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DENVER, COLORADO (February 22, 2023) — Northmarq’s Colorado office has announced the addition of Lindsey Fahey, vice president. Fahey brings more than 15 years of experience in land and development transactions for a variety of asset types. In her new role, Fahey is responsible for sourcing, valuation, marketing strategy development, and sales execution of land development sites in the Colorado region. She will work closely with the Northmarq multifamily investment sales and debt/equity teams in the Denver market to provide clients with capital market solutions through the development life cycle.
“I am extremely excited to begin the next chapter of my career with Northmarq at this pivotal time in the real estate market. I was attracted to the strength of the existing capital markets platform at Northmarq and their Denver office and look forward to bringing my expertise as a land broker to the team for existing and future clients,” said Fahey.
Prior to joining Northmarq, Fahey served as vice president of acquisitions at Cypress Equity Investments in Denver where she was responsible for sourcing and analyzing new multifamily development opportunities and existing multifamily asset acquisitions throughout Colorado. Fahey also spent 11 years with JLL on the Capital Markets land brokerage team in both the Colorado and Chicago markets.
“The market is clearly shifting, which for Northmarq has traditionally presented excellent opportunities to expand market share and reach,” said David Martin, managing director. “We are especially excited to have Lindsey join the Northmarq Denver Investment Sales team as our clients will substantively benefit from her expertise in multifamily land development.”
Fahey holds an MBA in real estate finance from DePaul University and a BA in urban and regional planning from the University of Illinois. She is a licensed real estate broker in the state of Colorado. Fahey has also been awarded the 2019 NAIOP Investment Sale of the Year in Chicago for the sale of the McDonald’s Global and Regional headquarter properties for redevelopment in Oak Brook, Illinois.
DENVER, COLORADO (February 17, 2023) – Dave Martin, managing director of Northmarq’s Denver investment sales team, recently spoke with Mile High CRE about operating conditions in the Denver multifamily market softening during the fourth quarter. This occurred as asking rents declined and the vacancy rate approached a two-year high, according to Northmarq’s recently released Denver Q4 Market Report. The Denver market’s first quarter of negative net absorption in more than a decade was the catalyst for these cooling conditions.
“Until the end of 2022, the Denver market had been performing at an elevated level, with developers active, but unable to keep up with new renter household formation. So, the market is beginning this year from a healthy position,” said Martin. “Looking ahead through the remainder of 2023, I think we’ll see a bit more equilibrium of supply-demand overall, with a few submarkets where developers are likely going to deliver more units than there is new demand for in the near term. From an investment standpoint, the built-in long-term demand drivers that attract investors to Denver remain in place.”
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DENVER, COLORADO (January 23, 2023) – Jeff DeHarty, senior vice president of Northmarq’s Denver debt/equity team, was recently interviewed by Wealth Management Magazine for a story titled “Equity investors pull back on the industrial sector as return expectations dim.” The story highlights how the sector continues to be viewed favorably in the marketplace, despite lower potential returns which have lead to a reassessment by debt and equity providers.
As construction costs continued to increase across markets, structuring the capital stack with mezzanine or preferred equity for development projects had become more common for development, noted DeHarty.
If their lending vehicle permits it, some institutional investors are now providing mezzanine financing, as it is a comparably more attractive investment alternative to equity financing because it produces a higher yield of 11 to 14 percent at a lower risk.
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DENVER, COLORADO (October 16, 2022) – ConnectCRE recently recognized Amy Ward, director of business intelligence & IT in Northmarq’s Denver office, as a recipient of its Women in Real Estate award. Ward was spotlighted for her work leading Stan Johnson Company (recently acquired by Northmarq) information technology solutions efforts aimed at providing proprietary data and intelligence to clients. Her initiatives helps clients make effective decisions, maximize value and efficiently execute their transactions. Ward was selected from hundreds of submissions for her leadership role and active involvement as a mentor and trainer.
Ward is known for her ability to drive into a project head-on, managing the people, budget, and deadlines associated with that project, and delivering outstanding results while proactively avoiding risk and pitfalls along the way.
This year marked the sixth year ConnectCRE honored women whose talent, drive, leadership and fresh ideas helped them succeed and become influential in commercial real estate. Read the full recognition.
MINNEAPOLIS (October 3, 2022) — Jeffrey Weidell, Northmarq’s chief executive officer, announced today that Dan Trebil and Dave Link have been promoted to executive vice president/regional managing director of the company’s debt & equity business.
Trebil and Link have been managing directors of the Minneapolis and Denver debt & equity teams respectively since 2014.
“Not only are Dan and Dave top producers, but they have also demonstrated the ability to lead in the direction we want to go, including recruiting and developing young talent, expanding our agency and related serviced businesses, and integrating with our investment sales platform,” said Weidell.
In their new roles, Trebil and Link join the debt & equity leadership team and will increase their focus on lender relations, capital platform expansion, and broader Northmarq initiatives. They will continue to produce in their respective markets as well.
Trebil joined Northmarq in July 2002 and was promoted to managing director in 2014. Prior to joining Northmarq, he worked in investment sales at Fuller and Company, a Denver-based commercial real estate brokerage. He also spent several years playing professional hockey for Anaheim, Pittsburgh and St. Louis in the NHL.
Link joined Northmarq in 2003 and has been the managing director of the Northmarq Denver office since 2014. He has been involved in mortgage banking since 1997 with a stop on the equity side of the real estate business working with an affiliate of Black Creek Capital.
