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NorthMarq News: Mid-Year National Multifamily Report, Capital Corner and August Economic Commentary

Capital Corner: Rates remain low, offering pricing benefits from all lenders
As the capital markets try to settle into a rhythm or some understanding of our ever new “normal,” many lenders are becoming more creative in securing new business. Borrowers are reaping the benefits with better pricing, longer-term options, and new opportunities from lenders.

Key points as summer 2020 comes to a close:

  • Rates are low
  • Terms are attractive
  • While borrowers are trying to decide if rates will ever get lower or if they will go up in the near future, there is some risk associated with waiting too long. We see some uncertainty from declining collections, delayed school openings, and the upcoming election.

Read the full story.

Mid-Year 2020 National Multifamily Report
The first half of 2020 has proven to be one of the most volatile periods in recent memory. During the first two months of the year, the economy and the multifamily markets were performing quite well. Beginning in March, extreme levels of market disruption arrived suddenly and unexpectedly in the form of COVID-19, altering both the current landscape and the short-term outlook. Read the full story.

August Economic Commentary: Momentum Slows as CARES Act Supports Expire
The fiscal response to the recession is running out of steam just as the rising virus case count has started to slow the pace of the recovery. The improvement in economic activity during May and June was largely the result of the unprecedented support provided to consumers and businesses through the CARES Act that was passed at the outset of the pandemic crisis in late March. The inability now for Congress to agree on the appropriate extension of benefits is creating uncertainty and will likely exacerbate the slowing economic momentum that became apparent in late July. The importance of continued fiscal support should be evident from the economic data discussed below. Read the full story.

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Takeaways from the 2018 Commercial Real Estate Finance (CREF) Conference

All lenders, including life insurance companies have large 2018 commercial loan production budgets and will be aggressively lending this year. Lower leverage deals-50-65 percent LTV loans-command lower spreads: as low as 105-120 bps above  Treasury yields. Before the CREF conference spreads had not declined with the treasury rise yet after the conference- with evidence of enhanced competition for fewer available deals- spreads are expected to drop, perhaps as much as 10 to 15 basis points.

INTEREST RATES – SWAPS AND FORWARD COMMITMENTS:
The 10-year Treasury yield has increased more than 70 bps since September 2017. Where is it headed? We do not know, yet most predict it will continue to move higher. It is advisable to consider locking floating-rate deals now, and if loans are not expiring consider locking rates on a forward basis, six, nine or twelve months forward. Forward loans can be used for loans expiring in 2018 and 2019 or perhaps properties currently in lease-up. Borrowers who have entered into LIBOR interest rate swaps should consider whether it makes sense to review these to determine if they are “in the money,” paying off at a discount. While these interest rates may be lower than  current fixed rates, there is an opportunity to lock the interest rate now in the 4.0-4.5 percent range, fixed for 10-25 years versus taking the risk that long-term, fixed rates will be higher when the swap period expires.

Read the full overview of takeaways from this year’s conference.

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Randall Waddell in Southeast Real Estate Business: Louisville’s Multifamily Proves its Better to Arrive Late Than Never

Sometimes there are benefits to being late to the party. Louisville, having lagged behind larger surrounding cities in multifamily development post-recession, is now experiencing a boom in apartment construction, much of which is being supplied by out of-state developers. For similar reasons, including Louisville’s sustained economic growth fueled by continued strength as an international distribution center alongside a stable manufacturing base, national investor demand for Louisville multifamily properties has intensified.

Traditionally known for the Kentucky Derby and the bourbon industry, Louisville is now raising eyebrows with a growing population, robust job growth and balanced multifamily supply and demand.

Big Business, Jobs

At the heart of this burgeoning story is UPS Worldport, the primary global air hub for the world’s largest package delivery company. UPS, the largest private employer in Kentucky, continues to expand its presence in Louisville, having recently announced a $310 million expansion of its Centennial hub sorting facility.

Ford Motor also recently announced that it is investing $900 million in its Kentucky Truck Plant, in addition to the $1.3 billion and 2,000 jobs created at that plant in late 2015 to build Ford Super Duty trucks. Additionally, Qingdao Haier Co., having acquired Louisville-based GE Appliances in June 2016, announced late last year that it is moving its U.S. headquarters to Louisville from Wayne, N.J.

Uncertainty surrounding the future influence of Humana in its hometown was somewhat put to rest earlier this year when a federal judge blocked the megamerger of Humana and Connecticut-based Aetna. Humana, the largest office tenant in the metropolitan area, was also the beneficiary of a $1 billion breakup fee to ease the pain.

