Do You Know Where Your Money Is Coming From? Navigating Today's Lending Market

There is no doubt that the real estate market has been a wild ride since the pandemic changed the normal course of our lives over two years ago. Lending did not escape the effects of Covid-19, and many active investors have learned more about the loan process than they ever did before the pandemic.  

In the spring of 2020, some lenders left active investors in a bind, closing their doors or halting lending while they evaluated the new risks in the marketplace. Over two years later, the market is changing again, and investors need to know how to pivot to keep their pipeline flowing. While everyone is watching rates increase, they are taking their eyes off the real question right now: Can they close this loan?

Realizing a preapproval and rate and term sheet are not set in stone will go a long way in the current lending environment. Lenders are changing underwriting criteria, not making as many or any exceptions to lending guidelines, and lowering loan-to-value midstream in the escrow process. Most investors never thought about the source of their capital before March 2020. The most concerning part of the lending process was getting through underwriting and receiving the message that you were approved and cleared to close. Whatever happened behind the scenes inside the lending machine wasn’t a concern to an active investor. As long as money made it to the closing table, they were happy. This strategy worked until the capital never made it to the closing table. 

When lenders suddenly turned off the spigot to cheap capital, investors scrambled to save deals any way they could. This pushed private lenders with their own capital to lend to the forefront in the hunt for leverage. Active investors scrambled to find funding or negotiate contract extensions to restart the lending process.

Private lenders who lend their own capital have more control. Large nationwide or even regional lenders have significant strings attached to the capital they lend out, and those strings are pulled by forces outside the lender’s control. 

For example, large institutional lenders are often funded by lines of credit from banks or even selling their loans on the secondary market. In both of those cases, there is another entity establishing what they can lend out, where they can lend it, and the pricing of those loans. These lenders require the line of credit to stay open or the capital markets to continue purchasing loans, so they have enough liquidity to keep new loans coming into the pipeline. 

What does that mean for you as a borrower? It means that the rates and terms you are quoted may suddenly change, or funding, in general, may be halted at a moment’s notice. So how can you protect your real estate investing business in this period of turbulence? 

Start asking questions about how the lender acquires their capital and diversify lending sources based on where they get their capital.

The Four Types of Lenders

For the sake of simplicity, you can think of capital in one of four buckets for alternative lending: national lenders, regional lenders, local lenders, and private loans from a lender who lends their own capital, including seller financing. While there are many flavors and options within each bucket, knowing the general purpose of each can help you decide what type of financing to use for which project. 

Alternative lending automatically means it is not going to be the conforming conventional loans you may have used to purchase your own home. Since they are non-conforming loans, the variables offered are numerous and vary greatly. Having a conversation with your lender about the types of projects they fund and general guidelines for their loan products can go a long way to choosing the right lender for the right project. 

National Lenders

National lenders are pretty easy to locate. Their brand and names are spoken widely across online platforms, forums, and even REI meetings. Their business model has the borrower and decision maker for the loan the furthest removed from each other. To these lenders, every application and, ultimately, file on their desk is a series of numbers and check marks. A business model like this shows up to the active investor (borrower) with high single-digit interest rates and lower fees, but those come at the cost of higher documentation requirements, full third-party appraisals, and a longer closing time. This group of lenders is often very sensitive to changes in the capital markets or economic outlooks. If you need a deal to close super quickly with minimal documentation, this may not be the best tool to use. On the other hand, if you have time for the closing such as a refinance into permanent debt, this may be a great option to pursue.

Regional Lenders

Regional lenders may not have the brand recognition of “the big guys,” but within their markets, they can be relatively well known. Their mid-range interest rates and somewhat higher fees often come with lower requirements for documentation and longer financing timeframes than national lenders. Depending on the lender, they may require a full appraisal or may opt to do an online valuation through a third party. These regional lenders can be a great option for borrowers that have some unique borrowing challenges, such as new employment or acquiring financing as a new business entity. 

Local Lenders

Local lenders tend to be smaller asset-backed lenders or smaller bank/credit unions in the market. They tend to lend in just a certain area of a state or the entire state if it’s small enough (such as Delaware or Rhode Island). These local lenders usually have higher rates, especially if they are asset-backed, but also usually have low or no documentation requirements. This translates through to a borrower with higher rates and usually higher fees. These asset-based lenders can often close quicker and use some sort of in-house valuation methods for the real estate securing the loan. Credit unions may also use the same valuation tools but often want a higher level of documentation to understand the lending opportunity. For investors operating in one particular market, this classification of lender tends to be the most helpful since they are local. This class of lenders understands the market they are lending in and has experience with other lending opportunities in the same area.