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Denver is one of the busiest multifamily markets nationally, boasting recording-setting performance in rent growth, absorption, and transaction volume.
“I never thought I’d see $10 billion in annual sales in the multifamily space in Metro Denver,” says Dave Martin, Northmarq’s Managing Director of Investment Sales. “I remember when the market hit about $1 billion dollars in sales in 2007, and people were doing high fives. But to now come out of the pandemic with $10 billion in sales puts us seventh or eighth in the nation in total volume, which is pretty amazing.”
That includes a record, single-asset trade — The Pullman in Denver’s Union Station neighborhood — that sold for more $1 million a unit. It’s a huge boon and one that’s expected to bring even more investors to the Mile-High City.
“That’s a staggering number, and something you might see in San Francisco or Manhattan,” notes Dave Link, Northmarq’s Managing Director of Debt and Equity.
What’s driving low cap rates?
At year-end 2021, cap rates in Denver averaged 3.5 percent, reflecting hungry investors and intensifying competition.
“We have a huge wave of buyers fueling all-time low cap rates, largely driven by low treasuries and low-interest rates,” Link explains. “What we’ve seen the past couple weeks is a quick rise in both treasuries and spreads, which might mean a 30- or 35-basis point increase in borrowing rates compared to mid-January. We’ll see what effect that has on the market.”
Many drivers ‘went right’ for an unprecedented year
Job growth. Denver added roughly 95,000 jobs in 2021, including many high-paying positions. The local labor market is expected to surpass the pre-COVID peak in the next several months.
In-migration trends. “Denver benefited tremendously from the exodus from major gateway markets during the pandemic,” notes Martin. “People came to Denver as a lifestyle choice. Work from anywhere took root here.”
Rising home prices. The median price of a single-family home in Denver is $600,000. Potential homebuyers may not have the required down payment and become renters by necessity.
Demand is outpacing supply.
In this episode, Dave Martin, Managing Director of Investment Sales, and Dave Link, Managing Director of Debt and Equity discuss the factors driving Denver’s record-setting multifamily market.
Overbuilding concerns?
Recent headlines warned of the explosion of new apartment supply coming online. “However, you really need to peel back the onion,” Link explains. Denver typically absorbs approximately 14,000 units a year, while 25,000 to 35,000 units are in the “pipeline” or under construction at any given time.
“If you peel things back, you find this all-encompassing number includes developers going in for zoning changes or concept review applications, etc.,” says Link. “Only one-third to a half of these units will come to fruition.”
Additionally, labor constraints, construction delays, and materials/supplies challenges are pushing deals further out. Historically, around 11,000 new units are delivered annually in Denver.
Urban vs. suburban?
When COVID-19 hit, an urban exodus occurred nationally including Denver. “We saw a pronounced shift from the central urban core to the suburbs in 2020,” says Martin. “The big question became when are we going to see the central urban core rebound? It didn’t happen in 2021. Will it happen in 2022? I think it’s a 50/50 proposition. We need new crops of graduates coming into the job market who want that urban lifestyle.”
Martin notes it’s becoming relatively less expensive to live downtown where rents plateaued. Meanwhile, suburban rents exploded. The 17 percent rent growth recorded in Denver in 2021 was virtually all in the suburbs.
Outlook
Multifamily fundamentals are expected to remain strong. Rent growth of 6 or 7 percent is likely, which is still double the average. Additionally, robust in-migration and job growth should continue.
“There’s an abundant amount of capital earmarked for multifamily acquisitions,” Martin goes to say. “There’s not enough supply to satisfy demand.”
In terms of financing, transaction activity was incredibly high in the floating-rate bridge space in 2021.
“We’ll see what effect interest rates have in 2022,” Link points out. “For now, there’s plenty of capital, and people love Denver. They love this story.”
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DENVER, COLORADO (June 21, 2021) – NorthMarq’s expansion of its Investment Sales platform continues with the addition of two multifamily professionals, Rich Ritter and Alex Possick, to the Denver office. They join Managing Director Dave Martin and Vice President Brian Mooney and will focus on middle-market investment sales. NorthMarq’s investment sales platform began in 2018 in Phoenix, and now operates in conjunction with NorthMarq’s Debt and Equity professionals in 18 offices.
“The addition of Rich and Alex will help us expand our partnership with middle-market multifamily investors, complementing the work that Brian and I offer to institutional investors,” said Martin. “Their experience in financial analysis and multifamily marketing will be a great benefit to clients and our debt and equity professionals,” said Martin.
Ritter specializes in the marketing and sale execution of multifamily communities up to $40 million throughout Colorado and surrounding Mountain states. Prior to joining NorthMarq, he was with ARA Newmark’s Denver team, where he quickly came to be a key resource for a wide array of private and institutional investors. His involvement in over $4.5 billion of Colorado multifamily asset sales allows him to deliver a highly comprehensive, consultative transaction process. Prior to relocating to Denver in 2019, Mr. Ritter obtained his Bachelor of Science in Finance & Business Analytics at Indiana University’s Kelley School of Business.
Possick represents private, high net-worth and institutional investors in the disposition of multifamily investment properties up to approximately $40 million across the Inter-Mountain Western United States, with particular focus in the state of Colorado. Prior to joining NorthMarq, Alex was a member of CBRE’s Multifamily Capital Markets team where he played an integral role in the disposition of over 15,000 units and in excess of $2 billion in asset sales. Alex is completing his Master’s Degree in Real Estate from Georgetown University and received his Bachelor’s of Science in Real Estate from the Kelley School of Business at Indiana University.
