Also pricing updates from life companies, and the GSE’s
In each issue of Capital Corner, we offer perspectives from our debt and equity experts across the country on how to find the right fit for each financing need – from the straightforward refinance to the conversion from construction to permanent mortgages and everything in between.
Based upon our transaction volume, we are fielding 60 percent refinancing transactions with 40 percent acquisition or structured finance.
With a continued unsettled marketplace, we think it is critical to have multiple capital sources available for consideration. This week, we are reviewing the role of credit unions as a bit more of a niche source of capital, along with our core lenders from life companies and the GSEs.
In a recent National Real Estate Investor article, credit unions were the focus, noting that they have been working to grow market share in the commercial real estate lending space in recent years by taking advantage of open runway as other capital sources have pulled back in recent months. In fact, these institutions are willing to offer competitive terms and creative solutions.
NorthMarq has seen credit unions willing to finance property types that others aren’t doing, with our financing activity trending 50 percent higher than 2019. Since March, we have closed more than two dozen financing transactions with credit unions as the lender for borrowers across the board involving multifamily, industrial, retail, and office projects.
As noted in the NREI article, there are plenty of capital sources still willing to finance multifamily and industrial assets. Interest drops off, however, for office and retail properties with financing that has become tougher because of COVID-19.
We are finding that our experts need to dig a little deeper to find the terms that borrowers want in the current climate, and credit unions are a great example of that alternative. Credit unions can offer flexible prepayment and will look at some property types that are less mainstream.
For example, credit unions are still willing to finance single-tenant retail and unanchored retail properties. That may be because credit unions have smaller loan portfolios and potential concentration risk to that sector than other lenders.
Life companies have become more active, looking for investment opportunities outside of the preferred multifamily and industrial space, including well-located retail with a strong grocer and a mix of essential services. Within those preferred property types, they continue to look for ways to be creative, including transitional and pre-stabilized multifamily and industrial properties.
Aided by market tailwinds, Fannie Mae has been pricing transactions at historically low interest rates in recent months. This is especially true of lower leverage transactions, which have closed at interest rates inside of 2.50%. Additionally, Fannie Mae is pursuing Green business with renewed aggressiveness, which provides an avenue for borrowers to reduce note rates even further. Fannie Mae remains an extremely competitive source of capital on all multifamily transactions.
Freddie Mac continues to see robust demand throughout the country with a strong acquisition increase in the Sun Belt. Refinances still dominate making up over 70 percent of the current loan requests, while approximately 30 percent of all loans are floating rate. Freddie is confident they will meet their $100 billion, five-quarter cap by the end of the year. They recently dropped spreads for their Green product, which can allow for significant savings for borrowers.
FHA activity remains at a record-setting pace. The NorthMarq team is experiencing a solid mix of new construction/permanent loans 221(d)(4) and straight refinance/acquisition loans 223(f). Additionally, we are handling a healthy volume of 223(a)(7) (portfolio refinances) and Interest Rate Reduction loans (IRR’s). The 223(a)(7) and the IRR programs allow existing FHA borrowers to refinance their transactions in a streamlined execution to take advantage of the current low-rate environment. These programs allow for minimal underwriting to expedite the time to closing. Current market rates for FHA refinance/acquisition loans are hovering around 2.25%-2.30% (with a 35-year fully amortizing term). The current market rate for new construction/permanent loans is roughly 2.90% – 3%.
For all capital sources, your local NorthMarq debt and equity expert can help you evaluate your options and find the right fit for even the most difficult situation. The key is to know where the smallest program, with the most narrow fit, will be the best fit for a specific situation. Along with our traditional lenders, credit unions can fill a gap and get your transaction over the finish line.