Our San Diego office offers a complete range of debt and equity options for all types of commercial and multifamily real estate. We are active Fannie Mae, Freddie Mac and FHA/HUD lenders, in addition to being a correspondent for a wide array of insurance companies, and possess strong relationships with dozens of CMBS lenders, banks, debt funds and equity investors. We create innovative solutions involving all financing structures. We also offer investment sales services for multifamily and manufactured housing properties. Please call us at 858.675.7600 to learn more.
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Highlights:
Prime Group Holdings has closed its third flagship self-storage fund at a hard cap of $2.5 billion.
SAN DIEGO, CALIFORNIA (January 27, 2023) – The self-storage market is entering 2023 facing headwinds from flattening street rates, increased expenses, capital markets challenges, and the slowing economy.
“But operators remain optimistic about income growth coming from resilient demand and higher renewal rates while deliveries begin to subside,” Paul Fiorilla, Director of U.S. Research Yardi Matrix, tells GlobeSt.com.
That optimism is reflected in Prime Group Holdings’ recent announcement that it has closed its third flagship self-storage fund, Prime Storage Fund III at the fund’s hard cap of $2.5 billion, exceeding its $1.5 billion target.
Fund III, which closed in December 2022, is the largest fund ever raised focused exclusively on self-storage, the firm said.
Prime Group is one of the largest private owners of self-storage assets in North America. Since its inception, Prime Group has owned and operated over 320 self-storage facilities representing approximately 180,000 storage units and over 22 million rentable square feet.
Prime Group said in a release that it will aim to acquire self-storage assets in undersupplied markets across the US.
Slight Decrease in Asking Street Rates
Wyatt Campbell, Northmarq Vice President, tells GlobeSt.com that as with most real estate business lines, self-storage saw a bit of a slowdown both on the transactional and operational fronts coming out of Q4.
“The slowdown in transaction volume is mainly attributed to the dramatic swings endured in the lending market since the middle of last year,” Campbell said.
“Lenders have fresh allocations for the new year and strong appetites to finance self-storage facilities, so the outlook on that front this year is one of optimism.
“On the operational front, the majority of our clients have seen a slight decrease in asking street rates and a modest reduction in occupancy levels. They mainly attribute this to the housing market and overall market sentiment that storage is moving back to its traditional seasonality.”
Campbell said his clients remain confident the demand created over the past couple of years will continue.
“Self-storage, as an asset class continues to gain attention with more and more large institutional players either moving into the space or continuing to grow their presence in the space,” he said. “Traditionally seen as a fragmented market, we believe we will continue to see it become one of the main verticals in commercial real estate, especially in spring, traditionally a strong time for the sector.”
Current Rates are In Line with Expectations
At KeyBanc’s recent Self-Storage Investor Forum, panelists shared that they are pleased rates are in line with what was expected, Fiorilla said.
Furthermore, Fiorilla shared, “Business is good; the customers are there,” said a panelist at the New York Self-Storage Association’s 2023 Investment Forum, also held last week in New York.
“Operators at the two events generally forecast high single-digit increases in net operating income, with strong revenue growth tempered by unusually high increases in insurance, utilities, and labor costs.
“While solid, growth in 2023 will be a comedown from the unprecedented performance of the last two years when storage street rates and occupancy rates hit all-time highs and property values soared due to the robust fundamental performance and cheap cost of debt.”
No Longer Just for Death, Divorce, and Disaster
Nick Malagisi, SIOR and national director of self-storage for SVN Commercial Real Estate Advisors, tells GlobeSt.com that self-storage has proven time and again to be a resilient asset class unto its own.
“Self-storage users are no longer considered just for the three Ds of death, divorce, and disaster but now more mainstream as users come from all walks of life,” Malagisi said.
“It is no wonder that the asset class is drawing more institutional investors when it has out-performed almost every other asset class these last 15 years.
“The low-tech ‘mini warehouse’ of old is now the high-tech, sophisticated climate control self-storage facility aptly named an essential business during the recent pandemic where so many new users became acquainted with the product as working remotely meant finding a place at home and relocating a room of furniture into the nearby storage facility.”
Lenders Attracted to Self-Storage Segment
Tom Dao, principal with Gantry, tells GlobeSt.com that self-storage “checks a lot of boxes, and that bodes well for this asset type in the current market cycle.
“The commercial real estate investment market is still looking for relevant values that are consistent with sound real estate fundamentals and diversified cash flows, short-term leases offer opportunities to add value,” Dao said.
For Gantry, he said, nearly all its lenders are attracted to self-storage as an asset type.
“We continue to see great pricing on permanent and transitioning loans because of the market’s strong fundamentals and performance,” Dao said. “Life companies love self-storage, as do banks, credit unions, and Wall Street. However, the best rates are coming from insurance companies.”
The Number of Storage Users Increasing
The industry gained many new customers over the last two years that are expected to remain on board, Fiorilla said.
“During the pandemic, many people discovered self-storage,” another KeyBanc panelist said.
The pandemic-related growth in work-from-home created ongoing storage demand from individuals and businesses, while the length of existing customer stays is increasing. The bottom line is that the number of storage users is increasing, and many operators believe the boost to demand will be long-lived, according to Fiorilla.