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Jeff DeHarty authors article featured in July/August issue of Colorado Real Estate Journal.
The disruption within the capital markets during the COVID-19 pandemic has provided significant uncertainty for borrowers looking to capitalize commercial real estate projects. However, recent trends reflect a return of capital and transaction volume for the remainder of 2020. Understanding which capital market participants are actively transacting, how debt structures are impacted and whether distressed opportunities will surface are important factors to consider as we navigate an uncertain economic recovery.
Prior to looking forward though, it is important to reflect on the unprecedented but necessary actions that the Federal Reserve has taken in an effort to keep liquidity in the capital markets. Through a variety of tools and facilities, the Federal Reserve has pumped over $2.6 trillion into the markets. In conjunction with Congress’ approval of the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act, our central bank balance sheet has ballooned by $4.8 trillion since the start of the pandemic.
While the intent of these extraordinary measures has been to support our economy and encourage lending, the profiles of lenders who are actively transacting vary widely. Many banks found themselves resource constrained with administering and deploying Paycheck Protection Program funds across thousands of applicants. Due to this, some banks temporarily pulled back from commercial real estate lending. Banks that remain active are more aggressive for existing clients or those new clients who are willing to bring along a greater depository relationship. In our current environment, banks simply are not interested in transacting just to transact. Loan committees are requiring greater levels of recourse throughout and are pulling back 5 to 10% on leverage, especially for construction financing.
While some life insurance companies remained active during the early stages of the pandemic, many chief investment officers chose to reallocate investment dollars from commercial real estate mortgages and into corporate bonds as corporate bonds spreads widened considerably for a period of time. (See graph for context.) As the capital markets have settled, we are encouraged to see many life insurance companies return. Not by accident, the historically conservative underwriting approach of life insurance companies has created a margin of safety within their commercial real estate loan portfolios. These healthy balance sheets allow life insurance companies the capabilities to remain active and even situationally aggressive under stressed economic conditions. Recently reduced floor rates tend to be in the 2.85 to 3.25% range. With a flat yield curve, longer-term debt still is very attractive. Multifamily and industrial assets remain the preferred assets classes, with maximum leverage generally topping out at around 65% loan to value. Expect life insurance companies to be a pricing leader, not a leverage leader.
As the pandemic began to take hold and bonds spreads widened across all capital market products, the Federal Reserve stepped in and pledged to continually purchase agency mortgage-backed bonds. This move solidified the backstop for Fannie Mae, Freddie Mac and Federal Housing Administration-backed bonds and underscores the nature and extent of capital availability for the multifamily sector. As such, multifamily financings continued throughout the height of early pandemic uncertainty. Reserve requirements for debt service shortfalls are loosening, but these structures likely will remain for higher leverage loans for the remainder of the year. Agency spreads have continued to tighten and even if you bump against an index floor, all-in fixed rate coupons still are in the 2.75 to 3.25% range for 10-year loans. Borrowers looking for sub-2.5% coupons and greater prepayment flexibility have found floating rate debt attractive. Maximum leverage loans offered via Federal Housing Administration/Housing and Urban Development executions have led to a surge in pipeline volumes for 221d4 construction/perm loans and 223f refinance loans. These loan volume increases also can be partially attributed to banks pulling back on construction financing leverage and recent changes of the stabilized seasoning requirements for 223f refinances. Historically, when credit tightens, FHA/HUD loan executions become more appealing for developers and investors.
The impact of constricted capital flow was likely felt most abruptly by commercial mortgage-backed security lenders and debt funds. These lenders primarily rely on an ability to recycle capital via securitized loan executions. Without assurances from a “B” piece bond investor at acceptable bid-ask levels, new issuance CMBS effectively froze for 45 days. That said, recent encouraging trends for CMBS lenders and debt funds have surfaced in the form of successful securitizations of new issuance CMBS and CRE collateralized loan obligation bonds. This has allowed these lenders to quote and close new loans across the widest array of asset types. CMBS spreads currently range from 300 to 350 basis points, over the corresponding Swap index. Many debt funds leverage returns by funding bridge loans from a warehouse line of credit prior to packaging as CRE CLO bonds. Warehouse facilities are governed by various covenants requiring liquidity and leverage ratios to be maintained. If these covenants are breached, cash margin calls and repurchase agreements are forced upon the debt funds in order to maintain compliance. Few debt funds are unleveraged, but those that can lend from their balance sheet are still pricing spreads about 100 to 175 basis points wide from precoronavirus levels.
Understanding how various lenders are structuring debt is important for developers and investors as they strategically look at their own business models and consider how to take advantage of distressed opportunities. Just as capital availability varies by asset type, the pandemic effects on commercial real estate depends on asset type. With most lenders temporarily pulling back on hotel and retail loan originations, it is vital that a healthy CMBS and CRE CLO market function, providing capital to these assets through transition and stabilization. The disproportionately negative effect on hotel and retail assets already is surfacing in the form of delinquent volume. According to Trepp, 21% of hotel CMBS loans and 15% of retail CMBS loans are 30-plus days delinquent. Collectively, this amounts to over $40 billion in unpaid principal balance exposure. As delinquent loans are transferred to special servicing and regulators remain lax in risk-based capital enforcement, expect a timing lag before seeing significant note sale volume.