With the completion last December of the Ohio River Bridges Project, one of the largest transportation improvement projects in the nation, improved access between Southern Indiana and Louisville will mean increased economic productivity and development opportunities.

These announcements, in combination with a low cost of living and access to a large pool of college graduates, have influenced many professional service companies to grow their Louisville presence. Louisville has added more than 15,000 jobs each year since 2013, outpacing the national index for job growth.

Late Bloomer

Multifamily development activity in Louisville, until recently, was nearly nonexistent since the beginning of the Great Recession in 2008. Today, however, the amount of inventory under construction is at its highest level since the downturn, with more than 2,600 units underway in more than 15 active developments. Much of this activity is the result of out-of-state developers seeking more favorable market dynamics than their own backyards in Indianapolis, Cincinnati and Nashville in particular. Those markets rebounded more quickly than Louisville; however it’s now Louisville’s turn to be in the spotlight.

Indianapolis-based Cityscape Residential is one such firm. Its first Louisville property, Apex on Preston, delivered 312 units to a workforce environment in South Jefferson County in May 2015. The project stabilized by the end of that year, averaging over 30 units per month with rents not previously achieved in that submarket.

Its second Louisville development, Axis on Lexington, is a 356-unit complex immediately east of downtown Louisville. Both absorption and achieved rental rates, which are running 10 percent higher than pro-forma, lead Kelli Lawrence, principal and Louisville market leader with Cityscape to conclude that “there is a lot of runway left in this market.”

This is particularly true when compared to other regional markets, echoes Charles Carlisle, CEO of Bristol Development Group. Bristol, a Nashville-based multifamily developer, having successfully developed Veranda at Norton Commons in Prospect, is currently under construction with its first urban Louisville project, Main and Clay.

The 263-unit project will be one of the first downtown developments to come on line with multiple competing projects either underway or announced. While an acknowledged shortage of urban core units currently exists, perhaps the biggest uncertainty in the Louisville multifamily environment is the depth of demand for what will inevitably be record-setting asking rents necessitated by higher land costs, along with continuing construction cost escalations.

One aspect of the market not in question is investor demand for Louisville apartments. Leading broker Craig Collins of Cushman & Wakefield | Commercial Kentucky reports that on his last two assignments, over 20 letters of intent were submitted from investors from California to New York. Multifamily investors seeking to trade out of more expensive markets to capture potentially higher yields along with geographic diversification are expected to continue to aggressively bid for Louisville product.

Fundamentals remain strong with increases in asking rent in each of the metro area’s submarkets reported over the last 12 months. Cycle high unit completions in the fourth quarter of 2017 are expected to increase the Louisville vacancy rate to 5.2 percent, up nominally from a very respectable 4.7 percent today, according to Reis. Late in the cycle? Maybe for other markets, but for Louisville, fashionably late works just fine.

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NorthMarq Capital opens new office in Louisville, Kentucky

LOUISVILLE (May 4, 2015) – NorthMarq Capital today announced the opening of a new commercial and multi-family loan production office in Louisville, Kentucky, with Randy Waddell as senior vice president. Waddell will work closely with NorthMarq’s Cincinnati office, which was recently acquired from Quest Commercial Capital.

Waddell’s primary focus will be to source, structure and originate debt for owners of commercial and multi-family assets. He brings to NorthMarq over 30 years of commercial real estate finance experience including lending roles in banking in Atlanta and as a life company lender in Louisville with Providian Corporation and its successor, AEGON USA Realty Advisors.

“Randy brings a tremendous amount of experience to NorthMarq Capital and has developed a stellar reputation for success in our business over the years”, said Susan Branscome, senior vice president/managing director of NorthMarq’s Cincinnati office. “We believe NorthMarq’s wide range of capital sources in combination with Randy’s knowledge of the Louisville and Kentucky market area will provide a strong partnership to lenders and borrowers who will benefit from our long-term focus and flexible approach.”

Waddell opened the Grandbridge Capital mortgage banking office in Kentucky in 2005 and most recently operated his own firm, providing mortgage banking and consulting services to commercial investors. He earned his undergraduate degree from the University of Kentucky and his MBA in Finance from Indiana University.

About NorthMarq Capital
NorthMarq Capital, the largest privately held commercial real estate financial intermediary in the U.S., provides debt, equity and commercial loan servicing through its 36 offices across the U.S. The company has built long-term relationships with life companies, CMBS platforms and local, regional and national banks and has a long track record of multi-family loan origination through Freddie Mac Program Plus™, the Fannie Mae DUS program and through FHA, resulting in more than $13 billion in annual production volume and a loan portfolio of more than $45 billion. For more information please visit northmarqcap.wpengine.com.

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