Self-Storage Finding Added Tailwinds
Sher Hafeez, managing director of JLL’s M&A and Corporate Advisory team, tells GlobeSt.com that self-storage was one of the biggest beneficiaries coming out of COVID-19, as demand patterns for the sector shifted somewhat permanently to the sector’s benefit.
“We are seeing continued positive demand/supply dynamics benefiting self-storage owners and operators in 2023,” Hafeez said. “In fact, the recent slowdown in new supply driven by increased costs is an added tailwind and we expect that self-storage will be one of the best-performing sectors over the long term.”
Sector Sees Return to Normalcy
Cory Sylvester, principal at DXD Capital, tells GlobeSt.com that after several years of above-average growth, the self-storage sector is seeing a return to normalcy.
“While fundamentals are still solid, there has been an elevated number of renters that have been exiting their units in response to aggressive rental rate increases applied during the pandemic,” Sylvester said.
“At the moment, the new supply pipeline remains in check, as higher construction costs and limited financing options have curtailed the number of new facilities that developers are pursuing. In the acquisition market, higher interest rates have made it more difficult for the market to clear, as buyers and sellers are increasingly at odds which has decreased overall volume.”
Growth Will Come from Existing Tenant Rate Increases
Charles Byerly, CEO of Westport Properties, tells GlobeSt.com, “Self-storage revenues have peaked. As the housing market slowed in the second half of 2022, there was a direct correlation to a reduction in storage demand. With that, we are seeing asking rates coming down across the country.
“Fundamentals are still generally positive, and we expect a positive year-over-year revenue growth but receding significantly from what we have seen the past couple of years.
“Supply is still increasing in many markets across the country which will put additional pressure on asking rental rates this year and next year. We anticipate most of the growth coming from existing tenant rate increases as opposed to new street rate growth.”
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San Diego, California (September 12, 2022) — Northmarq’s San Diego investment sales team has added top producing expert Benn Vogelsang as senior vice president. Vogelsang brings more than 13 years of industry experience working with local private investors and national institutional groups alike. Vogelsang, will collaborate with Kyle Pinkalla, managing director – investment sales to provide multifamily investment advisory services in the San Diego and Southern California markets.
“Benn’s extensive transaction experience and knowledge of the market has earned him the trust and respect of clients in the ultra-competitive San Diego market,” said Trevor Koskovich – president – investment sales. “The addition of Benn to the San Diego investment sales team brings further depth to the acquisition and disposition advisory services we offer clients.”
Prior to Northmarq, Vogelsang built an extensive network of buyers and sellers and was consistently one of the region’s top producing multifamily brokers, successfully closing in excess of 300 transactions, nearing $1 billion in value.
MINNEAPOLIS, MINNESOTA (August 16, 2022) — Erik Anderson has been promoted to vice president – investment sales in Northmarq’s San Diego office. Anderson joined Northmarq in 2020 as an associate vice president – investment sales, where he has assisted the team in the pursuit and development of relationships with private and middle-market level clients in the multifamily space.
In his new role, Anderson will continue working with Kyle Pinkalla, managing director – investment sales, to provide a wholistic approach to assisting middle-market and institutional level clients. Anderson’s experience includes 1031 exchanges, asset valuations, and creating opportunities on and off-market while forming deep rooted relationships with his clients.
Since joining Northmarq, Anderson has created a name for himself within San Diego as an integral part of identifying and closing transactions for some of the largest and most active private clients and middle-market players in the space. Recently, he was selected as a winner of the ’40 Next Top Business Leaders Under Forty 2021’ by the San Diego Business Journal, an award given to the next generation of movers and shakers within all of San Diego.
“Northmarq’s rapidly expanding sales platform has allowed me to grow my business alongside a first-class company with a long-standing track record of delivering expertise in the debt & equity space,” Anderson said, “it is immensely helpful that most of my clients already know Northmarq; combining the sales and debt platforms has yielded great client outcomes.”
Prior to Northmarq, Anderson worked at CBRE. While there, he transitioned his career to focusing solely on multifamily from all product types. He was recognized as a Rising Leader and was the second highest producing associate region-wide and was promoted to senior associate within the first year of joining the company.
Recently, Anderson secured the following sales:
Erik is active in the San Diego community, having served on the Developing Leaders board for NAIOP San Diego, belonging to ULI and various charitable organizations. Erik received a bachelor’s degree in Regional Development from the University of Arizona.
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The high cost of living in Los Angeles and San Diego is driving renters and businesses toward Inland Empire’s apartment markets.
MINNEAPOLIS, MINNESOTA (June 16, 2022) – The Inland Empire multifamily market has thrived through the pandemic and is well positioned to continue its growth. Its affordability relative to its neighboring counties and its flourishing economic drivers, especially in the Iogistics and healthcare sectors, are driving unprecedented demand for apartments, which has pushed rents to new highs.
The Inland Empire recorded its strongest rent growth on record in 2021, and investors took note, pouring capital into the region. Despite economic headwinds relative to the Fed rate hikes and global turmoil, investors will cautiously remain on the hunt for opportunities. This especially holds true for hard-to-replicate real estate that garners yield. The capital to deploy remains plentiful, and investors will seek safer haven in higher barrier-to-entry markets, which Southern California has historically proven to be.
We recently worked together providing not only the sale but additionally the financing on multiple lnland Empire multifamily transactions. We believe lnland Empire is emerging as one of the top markets in the country.