Individuals

Lastly, we will look at loans that come from individuals, or what we term “private lenders .”These loans come from capital that an individual or their business entity has. These individuals are often seeking to have passive income or put their retirement funds to work in real estate versus the stock market. Depending on the amount of capital they have available to them, they may not always have the liquidity to fund a loan when the capital is needed. Many of these lenders work with established networks of borrowers, sometimes rolling capital from one deal to the next with the same borrower. These lenders may have very low documentation requirements, flexibility on the type of properties they are willing to lend on, and vary in terms of interest rates, fees, and length of the loan. They also can generally close very quickly, sometimes within a few days if needed. While they won’t be the cheapest or longest-term loan out there, the flexibility this type of lender offers more than makes up for it. 

The Type of Lender Determines the Variables

As you can see, there is somewhat of a correlation between the documentation and underwriting guidelines and the rate being charged. When you, as a borrower, can show the standards a lender believes are lower risk, you can then be rewarded with a lower rate. In addition, other value-add components can also increase annualized interest rates and fees being charged. If a lender can get a deal closed in three days with minimal documentation, that can be a more expensive loan because the borrower needs to move quickly or is unable or unwilling to go through a more thorough vetting process for the loan. 

Conclusion

Understanding what your needs are for financing each property really allows you to find not just a lender but the right lender for the job. The lender’s ability to close the loan is more important than rates and terms right now. Ask questions about the lender’s access to capital and if that access is likely to change in the next several weeks. Depending on the size of the lender you are speaking with, they may not be able to answer that question, but thinking about this as a borrower can never hurt to consider. Keeping another lender in your back pocket that may be able to close quickly, even if it is a higher rate, maybe the difference between closing or not.

 

Receive a Loan Quote from eXp Commercial's Capital Markets Partner CommLoan

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Source: Do You Know Where Your Money Is Coming From? Navigating Today’s Lending Market

https://www.creconsult.net/market-trends/do-you-know-where-your-money-is-coming-from-navigating-todays-lending-market/

If You're Hesitant To Hire A Broker For Your Multifamily Property Read This

Multifamily brokers frequently hear this comment from apartment property owners: “I don’t want to list, but you can bring me a buyer.” Their reasons sometimes include previous bad experiences, fear of getting “tied up” in a formal agreement, tenants finding out the building is for sale and making anxious calls to management, thinking the commission will be halved, or not really being interested in selling. Whatever the reluctance, the reality is that if an investor wants or needs to sell, the best thing they can do is hire a broker. Let’s address a few of those common objections first.

If you had a previous bad experience, more than likely, you hired the wrong broker. The specific agent you hire or the firm they work for should have experience in both the geographic market and transaction size — ask for their track record. While you’re at it, ask for references from clients, and make sure at least one is for a listing that did not sell. These simple steps will give you insight into whether you’re working with a pro.

As for getting “tied up” or having anxious tenants because the building is selling, a professional broker typically allows you a cancellation right for the listing. If there are deadlines you need to meet, make sure your broker understands. And while no broker can guarantee tenants won’t find out the building is being sold, experienced brokers can modify marketing by limiting showings to only vacant units, specific hours for low visibility, limiting digital footprint tenants might see, etc., to reduce the probability of tenants finding out.

That said, the best course is simply to announce to tenants that the building has been listed for sale, explain the sale may not be successful, and assure them that their lease runs with the building, not the owner, and is their protection during the lease term against rent increases or being forced to move.

These are certainly not the only reasons clients are reluctant to list but whatever is yours, talk to your broker about your real concerns. A seasoned broker will most likely have previously faced a similar challenge and should be able to address your concern. But this only addresses your concerns about why you shouldn't hire a broker — it doesn’t explain why you should.

The first benefit is understanding the value of your property. A professional, qualified broker who specializes in your asset or area will be able to give you a price range to expect so that you can decide whether selling makes sense. If you move forward, this specialist will also have databases of the most qualified, active investors in the market and have relationships and influence with them. The ultimate buyer of your property will more than likely come from one of these relationships. But a broker won’t rely exclusively on these relationships. A good broker will also create a professional marketing plan with appropriate amounts of promotion across email, mail, websites, and listing services.