We are in a recession and hopefully a “V” recovery is possible. Stay cautiously optimistic as the pandemic has driven the economy into a recession, not the lack of sound underwriting of commercial real estate assets. Whatever your outlook, expect the cost of capital to remain low for the foreseeable future. Treasury yields for three-, five- and seven-year notes each hit record lows and Fed Chairman Jerome Powell stated at the June FOMC meeting, “We’re not even thinking about thinking about raising rates.” At least we have clarity on interest rates.
Denver Managing Director – Investment Sales, Dave Martin, hosted a virtual meeting for Bronze Members of the ULI’s Multifamily Council on Wednesday, May 13. More than 46 members were in attendance for the “Round Table” style programming with active participation.
The agenda for the meeting included:
– Session 1: Session leaders Steven Shores and Clyde Holland provided some brief remarks concerning the pandemic’s macro-economic/political impacts and forecasts, employment, 2020 election, etc…Followed by Q&A.
– Session 2: Session leaders Laurie Baker and Andy Trotter provided opening remarks concerning operations (May collections, virtual leasing, etc.)…Followed by Q&A.
– Session 3: Session leaders Greg Engler and Dave Martin presented commentary as to the multifamily capital markets (debt, equity, acquisitions, developments)…Followed by Q&A.
DENVER, COLORADO (May 7, 2020) – NorthMarq’s Denver office added another investment sales professional to its team with the hiring of 12-year industry veteran Brian Mooney as vice president. He will support the expansion of the office’s multifamily platform. Mooney will work under the direction of Dave Martin, managing director of investment sales, who along with fellow managing director, David Link, oversees the integration of the office’s debt/equity and investment sales platforms.
“Brian’s joining NorthMarq is an important step in building out our multifamily investment sales team in Denver,” said Martin. “Brian has a well-earned respect for his thorough knowledge and understanding of the multifamily markets in Colorado. He will be an integral part of our success going forward.”
Prior to NorthMarq, Mooney served as Director at JLL Capital Markets and Senior Associate at Moran & Company where he assisted in the sales and recapitalizations of more than $2.5 billion of multifamily assets since 2016. Before this, he was a senior commercial real estate appraiser with seven years of experience specializing in valuation services of investment-grade commercial and multifamily assets throughout Colorado.
“Having worked closely over the years with several members of the NorthMarq Denver team, I am proud to be joining this group of respected professionals and be part of such an exciting and dynamic investment sales platform,” said Mooney. “Working in close collaboration with our debt and equity advisors, I am looking forward to fostering lasting relationships with our clients providing them with tailored capital markets solutions to meet their individual needs.”
Mooney earned a Master of Property and Development with honors from the University of New South Wales in Sydney, Australia while working as an analyst at a Sydney-based development and asset management consulting firm. He is a graduate of the University of Colorado at Boulder and is an active member of ULI.
Continuing its expansion of the multifamily investment sales platform, NorthMarq has hired former high-ranking JLL broker David Martin. He started this month in Denver as a managing director, responsible for building an investment-sales team. He will collaborate with David Link, managing director of debt and equity, to arrange financing for trades.
The Denver office includes eight other capital-markets professionals. Martin spent 15 years at JLL, and in January 2019 was elevated to co-head of the firm’s roughly 15 apartment-brokerage offices. A managing director, he oversaw the West Region, with duties including managing relationships with institutional investors that own large national portfolios. His co-head was Christine Espenshade in Washington, who was responsible for the East Region. Both are among the staffers who have departed JLL since its midyear 2019 acquisition of HFF.
Martin is NorthMarq’s 10th hire this year for the investment-sales platform it’s building alongside its commercial real estate financing business. The firm now employs 50 brokers and transaction staffers in 11 offices, stretching across the U.S. from Florida to Southern California. By year-end 2019, its transaction volume had reached $2 billion.
Jeffrey Weidell, NorthMarq’s chief executive officer, said the company plans to expand the investment-sales operation to 20 offices in the next couple of years.
“We want to cover the nation,” Weidell said. “We have gone coast-to-coast across the southern states and we are now migrating north with Denver, and that is still our plan. Whether it slows in 2020, I don’t think anyone really knows for sure, but it’s our goal to continue and add offices when we find the right people.”
Reprinted with permission from Real Estate Alert.
MINNEAPOLIS, MINNESOTA (April 22, 2020) — NorthMarq continues its coast-to-coast expansion of multifamily investment sales with the addition of David Martin as managing director-Investment Sales in Denver. He will be responsible for building the team and collaborating with David Link, managing director of debt and equity, to structure financing for clients.
Martin comes to NorthMarq after 15 years of practicing multifamily investment sales in Denver, most recently with JLL and prior to that with Moran and Company, where he executed the sales and recapitalizations of more than $6 billion of multifamily assets. His real estate career includes experience in multifamily acquisitions for Lincoln Properties, structuring financings at Nomura Asset Capital, and real estate lending for Met Life. He will report to Trevor Koskovich, president-Investment Sales.
Jeffrey Weidell, chief executive officer, NorthMarq, said, “We could not have found a better complement than David for our vibrant Denver debt and equity office. Where we’ve added investment sales, our clients are finding significant benefit from the strong teamwork that leads to better advice regarding their multifamily investments.”
