Our Perspective 4/ 6/ 2022

Looking forward for an active 2022

Our office remained not just “open for business” for 2021 but very busy.  We are thankful for all of our clients who contributed to a record-breaking year of loan closings for us.  While certainly challenging from time to time, we were able to provide financing for all property types, multiple lender sources, and loan sizes from small to medium to large.  Although most properties are in our MSA, we followed our clients who expanded their portfolios nationally by collaborating with the entire network of Northmarq’s 40 offices throughout the country.

While multifamily properties continue to shine as our majority of financings, we remain busy with industrial and retail loans as well.  Our lenders were able to provide very competitive and favorable loan terms to our clients, who have experienced many economic cycles.  What’s critical for us is to have such a broad spectrum of Life Company lenders who are active in our market. We value the partnership with those lenders, many of whom we’ve worked with for many decades.

Timing is important to minimize volatility

With the Pandemic shifting to an Endemic, we are hopeful that the worst is behind us, and we look forward to some normality in 2022.  All of our lenders have excellent lending goals and the interest rates, while quite volatile, remain at historic low levels.  Timing is important on every deal, and we pride ourselves in being able to react quickly so that any volatility can be minimized.  We remain committed to providing expertise on underwriting, closing and market knowledge.

Multifamily remains the favored asset class

Looking towards the next several months, we will be tracking multifamily trends as rent growth and values continue to rise.  Occupancy levels remain quite strong, over 95% in most markets.  The supply of new units lags demand creating a frenzy for growth in rents, as the supply chain delays exacerbate the shortages.  Additionally, the conversion of single-family homes to rental properties takes on a new form of competition.

Cap rates for multifamily properties are at their lowest levels in history and transactions are attracting capital from every source imaginable.  Value-add transactions are the most sought after with upside potential providing the highest returns to investors.  This in turn has led to an increased activity from Bridge lenders providing short-term flexible financing options including floating rate, flexible prepayment structure and interest-only payment options.  This trend is likely to continue.  Freddie Mac and Fannie Mae are capturing business that contains elements of affordability and for their best Borrowers.  With the volume caps increased for 2022, we anticipate a more controlled flow of volumes affecting spread adjustments throughout the year.

Don’t overlook other property types

The retail sector has recovered somewhat as tenant replacement and displacement have stabilized.  Location, location, location is important as always.  There is transition to services while landlords adjust to tenant right-sizing and rent adjustments.  This trend will continue.

Industrial properties continue to explode on the distribution needs of online shopping.  Amazon and many other logistics businesses are expanding across the nation.  In the Midwest, we benefit from the transportation networks we support, by land, sea and sky.  Trains, planes and automobiles provide a great network to support the industrial sites across our market.

Other property types including office, hospitality, manufactured housing, mixed use development, and self-storage have lender opportunities, with more specific case-by-case alternatives from our network.

Lending price increases not unexpected, remain at historic lows

We have been in a terrific lending environment for the past few years, with interest rates starting with a 2, then a 3, and now edging towards the 4% range, with inflationary pressures and the Federal Reserve trying to reign in inflation while allowing for GDP growth.  While we don’t want to see rates climb, this was not unexpected since the economy is strengthening and the historically low rates have been predicted to rise over the last few years.  It will get interesting as we move forward.  Today’s rates are still very desirable rates.

We are looking forward to another great year providing the best financing alternatives to our clients.  It is with the utmost in pride that we continue to surpass the expectations of our lenders and our clients in providing Best-in-Class service.