The past year in investment sales
Throughout the past year, the market transitioned in what has historically been called a “fight to the suburbs.” This occurs when renters flee high-cost-of-living locations like Los Angeles, San Diego and Orange County and follow more affordable lifestyles and jobs.
The Inland Empire is one of the most affordable places in Southern California. It’s also one of the nation’s top logistics markets with 40,000 jobs at Amazon alone. Additionally, it has a strong healthcare sector, with nearly 300,000 jobs.
ln 2021, we saw the most apartment transactions ever in the Inland Empire at just over $2.8 billion. Much of that was driven by rent growth. The market recorded more than 15 percent rent growth last year. The forecast is still on the upturn, with a 6 to 7 percent increase over the next three years.
Who’s buying?
The buyer pool has been robust. Just about every private equity institutional player now wants a presence in the Inland Empire. With surging rents, it’s been a different underwriting environment. We were used to seeing deals with up to 20 percent loss-to-lease because of the rent growth story. Additionally, when buyers close, it’s at the lowest cap rates we’ve seen in the region.
We recently closed a $45 million sale of a property in Riverside at a 2.4 percent cap rate, which is an incredibly low cap rate for not only the Inland Empire, but anywhere. Why? Becauce we can forecast the rent growth, and that low-two cap soon becomes a mid-three to 5 percent cap rate eventually. We arranged the sale of the value-add property, and the price per unit was one of the highest ever for that type of vintage product in the Inland Empire. Northmarq additionally provided the financing.
Deals in the works
The Northmarq investment sales platform was started just over three years ago, and since then we’ve successfully transacted about four deals per year in just the lnland Empire. We tend to target the $25 million to $100 million space, often properties that sell as “value-add.”
In recent transactions that were sold with a value-add strategy, the buyer was able to capture the underwritten rent push without having to do any capital improvements. We’re currently working on a few transactions that are expected to close soon in the newer construction space, which is real estate that is very high end and irreplaceable with the high construction costs.
As we navigate into the next phase of the cycle, these assets will be in much higher demand versus where we saw most trades in the market run up, which were pure value-add plays.
Financing takes many forms
As it’s been said many times, rates have been at historic lows these past couple years. The agencies (Fannie/ Freddie) led in overall multifamily loan volume in the lnland Empire last year; however, when it comes to acquisition deals, the majority of financing was primarily bridge loan done by a debt fund, insurance company or bank.
ln fact, the past several sales that we financed were bridge loans via debt funds and insurance companies. These options provided the buyer higher leverage, but, more importantly, flexibility to successfully complete their business plans. Our clients have found the Inland Empire to be very attractive due to the overall market fundamentals and the recent upswing in rent growth. Lenders have also found it to be a great market for investment. More deal hit the market in the second quarter, and we’re clearly in the flux of a correction. Our deals are moving forward because they are quality real estate that’s irreplaceable. But anything that’s not, is often getting re-traded and pricing is getting beat down. Irreplaceable assets that are economically irreplaceable due to today’s extremely high construction costs are seeing the most pent-up demand, especially in situations where the original owner hasn’t pushed rents to meet the market. As for financing, we see huge demand for this type of product from sponsors.
With interest rates rising, borrowing is going to get more expensive. Lenders are likely to focus on a flight to quality. Multifamily will continue to shine and to be a preferred asset class. We are still seeing huge demand for multifamily from our lenders. That translates to multiple options for borrowers and lenders getting competitive to aggressively win that business.
Class A with a minor value-add component are the most highly contested deals. For class A, we’re seeing investors underwrite to what we typically see in high barrier-to-entry markets like San Diego. Meanwhile, properties in great locations that support a value-add play make a lot of sense, because investors are willing to fund the renovations and will reap the benefits of higher-paying tenants.
How inflation and interest rates will play out
We have a good sense of the Fed’s mindset on rates, which offers some guidance. However, that can change. The past few weeks have been very volatile in the financial markets. The Fed is trying to combat inflation while still allowing our economy to grow. This rise in rates will affect the bottom line for our clients. That said, multifamily still offers a great investment in inflationary times with its operating margins and annual lease trade-outs. Even with the looming interest rate hikes, the Inland Empire is well positioned to continue to be a market of demand for our clients and lenders.
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SAN DIEGO, CALIFORNIA (January 25, 2022) — Aaron Beck will join long-time managing director Eric Flyckt as co-managing director of Northmarq’s San Diego debt and equity team. In his new role, Beck will co-lead the team’s production in continuing the office’s expansion of market share and providing creative capital solutions for our commercial and multifamily clients.
“It’s an exciting time for Northmarq, and I’m honored to be a part of the company’s significant growth and innovation initiatives,” said Beck. “A major part of accomplishing these goals involves partnering with our multifamily investment sales platform. Our local investment sales expertise, along with 19 other investment sales teams across the nation, enables us to provide a full range of services to our multifamily clients.”
Beck started his career in commercial real estate in 2003 and is an active member in a number of real estate organizations, including the Burnham-Moores Center for Real Estate, NAIOP and ULI. During his tenure with Northmarq, he has played a key role in arranging more than $1.3 billion in debt and equity financing.