Koskovich, who is leading the platform’s growth, is focused on recruiting professionals who are interested in leveraging the company’s entrepreneurial culture and debt and equity expertise. “Investment sales experts are finding that our platform’s support of both the business and the professional is increasingly important. David’s addition makes NorthMarq the industry’s fastest growing Investment Sales platform in the industry, now with offices from Tampa to Los Angeles,” he said.
Most recently in 2019, David completed several high-profile multifamily sale transactions in metro Denver including the 1000 South Broadway asset for $90.5 million, and the Legacy Promenade asset for $93.5 million.
The Denver office, located at 1625 Larimer St., Suite 800, also includes eight other debt and equity professionals. In business since 1960, NorthMarq has grown to nearly 600 employees through more than 20 acquisitions, a $61 billion loan servicing portfolio and access to hundreds of capital sources.
As our industry settles into a fresh decade, a clear theme has emerged from the capital markets: The supply of capital available for commercial real estate just keeps increasing. This strong appetitive for real estate investment is due to a confluence of factors. The commercial real estate market continues to display strong performance (with extraordinarily low loan delinquencies). At the same time, global yields from alternate investments such as government, corporate and high-yield bonds have continued to face downward pressure. Even in our low cap rate environment, there is a yield premium available to institutions that invest in commercial real estate debt and equity compared to other asset classes.
Accordingly, the general message from institutional investors of all types is that they have more money, not less, to deploy in commercial real estate this year. This has resulted in an incredible amount of capital chasing too few real estate transactions. With a supply of capital that feels practically bottomless, the competitive landscape has intensified, and commercial real estate borrowers are the clear beneficiaries as lenders offer the best terms we have seen during the current (and long-lasting) cycle of economic expansion. The life insurance company lending market, which also is traditionally the most conservative source of capital, provides the best examples of how aggressive lenders have become in the first quarter of 2020.
10-year fixed life company rates dip below three percent
Life insurance companies are widely known for providing the most competitive interest rates available in the marketplace, traditionally because they seek relatively low-risk lending opportunities; however, the interest rates offered by life insurance companies during the first weeks of 2020 are notably low. Long-term (more than 10 years) fixed-rate life insurance capital has officially dipped below 3% for conservative lending opportunities (those with loan to value of 50% or less) on quality assets.
Increased prepayment flexibility
Historically, permanent lenders that offer long-term fixed interest rates often required rigid equations for calculating prepayment penalties, so borrowers have become accustomed to a tradeoff whereby in exchange for securing long-term interest rate certainty, prepayment flexibility is sacrificed. In an effort to win business in 2020, the life insurance company market is offering some of the most flexible prepayment options yet. For example, a few life insurance companies have extended the “open windows” whereby a loan can be paid off without penalty at the end of the loan term to 24 months (whereas six- to 12-month “open” periods previously were considered generous). Additionally, a few life insurance companies are offering completely “open” prepayment terms from Day One of their loan terms in exchange for a 1% origination fee at closing. Another example of increased prepayment flexibility is a life insurance company that is offering a fixed 1% prepayment penalty beginning in the second year of a 10-year loan term (or beginning in the fifth year of a 15-year loan term).
Higher leverage “stretch senior” loans
It is hard enough for lenders to win quality business in 2020, but it is even harder to win lending opportunities on highly coveted property types such as multifamily and industrial. Accordingly, one of the ways life insurance companies are becoming more aggressive is by offering “stretch senior” loan programs, whereby they will lend at significantly higher LTV ratios compared to their historic comfort levels. (The life insurance company market is notorious for seeking 65% LTV or less.) Because these higher-leverage loans still are nonrecourse despite their added risk, life companies want to make sure borrowers have significant “skin in the game,” so they tend to be most aggressive in quoting stretch senior loans for acquisitions (compared to refinances) where no 1031 exchange dollars are being used. This is because they find comfort in “fresh cash” being invested ahead of the life insurance company’s loan. Through these stretch senior programs, life insurance companies are able to lend up to 75% LTV for industrial assets and 80% LTV for multifamily properties.
Balance sheet alternatives to commercial mortgage-backed security
In an effort to deploy more capital, and at slightly higher yields, numerous life insurance companies are investing money in discretionary funds that make commercial real estate loans (separate from the normal loan origination generated through their own in-house personnel). These discretionary funds lend on higher-risk opportunities relative to typical life insurance company lending standards while providing diversification to the participating life companies (since investment funds are pooled and invested across multiple transactions). These discretionary funds are valuable to borrowers because they provide a balance sheet alternative for loan requests with higher-risk profiles that might normally require mortgage-backed security lenders and at interest rates similar to that of typical life company lending. These loans remain on the balance sheet of the discretionary fund lender and the lender retains all major servicing decisions.
Life companies target transitional assets
Life insurance companies have been making nonrecourse bridge loans for transitional assets for several years now in an effort to generate yield premiums; however, they are becoming increasingly competitive in a few notable ways. First, for transitional assets in core locations, life insurance companies have started competing in the debt fund space, lending at significantly higher leverage than previously comfortable, but without the high interest rates required by debt funds. The overall result to borrowers is the availability of debt fund type leverage at life insurance company type pricing. More specifically, in some cases, life insurance companies now are lending up to 75% loan to cost (and up to 80% loan to cost for highly desired property types in core locations) with credit spreads ranging in the 200s over one-month Libor.
