May 19, 2020

Capital Corner: Agencies remain steady source of capital

NorthMarq continues to navigate through this capital market by consulting, sourcing, and executing on a wide range of capital requests on behalf of our clients. Overall, we are seeing a gradual improvement in many areas, as cautious optimism for opportunities to deploy capital is visible. NorthMarq's fully diversified capital platform continues to provide best-in-class options throughout the capital stack. We are in contact with our debt, equity, and investment sales teams to provide a current and accurate picture of the market for our clients.

This week, we focused on updates in the agency debt environment.

AGENCY DEBT
The continued strength of collections appears to be settling the Agency market. The original concerns about collections were back on April 1. After review, the April collections were strong, with minor delinquencies. Our industry turned its attention to the May collections; while the collections have wavered slightly in certain product types and regions, the overall numbers have been a pleasant surprise. We feel that collections, coupled with some underwriting safeguards and property performance reviews have allowed the agencies to continue to transact at very effective levels.

This week, Freddie Mac reinstituted its ability to provide early rate lock options to borrowers and cut spreads for most deals. This clearly is an indication that they feel comfortable with the settling of the market and interest rates. Fannie Mae is staying consistent with its programs that have resulted in an average volume of $2 billion in loan closings per week, with rates ranging from 2.75 to 3.25 percent.

Most of our Agency activity has been with borrowers electing a fixed-rate option to capture the extremely low all-in rates, contingent upon the details of the request.

In some cases, we have also seen Agency floating rate spreads compress as much as 50 bps resulting in sub 3.00 percent all-in rates, thus providing some flexible prepayment options for borrowers looking for that feature.

HUD is also very busy locking up refinance and construction loans across the country. Our team can provide a variety of options for borrowers to consider and the rates are in the 2.50- 3.20 percent range for most deals. HUD remains active in all markets across the country and is committed to providing capital to multifamily and healthcare transactions in this unsettled environment. HUD continues to provide high-leverage financing (up to 85 percent LTC/LTV) coupled with the longest amortization periods in the market (up to 40 years). In addition, HUD will also permit cash-out transactions, which allows a borrower to recapture equity with low-interest rate debt.

Fannie Mae case study: Permanent financing of California garden-style property
Nathan Prouty and Andy Slaton from our San Francisco office delivered $35 million in permanent financing from the Fannie Mae DUS platform for a multifamily property in Pleasanton, California.

The permanent refinancing of Valley Plaza Village Apartments, a multifamily garden apartment property with 144 units in Pleasanton, California, was structured with a 10-year term of interest-only payments with a fixed-rate just under 3 percent.

"NorthMarq’s in-house Fannie Mae team always exceeds expectations but this time around was extraordinary as the deal was signed pre-COVID-19 yet closing marched ahead. Deals will not be easy going forward but the agencies are definitely open for business," said Slaton, senior vice president – debt and equity. "Aside from a couple new reserve requirements, it was business as usual and we locked at 2.89 percent on a 10-year loan."

Freddie Mac case study: Floating rate financing for two properties in DFW
Jeff Erxleben, Lauren Bresky, and Kevin Leamy from the Dallas office arranged a total of $41 million dollars of floating-rate financing from Freddie Mac for two multifamily properties in the Dallas-Ft. Worth area.
The floating refinancing transactions for the assets were structured with a 10-year term, 5 years of interest-only payments with an initial pay rate just over 3 percent.

"Through our Optigo lending platform, Freddie Mac issued strong refinance terms during a high level of uncertainty due to COVID-19. During the closing process, we were able to secure increased proceeds and a decrease to the spread during the 45-day closing period for both transactions. The collaboration between NorthMarq and Freddie Mac allowed this to close in an expedited manner for the client during these uncertain times," said Lauren Bresky, senior vice president – debt and equity.

Contact your local debt and equity expert to evaluate your current financing structure.