“Aaron has been an extremely valuable member of our team since joining Northmarq 11 years ago as an analyst and progressing onto associate producer, producer and now managing director. Aaron is a skilled mortgage banker possessing strong relationships with insurance companies, Fannie Mae, Freddie Mac and other prominent capital sources. He is a team player and has established the confidence and respect of our borrowers and lenders alike. I’m exceptionally pleased to have Aaron working with me in furthering the successful history of our office,” said Flyckt.
Recent Transactions Include:
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SAN DIEGO, CALIFORNIA (August 30, 2021) – Wyatt Campbell, vice president in NorthMarq’s San Diego office, shared his insights on self storage in a recent story about self storage’s emergence as a “comfort zone” for lenders.
Self storage rental rates experienced their biggest fourth quarter increase on record at the end of 2020: 3 percent for climate-controlled units and 2.4 percent for non-climate controlled units, according to Moody’s Analytics. What’s more, rental rates grew 1.8 percent for climate-controlled units for the full year in 2020 and 1.7 percent for non-climate controlled units. Those were the biggest increases since 2014 and 2016, respectively.
At the moment, an eagerness among lenders to put money to work, the continuation of historically low interest rates and healthy fundamentals are benefitting self storage borrowers. Debt funds, CMBS lenders, banks, life insurance companies, REITs and the Small Business Administration are active in the sector, and more debt providers continue to allocate capital to it.
“Self storage has always had a stable lender pool, but it has been a little bit limited,” said Wyatt Campbell, a vice president with NorthMarq. “But lenders that are staying away from other asset classes are now looking to dip their toe into self storage.”
Check out the full coverage on Multi-Housing News.
Highlights:
SAN DIEGO, CALIFORNIA (MARCH 17, 2021) — Despite an expected slowdown due to the COVID-19 pandemic, the San Diego multifamily market remains resilient and well-positioned for a comeback quicker than many other markets across California.
While there were few San Diego multifamily investment sales that closed since the coronavirus first hit last March, the market is fundamentally strong. This can be attributed to the region’s economics of high demand and low supply. Reasons for this imbalance are the lengthy and often onerous entitlement processes, and the fact that the area is, for the most part, built out and landlocked from Mexico, the Pacific Ocean, Camp Pendleton and the mountains. That makes finding new development sites very difficult.
However, the slowdown in transaction activity does not reflect demand for multifamily product, which remains robust. Rather it is more a sign of some near-term uncertainty in the market and also a lack of product for sale. There are few opportunities to purchase multifamily assets in the city, which was also true pre-COVID.
There is an extreme amount of capital looking to be placed in San Diego; however, since the city matches that demand with so few deals, prices are being driven up. Investor appetite remains very strong among both institutional and private investors, who are competing for product across all multifamily asset classes – A, B and C (value add).
Why is capital is chasing asset opportunities?
Rent growth
San Diego is one of the top markets in the state in terms of rent growth. Rent growth in San Diego is up nearly 2 percent this year, and asking rents are forecasted to increase 3.5 percent by the end of 2021, reaching 5 percent in 2022. In contrast to other California markets, rent growth fell roughly 10 percent in the San Francisco/Bay Area and more than 5 percent in Los Angeles.
Job Growth
San Diego added 34,800 jobs in 2019, boasting the fastest job growth in Southern California, reported The San Diego Union-Tribune. Additionally, that job growth is outpacing new homes/apartments.
Pro-business
The city of San Diego has solid political leadership that is very pro-growth and pro-business and is behind a thriving business climate. The city boasts a flourishing life sciences sector and has a large military presence in Camp Pendleton, Miramar and Naval Base San Diego, making it the military’s largest concentrations of personnel on the West Coast.
The city is also a hotspot for tourism. While the retail, hospitality and tourism sectors were hit extremely hard due to COVID-19, San Diego remains resilient through it all, making the trajectory only that much more positive. Once more people are traveling again and the economy opens back up, the market will catapult itself faster than other markets.
Transaction activity is picking up
Typically, the San Diego multifamily transaction market is just under $2 billion annually; in 2020, it was $1.2 billion. Now, as the economy begins to more widely reopen and vaccines are rolled out, transactional activity is forecast to accelerate. Deals are already moving forward. Toward the end of last year, the market saw a few of the West Coast’s largest multifamily transactions including the $313 million Vantage Point and $208 million Broadstone Coronado trades.
Additionally, the Conrad Prebys Estate is marketing 58 multifamily properties in San Diego County that total nearly 6,000 units of low-cost housing (workforce-type housing), reported KPBS.org. It is a massive and widely marketed portfolio – one of the largest in the country. Due to its size, the portfolio is an opportunity to instantly gain scale in the San Diego market.
This immense transaction is also expected to spur significant activity because a new owner is anticipated to sell off a large number of properties/units. Most properties are considered C locations, and many are value-add deals, allowing an opportunity to boost net operating income by updating units/amenities.
While the precise strategy of a new buyer is unknown, it is expected to create a big wave of activity. The sale, in fact, could unlock more than $1 billion for the many charitable causes supported by the nonprofit Conrad Prebys Foundation, according to KPBS.org.