Fixed-rate bridge lending is another way life insurance companies are differentiating themselves. Historically, most bridge loans come with floating interest rates (one-month Libor is the usual index), and while borrowers are permitted to buy Libor caps in the bond market to hedge their interest rate risk, the process can be complex. Further, the near-term transition from Libor to the secured overnight financing rate has created uncertainty and discomfort in the market. Borrowers who secure fixed-rate financing eliminate both interest rate risk and the risk surrounding the transition from Libor to SOFR, and some life insurance companies have the ability to offer this alternative.
Overall, borrowers appear poised to be the major beneficiaries of 2020’s present lending environment, but the market has felt even more fluid than usual during the first part of the year. The availability of capital is remarkable, competition among lenders is fierce, and lending options have never been so flexible. Accordingly, borrowers should make sure to discuss their business plans with their capital advisers thoroughly to ensure they select financing options that best enhance their strategies, both near and long term.
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DENVER, COLORADO (January 2, 2020) – Patrick O’Malley recently joined NorthMarq’s Denver-based regional office as vice president. In his new role, O’Malley will specialize in debt and equity placement for commercial real estate, arranging financing from a diverse group of capital sources including life insurance company correspondents, conduits (CMBS), Fannie Mae, Freddie Mac, HUD, debt funds, banks, credit unions, and other prominent sources.
Since entering the commercial real estate industry in 2008, O’Malley has underwritten and closed over $1 billion of multi-family, industrial, office, and retail debt and equity transactions nationwide. These transactions include permanent fixed rate debt, floating rate bridge debt, preferred equity/mezzanine debt, joint venture equity and construction loans.
Prior to joining NorthMarq, he began his career with Capmark Financial and later transitioned to Essex Financial Group in Denver, where he spent the past 10 years. O’Malley has held positions in loan servicing, underwriting and origination providing him a complete and thorough understanding of the entire loan production process.
“I’m proud that Patrick has joined me in our team’s transition to NorthMarq,” said Michael Salzman, senior vice president. “Patrick is a seasoned commercial real estate finance professional and is highly respected within our industry. I’m excited that Patrick will continue to offer the same superb service that clients have grown accustomed to, but now paired with NorthMarq’s Debt & Equity platform, which I believe is the most comprehensive, well-rounded, commercial real estate finance platform in the Colorado market. This move is a win-win for both Patrick and our clients.”
O’Malley received his B.A. In Business Administration with an emphasis in Investments from Northern Arizona University’s WA Franke College of Business.
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DENVER, COLORADO (November 18, 2019) – NorthMarq’s Denver office announced the addition of Michael Salzman to its production team.
In his new role as senior vice president, Salzman will specialize in in debt and equity placement for commercial real estate, offering financing from a diverse group of capital sources including life insurance company correspondents, Wall Street conduits, Fannie Mae, Freddie Mac, HUD, debt funds, banks, credit unions, and other prominent sources. Salzman will be joined by his analyst, Brad Schlafer, on the NorthMarq team.
“We are thrilled to have Michael join our team. He has a demonstrated track record and fully understands real estate finance. Whether meeting the demands of our Denver clientele or assisting with regional and nationwide financing, he will have an immediate positive impact on our office,” said David Link, managing director of NorthMarq’s Denver office.
The Denver office closes an average of 60 transactions and a volume of $750 million in debt & equity financing annually.
Salzman’s extensive capital markets experience includes personally arranging more than $850 million of capital placements for a wide variety of property types across the country, including ground-up multifamily construction, over the course of his career. Before joining NorthMarq, he spent seven years at Essex Financial Group in Denver. He also spent nearly five years as a financial advisor in the Denver area.
Salzman received his B.A. In Business Administration from the University of Colorado’s Leeds School of Business.
The state of office financing in the Denver market
Lease rates continue to go higher, the speculative office development increases and overall office vacancy continued to decrease in the first half of 2019. Record unemployment below the national average, along with steady job growth, has put metro Denver in the upper tier of targeted U.S. markets for investors, lenders and developers.
Political and economic factors have led to a rising interest rate environment over the past couple of years, but a trade war has led to a free-fall in Treasuries and other indexes, bringing the cost of borrowing significantly down. Interest rates have helped spur investment and transaction activity, aided by continued headquarters relocations and expansion of the technology sector.
While the massive rent growth we’d seen over the past seven years appeared to be stabilizing at the end of 2018, asking lease rates for office ticked up by 2.8% at the end of the second quarter. Rent concessions and tenant improvements had increased late last year, but positive absorption and decreased vacancy in the first half of the year have leveled them off.
Planning is paramount in developing strategic initiatives, increasing flexibility and reducing risk across all businesses and industries, including multifamily. As we pass the midyear milestone, reflecting on the multifamily market is a worthwhile endeavor for all developers, investors and lenders as they plan their next moves. With this in mind, our multifamily discussion will focus on key data trends, regulatory environment headwinds and capital market considerations as we officially enter the longest economic expansion in U.S. history.
It is no secret that as an asset class multifamily performance has outperformed expectations. In assessing current metro Denver data you might even get the sense that there is still room to run. For instance, according to the Cary Brueteig’s Apartment Insights Second Quarter 2019 Report, vacancy decreased by 80 basis points to 5.23 percent, positive absorption tallied 3,670 units, and rents rose 4 percent, surpassing $1,500 per unit ($1.75 per square foot).
All this while Denver continues staggering levels of multifamily development activity, evident by the full year 2019 projected delivery pace of over 16,000 units across more than 80 projects. Reviewing submarket activity, the Denver central business district has over 5,000 units currently under construction, roughly 120 percent more than the next most active submarket. However, development is truly widespread as 10 submarkets currently register over 1,000 units under construction.
