Digging deep to find the right capital fit from non-agency lenders

Given our focus last month on financing programs available through the GSE’s, we shift today to provide perspective on the capital options to consider from other sources, especially life insurance companies. Based upon the deal flow we are seeing, our debt and equity experts are digging deep to source new and innovative capital for each deal. The benefit to clients is that our national platform and extensive relationships are spread across the country -- with capital sources large and small.

Lenders coming back in, one-by-one
Earlier in our economic slowdown, some life companies were on the sidelines, working through their balance sheets and risk appetite. Now, most are visibly back in business, competing effectively with the GSEs through program structure, interest rate and/or term, with many of them offering innovative new programs or elevating existing programs that may have fallen out of favor.

Each firm continues to handle the pandemic-influenced economic slowdown differently. Most firms are mainly looking to finance industrial and multifamily properties, but there are structures available for office, retail, and self-storage properties. Multifamily and industrial borrowers are the beneficiary in these product groups as the competitive landscape and available capital allows them to consider many sources.

One example of that is a program specifically targeting properties very early in lease-up, allowing a borrower to secure a long-term fixed-rate loan with short-term credit enhancements. The short-term enhancements are designed to quickly burn off, so the resulting non-recourse term loan greatly reduces capital market risks during the lease-up period. Those life companies are providing aggressive terms, down to the mid 2’s, targeting high-quality multifamily opportunities.

Industrial remains an in-favor product type, with evidence from the significant increase in online shopping. Those industrial assets are playing an important role in the “last-mile” of delivery for all online retailers, but mostly for large players like Amazon.

In addition to industrial, self-storage properties have performed well and have been able to attract life company, bank, and non-bank capital. Office and retail have been harder to finance given the current market, but there are sources available. We expect that life company lenders will continue to evaluate how their portfolios are performing and create programs that they think will withstand the potential downfalls of a post-Covid world.

In terms of non-life company sources, national, regional and local banks as well credit unions and non-bank bridge lenders are sources for non-multifamily properties. These lenders are able to get higher returns than the lenders focused on multifamily and industrial, creating a better way for them to invest capital.

For what many of us would consider “obscure” lenders, our team has been uncovering new financing sources that meet our clients’ needs, no matter how seemingly difficult. While these sources may shift with the markets, we find them credible and important options for those requests not right-down-the-fairway. These include niche credit unions and audience-driven banks -- a few examples of lenders that are less known in the world of real estate finance.

The debt markets will continue to be active for all property types, albeit with slightly different programs or lenders. We are encouraged that our nearly 100 life company lenders are purposefully expanding back into some areas outside of multifamily, actively looking for opportunities to lend.

Consult with experts for equity options or Investment Sales advice
A recurring indication of where the market is includes the activity from private buyers and private capital sources. In most cases, the private equity sources are ready to fill the gaps between lenders and closing, with many structures customized for the situation. Many of these programs didn’t exist before March 2020.

Equity capital is much like debt in that the appetite and focus is on multifamily and industrial, but the track record of the borrower is taken into consideration, along with the potential post-Covid recovery plan.

Industrial will be the most active non-multifamily product, with equity available for development and acquisitions from institutional capital, including life companies and family office or private equity sources. Opportunistic equity is ready to transact on more high-yielding plays like office, retail and hospitality properties.

Our multifamily investment sales team is at the forefront of solving challenges for many owners who are evaluating whether to buy, sell, or restructure. In many cases, the investment sales advisor is the first person on the scene, bringing the equity and debt professionals in for a creative review to identify the best option. With our continued expansion of significant investment sales talent in key markets, we are ready to help.

In closing, the non-GSE capital markets are healthy with plenty of sources available to transact. It just take a little more “digging” if your property is not a mainstream investment. Our diverse lending sources combined with our national platform will help us be a great finance resource for our clients.

Jeffrey Erxleben
Patrick S. Minea
William Ross
William Ross PRESIDENT