SAN DIEGO, CALIFORNIA (February 16, 2021) – The San Diego office of NorthMarq announced the promotion of Aaron Beck to senior vice president. Beck has more than 15 years of CRE experience and has been with NorthMarq for 10 years. Since joining NorthMarq he has been a part of arranging and closing more than $1 billion in financing for multifamily, industrial, office, retail, and self-storage properties. Beck will continue to originate debt and equity by leveraging NorthMarq’s relationships with Fannie Mae, Freddie Mac, HUD, correspondent life insurance companies, banks/credit unions, CMBS lenders, and a variety of equity sources.
“Aaron has excelled into an experienced, high performing producer who is greatly respected within the company, and among our clients and lending partners,” said Eric Flyckt, managing director. “Aaron’s promotion and trajectory at NorthMarq are indicative of our company’s commitment to fostering our talent internally and providing our employees the opportunity and support to advance their careers. This is a win for our office and our clients.”
Notable Transactions Include:
Highlights:
MINNEAPOLIS, MINNESOTA (December 14, 2020) – Community HousingWorks (CHW), a nationally recognized 501(c)3 organization serving throughout California, was nominated by Eric Flyckt, managing director of NorthMarq’s San Diego office, to receive a 2020 grant from NorthMarq’s Community Involvement program. NorthMarq’s donation will aid the organization’s Next Gen Success Programs. Community HousingWorks’ mission is to provide and build affordable apartment communities across California and provide residents with impactful services.
“We are very impressed by the wonderful work CHW is doing in San Diego and other California communities. They are a dynamic and growing organization involved in providing affordable housing, combating homelessness and offering other services to low-income people such as youth tutoring and mentoring, and financial and health education to adults,” said Flyckt.
The situation with COVID-19 created special threats to the vulnerable populations served by CHW, including children in their afterschool programs. The organization is currently working to safeguard the well-being of residents, staff, on-site partners in the face of the pandemic, including deploying staff throughout its communities to carry out its Study Stars education program.
The statewide shift to remote learning has widened the academic achievement gap for children in low-income households. The organization hopes to ensure all children enrolled in the Study Starts program overcome the current challenges and to have them re-enroll for virtual delivery. NorthMarq’s donation will help ensure that all children in CHW homes have access to individual and small group tutoring so they do not get left behind.
“Your gift will provide us with the resources to support our staff to reorient to remote program delivery during this time,” Tammy Walz, CHW’s director of advancement, wrote. “Your generous support allows us to find new ways to carry out our programs to help our residents through this ever-evolving situation.
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SAN DIEGO, CALIFORNIA (July 17, 2020) – NorthMarq’s San Diego office bolstered its investment sales team with the addition of Erik Anderson as associate vice president, Investment Sales. His responsibilities will include assisting with the development and growth of the middle-market sized multifamily portfolio. He will join Kyle Pinkalla, managing director, Investment Sales.
“Erik adds tremendous value to our team given his unmatched market knowledge, extensive relationship with high-net worth and Institutional capital sources, and diverse transactional experience throughout San Diego,” said Pinkalla.
Anderson will leverage his extensive experience on multifamily and multifamily development land transactions, allowing the team to work closely with both property owners and developers to create unique investment opportunities. During his career, he has arranged more that $85 million in transaction volume.
“I am extremely excited to join the NorthMarq San Diego team. The opportunity that is present here for myself is tremendous,” said Anderson. “The ability to leverage NorthMarq’s robust debt and equity platform during a time of change will add significant value to my clients in getting deals across the finish line.”
A few Anderson’s recent transactions:
Before joining NorthMarq, Anderson was a Senior Associate with CBRE. Within CBRE, Anderson’s duties included sourcing on and off-market private equity transactions. Prior to CBRE, he was a top producing associate with a regional shop focusing on all types of investment transactions.
Kyle Pinkalla, managing director of investment sales in NorthMarq’s San Diego office, authored an article highlighting an expected turnaround for San Diego apartment investment sales that was featured in the September issue of Western Real Estate Business.
While Proposition 10, California’s proposal to strengthen rent, was defeated on the ballot, it somewhat stifled the multifamily investment sector in San Diego.
But the market appears poised to bounce back. Pinkalla discusses how the “tides have begun to turn in the past few months, with numerous apartment deals on the market–more than we’ve seen at one time in the past few years.”
This is especially true in Downtown San Diego where a significant number of new merchant-built deals are expected to come to market, continuing throughout the year. These are luxury complexes, with some expected to fetch as much as $600,000.
Highlights:
MINNEAPOLIS (JANUARY 28, 2019) – NorthMarq, a leader in commercial real estate capital markets, announces the expansion of multifamily investment sales by adding expert Kyle Pinkalla in its San Diego regional office. As managing director, he will work to continue the expansion of NorthMarq’s multifamily investment sales business with investors across the country.
Pinkalla will have responsibility for multifamily acquisitions, dispositions, broker opinions of value and market insights. With more than 15 years of commercial real estate experience in investments sales, development, acquisitions and onsite management, he has been involved with more than $2 billion of multifamily investment sales in the last five years in Southern California markets. He will also closely coordinate with Shane Shafer, NorthMarq’s managing director-Investment Sales in Los Angeles
“I am excited to join this growing team of investment sales professionals but equally excited about joining the strong team of debt and equity professionals in San Diego,” Pinkalla said.
Shafer, who joined the NorthMarq platform in late October, welcomed Pinkalla to the team. “We’ve collaborated on a number of transactions in the last few years and I am energized to work with Kyle more closely as part of NorthMarq’s team,” he said.
