The Richmond Metropolitan Area, with a population of 1.3 million, is bursting with multifamily development. The growing MSA contains more than 72,000 apartments units (45% class “A”) and has 2,018 units under construction with another 5,826 in various stages of predevelopment. On top of all this activity, the overall market occupancy remains at 96%.
The fuel for these conditions comes from the many amenities in the market – from the University of Richmond and a robust sports scene to the proximity to Atlanta, the Atlantic coast and Washington, D.C., and the encouraging employment picture. The city’s unemployment stands at 5% compared to the U.S. average of 6.3%; since 2000 the city’s population has grown by nearly 15%. These conditions allow property owners to leverage this diverse and sustainable market for multifamily investments.
Richmond development also benefits from the attractive interest rates, which remain low despite having climbed 80 basis points since late January. Along with monitoring this upward trend, news earlier this month from the Federal Reserve of a rate hike will serve as a caution sign for investors. Whether we see this hike in the next couple of months, or not until 2016, rates remain ideal for developers and owners in the Richmond market.
Freddie Mac and Fannie Mae
After an aggressive first half of the year, Freddie Mac and Fannie Mae look to originate about $40 billion of multifamily each in 2015. Together, the two will combine to do about 30-33% of the total multifamily market’s financing.
- Freddie is closing fixed rate financing on 10-year terms at T+1.80-2.20% with LTV up to 80%.
- Fannie is offering their most competitive rates on mandated affordable properties (LIHTC, and HAP), manufactured housing, and small properties (5-50 units).
- Fannie is also offering material discounts on rates for conventional properties that meet Fannie’s requirements for “affordable” rents.
The Rest of the Multifamily Market
- The CMBS market is mainly closing 5–10 year deals at 180–200 basis points over the swap at 75–80% financing.
- The life companies are providing loans of 10–30 year terms with amortization matching and even getting to 40 years. We are seeing LTV with these lenders at around 65-75%.
- Banks are currently lending on shorter terms with recourse but will stretch to 7- and 10-year terms at floating and swapped rates.
Recent loan placements have included self-amortizing 10-, 20- and 25-year loans with Fannie and life companies. The rates have been in the low 3-4% range. Acquisition financing with CMBS lenders provided 79% financing on 10-year and 30-year structures with low 4% rates. Student, urban, and suburban properties are in demand by all the lending groups. FNMA and Freddie Mac are currently focused on providing financing for smaller property and lower income properties to fulfill the mandates.
Looking to 2016
As we progress through 2015 into 2016, expect multifamily to be at the top of the list for lenders/investors in the Richmond MSA. There are opportunities for forward commitments, but will include premiums of 3-5 basis points per month after 90 days. If you are an owner/buyer of multifamily with a maturity in the next 12 months, it is time to talk to your local mortgage banking representative!
This article appeared in SouthEast Real Estate Business in August 2015.