-specific. “Hundreds of thousands of units have come online in the past few years, and some enders may wait and see how those units are absorbed by the market in light of slowing job growth,” she says. “But overall, I expect lender demand to remain steady in the near term.  We are likely to see an uptick of refinances in the next few months with the recent dip in interest rates.”