Trevor Koskovich, president-Investment Sales, is leading the platform’s growth, which in addition to the newest office in Los Angeles, now includes teams in Arizona, Kansas, Missouri, New Mexico and Texas. He is recruiting professionals who are interested in leveraging the company’s culture and track record of debt and equity transactions. “Given the size of the Southern California market, it is a strategic growth opportunity for us as we build on our recent expansion in Los Angeles and integrate the sales and finance business on the West Coast.”
The San Diego regional office is one of NorthMarq’s top performing offices, led by Eric Flyckt. “Kyle is well-known to our team in San Diego based on volume and profile of transactions he has closed over the years. We are excited to leverage his experience with multifamily investors throughout the region and develop the synergy with clients that our other offices with investment sales professionals are experiencing,” said Flyckt, senior vice president/managing director.
Pinkalla joins the 12-person debt and equity team in NorthMarq’s San Diego regional office, 12230 El Camino Real, Suite 220, San Diego, California. In business since 1960, NorthMarq Capital has grown to more than 500 employees through more than 20 acquisitions, now servicing a loan portfolio of more than $55 billion with annual transaction volume of $13 billion.
SAN DIEGO (June 28, 2018) – Casey Allred recently joined NorthMarq Capital as an analyst for the San Diego office.
Casey’s responsibilities include originating real estate financing for apartments and commercial properties, underwriting, due diligence, and assisting the production team.
Prior to joining NorthMarq, Casey worked on the acquisitions team at Realty Income Corporation where he underwrote over $3 billion in transactions and assisted in the closing of over $1 billion in retail and industrial properties.
Allred graduated from Southern Methodist University in 2008 with a B.S. in Financial Economics.
“I am very pleased to have Casey join our outstanding team,” said Eric Flyckt, managing director of the San Diego Office. “Our clients and colleagues will benefit from his industry experience, analytical skills and business relationships.”
Rising Interest Rates Haven’t Slowed Agency Activity
The agencies are seeing another strong year. To date in 2018, Freddie Mac has funded $22.9 billion, an 18% year-over-year increase, and Fannie Mae is on par with the tremendous volume that it did in the first part of 2017. While interest rates are likely to rise, they remain at historic lows and are not expected to have a significant impact on agency activity. GlobeSt.com sat down with Aaron Beck, vice president at NorthMarq Capital, and Eric Flyckt, senior vice president at NorthMarq Capital, to get a mid-year update on agency activity and a look at the year ahead.
GlobeSt.com: How has Fannie Mae and Freddie Mac’s activity in the first half of the year compared to activity during the same time in 2017?
Eric Flyckt: Fannie Mae’s year-to-date volume through May is $20.1 billion versus $25.2 billion through May of 2017. However, 2017 figures were anomalous, due to a huge January rollover from 2016—$9.3 billion of volume in January 2017 versus $4.6 billion in January of 2018. April and May 2018 figures exceed same-month production from 2017 by a healthy margin. Through May, Freddie Mac funded $22.9 billion, an increase of 18 percent over the same period last year.
GlobeSt.com: What is continuing to drive agency demand this year?
Flyckt: Low rates, innovative product enhancements and a flexible underwriting. Though US Treasury yields have increased considerably, Fannie Mae is aggressively pricing quality business. Fannie Mae continues to introduce new product and process enhancements. Their near-stabilization execution has been a very popular driver of new business this year. Fannie Mae has also exhibited a flexible approach to credit, allowing its DUS lenders to stretch to win the right business.
Aaron Beck: There are a number of factors driving multifamily demand. Top among them are the demographics of today’s renters. Baby boomers and millennials are entering the rental market in increasing numbers. A growing portion of the nation’s boomers are looking to downsize, while many millennials want to start new households. Today’s millennials are slower to reach major adult milestones than past generations, paving the way for a solid renter base in the years ahead. Last year, about half a million young adults moved out of their parents’ homes, the majority likely choosing to rent. Yet, close to another million are still residing with their parents. This existence of these “shadow households” implies that there is still significant potential for growth in the number of new renter households, absent any further economic or demographic changes.
In addition, a growing number of households are showing a preference for rental housing. In Freddie Mac’s recent survey of America’s renters, the company found that a total of 67 percent of renters view renting as more affordable than owning a home. With rising interest rates, that percentage is likely to increase, particularly amongst first time homebuyers. Almost three-fourths of millennial renters say that they will continue renting due to financial reasons. That number was at 59 percent just two years ago.
GlobeSt.com: Do you expect this activity to change as interest rates rise?
Flyckt: Intuitively, it seems like a sharp increase in interest rates would result in an attendant decline in production volume. That said, treasury yields have increased approximately 50 basis points since the beginning of the year; however, Fannie Mae is experiencing a banner year in terms of year-to-date production volume. The increased Treasury yields perhaps have encouraged some Borrowers off of the fence. In addition, Fannie Mae has employed aggressive pricing waivers to help make deals work in spite of the rising yields.
Beck: To date, increasing interest rates have not had much of a negative impact on multifamily or commercial transaction volume. This should continue to be the case in the near future due to the lack of properties available for sale, plenty of available capital, multiple buyers competing for properties, and a strong tenant demand and economy.