Fears of oversupply are always valid, especially when metro Denver’s total pipeline of units under construction exceeds 27,500 units. With Federal Reserve Chairman Jerome Powell signaling dovish monetary policy moves, multifamily developers and investors are pushing forth. The expectations have been set that our low capital-cost environment will remain. Furthermore, the expectations are that the sheer volume of capital that exists today in the multifamily sector will remain, thereby softening any landing experienced by local imbalance of supply/demand. These expectations do have merits, but they also could be labeled as just assumptions, which sounds more slippery.
Beyond unknowns of capital availability and interest rates, our multifamily regulatory environment provides another layer of uncertainty. Agency reform of Fannie Mae and Freddie Mac, rent restrictions and capped-growth initiatives are all issues playing out in Washington, D.C., and throughout various local municipalities.
Mark Calabria, director of the Federal Housing Finance Agency, is expected to propose a structure to exit from conservatorship of the government sponsored enterprises of Fannie Mae and Freddie Mac. Recent reports indicate that the privatization proposal could come as early as September. Anytime you have market players that combine for $143 billion in multifamily origination volume, as Fannie Mae and Freddie Mac did last year, a potential disruption to this market liquidity will have consequences.
While agency reform is inevitable, actual implementation of a congressionally approved privatization proposal won’t happen overnight. Privatization allows taxpayer exposure to be reduced, but without the implicit guarantee of the federal government, bond investors will require a premium on spread to compensate for the additional perceived risk.
In a legal sense, the GSEs are quasi-private corporations chartered by Congress and with private shareholders. These private shareholders also have their own interests to protect, and would resist any sort of secondary public offering, which would dilute their share value. When balancing these inherent competing interests, you need to have a seat at the table. Thankfully, via the Mortgage Bankers Association, the real estate finance industry is able to maximize political strength and send a strong, collective and clear message on behalf of our industry to key policymakers.
Until the puzzle pieces of agency reform are known, confidence should remain in the multifamily capital markets as the cost of capital appears to be on the unbelievable path of getting cheaper. The 25 basis point Fed Funds rate cut and expected additional fund rate cuts prior to year end will continue to put downward pressure on short term rates. At the time of submission, the yield curve between the 10-year U.S. Treasury and the three-month Libor was already inverted, so long-term, fixed-rate debt is still very attractive, and quite frankly could become even more attractive as global economic weakness persists, pressuring the 10 UST yield down even further as a safe haven for bond investors.
How far can short term rates drop? Well, as shown the in the graph, the one-month Libor futures indicates massive downward pressure, with projections reflecting a nearly 90 basis point-drop in the one-month Libor from current range of 2.3 percent, all occurring within the next 19 months. Again, this is primarily due to global economic weakness. The awareness that “real estate is local, capital is global” has never been more evident than within our current environment, as we constantly need to weigh local multifamily trends independently of the capital markets indications. Each are measuring sticks, but the compasses are not tied.
As we reflect on midyear progress and plan for future achievements, we are fortunate that the metro Denver multifamily market has defied skeptics with continued performance strength. Don’t be surprised if this continues as capital costs for the foreseeable future are projected to sink further, extending our local rally. Beware though of the disruptive forces from upcoming regulatory changes and the interconnections and ramifications that a weakening global economy can have on our local cost of capital.
Highlights:
Highlights:
Greg Benjamin in our Denver office celebrates 25 years with the company this week. Thanks for being part of the team, Greg!
David Link, managing director of NorthMarq’s Denver regional office, contributed his insight to an article in Commercial Property Executive titled, “Could Lending Plateau in 2019?” With lenders charting record-breaking activity across property types and markets, the article notes that escalating asset prices, rising interest rates and regulatory shifts could force adjustments in 2019.
A bright spot in the forecast continues to be the multifamily market. Life companies in particular were bullish on apartments, making them the most active lender (behind the government agencies) as well as a prominent player in the multifamily bridge loan market.
“The bridge lending space is already (very) active and a pretty saturated group,” said Link. But what distinguishes life companies is that their strategy will continue to focus on “competing for higher-quality assets and pricing their money accordingly,” Link continued.
NorthMarq’s Denver-based regional office, led by senior vice president/managing director David Link, was ranked fifth in The Denver Business Journal’s list of top Denver-Area Commercial Mortgage Companies. The list was based upon dollar volume of Colorado commercial loans closed in 2017.
Nancy Ferrell, senior vice president/managing director of NorthMarq Capital’s Baltimore office and David Link, senior vice president/managing director of NorthMarq Capital’s Denver office, were recognized in the May edition of Real Estate Forum’s annual Rainmakers feature. This is the fourth consecutive year that a NorthMarq producer has been featured in the Rainmaker listing, with this year being the first in which two company leaders have been chosen.
See the Rainmaker Award for David and Nancy!
Collectively, the 30 finalists completed nearly 2,000 originations last year, accounting for more than $37 billion in debt and equity financing volume.
To earn the title of Rainmaker, each submission received a score for two fields—the total number of transactions and the total volume of all transactions. The final score was based on the sum of the two fields, with the dollar volume serving as the tiebreaker. All transaction were completed between January 1, 2017, and December 31, 2017, and Real Estate Forum verified the authenticity of the submitted deal information.
Much has been written about the strength of the Denver apartment market and the near historically low interest rates available for nonrecourse loans (loans without a personal guarantee) on larger apartment properties. Since banks, which generally require a personal guarantee, historically have dominated financing smaller apartment properties (those with approximately 100 units or less) less attention has been paid to available nonrecourse options.
Recently, very attractive nonrecourse options became available for smaller properties. Previously offered only on larger transactions, these options provide competitive rates and terms, such as the lack of personal guarantee, extended interest-only periods and leverage up to 80 percent of value. For owners looking to acquire or refinance smaller multifamily properties, there have never been more options. This article provides a brief description of the key characteristics of nonrecourse loans for smaller apartment properties. Continue reading…
MINNEAPOLIS (October 19, 2017) – Marki Shalloe, of NorthMarq Capital’s Atlanta office, and Brian Fisher, of NorthMarq Capital’s Denver office, have been named 2017 Analysts of the Year. The award was presented by NorthMarq CEO Eduardo Padilla at the company’s Analyst Conference in New Orleans held September 24-26. The award is presented to individuals who consistently provide timely, quality service that contributes to the long-term success of the company, display integrity and fairness, and are respected among coworkers and clients.
Brian Fisher was nominated for his incredible efforts over the last 12 months, during which he closed 24 transactions totaling over $562 million in debt/equity. The transactions were funded through numerous lending sources for NorthMarq, including Fannie Mae and Freddie Mac (including six through their Green programs), correspondent life companies, local banks, credit unions and private equity sources. Fisher is described by his team and managers as “being easy to get along with and understanding that clients need accurate work produced in a timely manner—all while developing a rapport with clients.”
Marki Shalloe received her nomination in recognition of her numerous personal attributes and contributions. Shalloe is an employee who deeply cares about the company and its success. She is the epitome of enthusiasm and is a consummate team player, doing whatever needs to be done—from small office tasks, to “burning the midnight oil” to get a loan package out. Without hesitation, Shalloe will volunteer for projects and initiatives, and she continuously offers ideas for improving processes. Shalloe is extremely respected by her associates in the office, as well as the company’s borrower clients and lenders. The producers she works with trust her implicitly to handle due diligence and the closing process, and clients trust her as they know she is representing their interests.
DENVER (October 9, 2017) – NorthMarq Capital, a leader in financing commercial real estate throughout the United States, announced today that Mandi Koelling has joined its Denver regional office in the role of investment analyst.
In her new role at NorthMarq, Koelling will work to fulfill clients’ commercial property needs by assisting in arranging debt and equity for multifamily, office, retail and other specialized product types. She is responsible for the underwriting, marketing and closing of commercial real estate loans. Koelling has been involved in the commercial real estate industry since 2010, where she began her career in property management at CBRE. Prior to her role at NorthMarq Capital, Koelling was a transaction manager for an investment brokerage team at Newmark Knight Frank, specializing in deal execution, financial analysis, market research and the marketing of over $760 million in commercial real estate transactions.
“We couldn’t be more excited to have Mandi join our team,” said David Link, senior vice president/managing director based in NorthMarq’s Denver office. “Having already established herself as a well-known industry professional, we look forward to Mandi hitting the ground running—all to the benefit of our company and clients.”
Koelling obtained a bachelor’s degree in Corporate Finance from Colorado State University and is a licensed Real Estate Broker in the State of Colorado. She is active in NAIOP Colorado and involved in several different committees within the chapter.
Doug Westfall, senior vice president of NorthMarq Capital’s Denver-based regional office, answered questions in Real Estate Forum’s recent Q&A titled: Affordable as an Investment. In the article, Westfall (and other experts) respond to such questions as “What makes affordable housing an attractive investment niche/asset class for investors?” and “Which markets are you targeting for affordable and workforce housing investment in 2017 and beyond?” Read the full story here.
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High Times in Colorado for Fannie Mae
Fannie Mae continues to view Colorado as positive. Growth trends in population and employment are fueling the appetite for product within Fannie Mae. Over the past two years I’ve heard lenders discuss overbuilding concerns in Denver. While some may consider Denver as having pockets of oversupply, Fannie Mae has no programmatic limitations for any part of the Denver metro area. The same can’t be said for areas in Las Vegas or cities largely driven by the energy sector. Outside of Colorado, Fannie Mae has concerns (as do other lenders) over their supply exposure in certain markets and is regularly taking the temperature of the economic drivers in the market.
DENVER (July 21, 2014) – David Link has been promoted to managing director in NorthMarq Capital’s Denver office. In his new position, Link will manage borrowing and lending relationships for the office and direct the execution of equity and debt solutions for commercial real estate transactions. His clients will benefit from over a decade of experience as a producer at NorthMarq, during which he has closed equity and debt transactions with a total capitalized value in excess of $1.5 billion.
Prior to joining NorthMarq in 2003, Link worked in in the Colorado real estate industry for several years specializing in equity and debt arrangement through a regional mortgage banking firm.
Link is a licensed real estate broker in Colorado and is active in numerous Colorado real estate organizations. He holds an undergraduate degree in accounting from the University of Wisconsin and obtained his graduate degree in real estate from the University of Denver.
“David has consistently demonstrated his leadership skills as a team builder over his career at NorthMarq,” said Stephen Bye, managing director of NorthMarq Capital’s Denver based regional office. “From a production prospective, he has arranged many complicated debt and equity transactions on traditional property types, as well as sector areas such as data centers and ski resorts.”