GlobeSt.com: What programs within Fannie Mae have been most popular this year, and why?
Flyckt: Fannie Mae’s near-stabilization program has been a very big seller this year as a result of the large number of new construction and renovation deals approaching stabilization. The near-stabilization program provides the ability to lock the rate and fund the loan upon reaching 75 percent occupancy. This has been an effective means for Borrowers to take interest rate risk off the table without waiting for full stabilization and without reducing loan proceeds since Fannie Mae sizes the loan assuming stabilized occupancy.
Beck: Freddie Mac continues to see dramatic success in a number of core programs including its small balance loan business, for properties with five to 50 units, targeted affordable housing, for properties where some or all the units have rent restrictions or receive government subsidies, and green lending, which is exceeding last year’s volume. Freddie Mac’s Green products finance energy- and water-saving improvements.
GlobeSt.com: What is your outlook for Agency production in the second half of the year?
Beck: Both Fannie Mae and Freddie Mac have significant ‘dry powder’ vis-a-vis their regulatory production cap, so we expect the Agencies to be poised to continue to compete aggressively for business through the balance of 2018. Absent some material unforeseen disruption, we expect a strong finish to the production year and volume to be consistent with last year’s outstanding performance.
Fannie Mae’s green lending program was extremely popular last year, but the business has fallen slightly this year.
Fannie Mae’s green lending program has been extremely popular—and because the business falls outside of Fannie’s lending caps, there is plenty of opportunity. However, this year, the business has fallen over the same time last year. However, the benefits continue to make the program a popular option for borrowers. Aaron Beck, a vice president in NorthMarq Capital’s San Diego office, recently secured a $17 million refinance loan through the program for a 280-unit apartment property in Las Vegas. Because the long-term non-recourse loan was secured through the green rewards program, the borrower was able to lock in a rate 35 basis points below Fannie Mae’s standard rate. To find out more about the demand for this financing this year, we sat down with Beck for an exclusive interview.
GlobeSt.com: Fannie Mae’s green program was incredibly popular last year. What has activity been like in the first quarter of 2018?
Aaron Beck: Green financing remains very popular; however, business that falls outside of Fannie Mae’s 2018 lending cap of $35 billion—this includes Fannie Mae’s Green Rewards Program—has comprised a slightly smaller portion of their total year-to-date business, as compared to last year. This is largely due to the very attractive spreads that Fannie Mae has been providing for conventional loans in the midst of the current lending environment, which is extremely competitive. Ultimately, I expect the amount of Green financing, as it relates to Fannie Mae’s overall 2018 volume, to return to a level at or near that of 2017.
GlobeSt.com: Have the requirements changed this year, or has the process in obtaining a green loan changed as a result of the high demand?
Beck: The primary change was a regulatory adjustment to the type of Green financing that is exempt from FHFA’s (Federal Housing Finance Agency) lending cap of $35 billion for each Fannie Mae and Freddie Mac. This exemption allows for the reduction in spread, which currently ranges from about 10 to 20 basis points; although, the program allows for a reduction of up to 39 basis points. In order for loans to qualify for the Green Rewards Program in 2018, Borrowers now need to identify and agree to implement Green improvements estimated to save 25% in annual water or energy usage. The previous threshold was 20 percent. This has not caused a material change in the volume of Green loans that are being executed. At the end of the day, it may end up costing a Borrower a few dollars more to meet the 25 percent threshold (vs. 20 percent). For example, if a property would have qualified with only installing faucet aerators and low-flow showerheads in prior years, perhaps the property will now require the additional implementation of something like low-flush toilets. If a loan qualified at the 20 percent threshold, there is generally a path to meeting the 25% threshold at a nominal cost increase. Fannie Mae’s Green Rewards Program does not require Borrowers to spend a minimum per unit dollar amount to satisfy the agreed to Green improvements.
GlobeSt.com: What clients or deal types have been the most interested and active in the green lending program through Fannie Mae, and why?
Beck: It’s been a very broad cross section of clients – from large institutional groups, to regional middle-market owners, to small local operators. The interest rate savings are significant, the program requirements are not onerous, and the added cash flow generated by reduced utility costs is material. As long as a pronounced spread differential exists between conventional and Green loans, Borrowers for nearly every proposed Fannie Mae loan should strongly consider Green financing as an option. The opportunity cost of not considering it far outweighs the minimal cost if the property does not qualify. As for property type, we’ve been successful in securing Green business for a wide range of apartment properties, varying in condition and vintage. Even newer buildings without as much “low-hanging-fruit” have qualified for Green improvements. Because the outlook for energy and water efficiency is constantly shifting, there will continue to be opportunities for Green upgrades.
GlobeSt.com: Are there other green programs that have become competitive with Fannie Mae’s program?
Beck: Yes, Freddie Mac has its own version of Green financing known as “Green Advantage.” This, too, has been extremely popular amongst multi-family Borrowers. The same 25 percent estimated savings threshold per year for energy or water that applies to Fannie Mae’s program applies to Freddie Mac’s program. Each program allows for significant interest rate savings at very little cost to Borrowers.
GlobeSt.com: You recently secured funding through the program for a 280-unit apartment property in Las Vegas. Why was the green program a good fit in this instance, and what was the process like to secure funding?
Beck: The property was built 20 years ago. While the Borrower has done an excellent job of completing upgrades for energy and water efficiency, we soon recognized there were additional improvements that could be completed to meet the minimum water savings threshold. In this instance, the Borrower agreed to install low-flow faucets and showerheads, and make some improvements to irrigation within the first twelve months of the loan term. The estimated total cost for these Green improvements was less than $60,000 ($215 per unit). In turn, the spread was reduced by more than 35 basis points. The total loan interest and water usage savings to the Borrower over the term of the loan is estimated at nearly $500,000. Aside from completing an additional report for water and energy efficiency (cost of the report was reimbursed to the Borrower at closing) and agreeing to make the Green improvements, the process for securing the Green loan was no different than a conventional execution.
The summer lull, experienced by many, has given way to a pick-up in production by NorthMarq’s west coast offices. Producers from six of our offices met with our correspondent insurance companies, CMBS, bridge and bank lenders during the annual CMBA Western States CREF conference held in Las Vegas the first week in September. The tagline for the three day conference was “The Speed of Change,” a theme that rang true amongst the capital providers and mortgage bankers in attendance, all looking to set themselves apart in a competitive and ever-changing commercial real estate financing landscape.
Multifamily, office and industrial continue to be the most sought after assets, while signals on retail remain mixed as the impact of the “Amazon-Effect” continues to make its presence felt. Some capital sources we spoke to have reduced their retail appetite to only grocery-anchored centers in top MSA’s, while others feel they compete best on the unanchored or shadow-anchored centers. Overall, the shift in retail seems to be fluid and evolving; where some groups see risk, others are seeing opportunity.
On the bridge and mezzanine finance side, a number of new players have entered the already crowded list of firms looking to fund transitional, value-add and underperforming assets. This increased competition has caused spreads to come in and seen a growing number of firms tweak their parameters in order to win deals. Requests under $10 million and those is secondary and tertiary markets are seeing access to capital from bridge lenders who have historically stuck to larger deals in top MSA’s. This shift includes mezzanine and preferred equity providers, where some minimums have come down to as low as $3 million. Asset classes like hospitality have seen an increased access to capital, which was noticeably reduced in recent years, as lenders begin to cast a wider net to deploy their capital.
CMBS lenders are on track to issue more notes in September than any other month this year, according to Commercial Mortgage Alert, as they have become comfortable with the new risk retention. While some of the big players are winning deals on superior pricing, smaller shops are getting creative in deal structures to win the business. This flexibility includes capping upfront costs, conceding on certain reserve requirements and pushing leverage. Some CMBS shops are also looking to increase production on their balance sheet bridge programs, which allows them to participate on more transitional assets and in turn increases their securitization pipeline.
Insurance companies are also getting creative and breaking the mold of a “down-the-fairway” approach to lending. While they still prefer quality assets with lower leverage, the groups we spoke with point to increased competition from banks and stagnation in investment sales during the first half of the year as major catalysts to their shifting appetite. Many insurance companies have stepped into the bridge, mezzanine, and even construction space. One insurer recently funded a three year, 90 percent LTC participating construction loan on a multifamily development in the Midwest – a very unique and creative structure. On the permanent financing side, the benefits of an insurance company execution, long-term structures and low pricing, coupled with the ability to forward rate lock at application (up to 12 months), continues to set them apart from both CMBS and bank lenders.
The “speed of change” seems to be driven by a multitude of factors playing out in the industry. The true beneficiaries of this change are the borrowers and mortgage bankers, who are enjoying access to historically low rates, more options than ever before, and the negotiating power to ensure they’re getting the best deal.
SAN DIEGO (August 1, 2017) – NorthMarq Capital, a leader in financing commercial real estate throughout the United States, announced today that Conor Freeman has joined its San Diego office serving as vice president.
In his new role at NorthMarq, Freeman will be responsible for providing clients with creative solutions through NorthMarq’s life insurance relationships, Fannie Mae, Freddie Mac, FHA/HUD, CMBS lenders, debt funds, banks and credit unions. Freeman comes to the San Diego team after serving as the Director of Capital Markets for a boutique mortgage banking firm, where in 2 ½ years he originated over $200 million in transactions in core, secondary, and tertiary markets nationwide, involving commercial and multifamily asset classes. Freeman earned his bachelor’s degree from San Diego State University.
“We are very pleased to have Conor join our team,” said Eric Flyckt, senior vice president/ managing director based in NorthMarq’s San Diego office. “His capital markets knowledge and experience, combined with NorthMarq’s unmatched lending partners, will allow him to deliver innovative financing results to our clients.”
The San Diego regional office of NorthMarq Capital is pleased to announce the promotion of Wyatt Campbell to vice president. In his new role, Wyatt’s primary focus will be the origination of various forms of real estate financing including permanent loans, construction loans, bridge loans and joint venture equity.
Wyatt joined the San Diego office in 2015 as an investment analyst, where he has assisted in closing over $265 million financing transactions involving Fannie Mae, Freddie Mac, life insurance companies, CMBS and equity investors.
Prior to joining NorthMarq, Wyatt was part of the CBRE’s Private Capital Group in Tucson, Arizona. While at CBRE, he specialized in the disposition of commercial and multifamily investment assets.
Wyatt graduated from the University of Arizona with a B.S. in Public Management & Economics.