All this leads to the most important part of hiring a broker: competition. Trying to sell your building by letting a broker “bring you a buyer” is like having an auction for a painting, and one person shows up to bid. If the building is priced correctly, a professional marketing plan will create a competitive environment for investors so that the process itself determines not what the market wants to bid but what the market is willing to bid.

Larger portfolio owners might be reluctant to list with a specific broker because they have relationships with numerous brokers or firms in the market, and they don’t want to offend anyone by choosing a competitor. Instead, they tell every relationship to “bring me a buyer.” If this is you, think a few more steps down the chain of events.

First, this may only create chaos. You not only have brokers racing each other to bring clients, but each is advocating to you why their buyer is the best so that they can get the commission. Then you ultimately have to pick one buyer/broker anyway and disappoint the others after they’ve put work in. Alternatively, a listing agreement assures a commission for the listing agent if the property sells; therefore, there is no incentive to advocate for any one specific buyer.

An additional benefit of listing a property with a broker comes after a sale contract is signed. Any number of unexpected or challenging issues can arise during the escrow period of a sale. A seasoned broker has probably experienced something similar before. This person will also quarterback the entire process of due diligence, appraisal, and loan approval.

The most important benefit of exclusively listing your property with a broker is representation. You will have a hired gun with a fiduciary obligation to advocate for your best position in a deal. A professional broker will be ethical, transparent, and fair but will also be your personal fighter in the arena of marketing, negotiation, and escrow management.

This short list does not address every objection an owner would have for not listing, nor every benefit you receive from hiring a professional broker, but hopefully, it gives you a few things to consider. If you want to maximize your price and minimize your anxiety with the selling process, hire a broker. The benefits far outweigh the cost.

Have you thought of selling your property and would like to know what it's worth? Request a valuation for your property below:

Request Valuation

 

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Source: If You’re Hesitant To Hire A Broker For Your Multifamily Property Read This

https://www.creconsult.net/market-trends/if-youre-hesitant-to-hire-a-broker-for-your-multifamily-property-read-this/

Explaining the Breakdown of One Dollar of Rent

With so much discussion around rent payments and the prevailing misconception that rental housing owners enjoy large margins, the National Apartment Association (NAA) has released an explanation of the breakdown of one dollar of rent for 2022.

Because education is an effective way to counter harmful public policy and negative industry stereotypes, NAA offers this explanatory infographic breaking down a dollar of rent into its component parts.

The apartment industry must help society understand the benefits of rent payments for all Americans, whether or not they reside in rental housing.

From supporting 17.5 million jobs to the dollars reinvested into apartment communities to ensure quality living for more than 40 million residents, and through paying property taxes that finance schools, emergency services and other local needs to investor returns that include public pensions and 401(k)s, rent payment is much more important than one might otherwise realize.

 

Source: Explaining the Breakdown of One Dollar of Rent | National Apartment Association

https://www.creconsult.net/market-trends/explaining-the-breakdown-of-one-dollar-of-rent-national-apartment-association/

10 Common Themes Amongst Apartment REITs In 3Q22

10 Common Themes Amongst Apartment REITs In 3Q22

As fall earnings season comes to a close, we take a look at the 10 themes apartment REITs and REIT analysts discussed. From economic pressures to resident retention, here are the themes that illustrate how apartment performance has changed, including a few refreshed themes from the fall 2021 earnings season, and what it means as we head into 2023.

1. New and renewal lease rent growth is beginning to invert. As we head into the slower winter leasing season, new lease rent change has moderated considerably (as is consistent with RealPage Market Analytics data) while renewal lease rent change has continued to increase leading to lower loss to lease heading into 2023

2. Resident retention remains elevated. As leasing traffic has cooled and we return to more normal seasonal patterns, more residents are choosing to renew their leases, bolstering back-end occupancy and allowing for stronger rent rolls heading into the slow winter leasing season.

3. Move-outs to home purchases are down year-over-year. The Fed’s interest rate increases have pushed 30-year mortgage rates above 7%. Consequently, would-be first-time home buyers have pivoted, keeping many in the renter pool and bolstering resident retention rates.

4. Concessions are back… sort of. Overall concession value of about 2-4 weeks of free rent has remained fairly consistent throughout 2022. However, REIT executives reported strategic use of concessions to move certain unit types, compete with nearby lease-up properties, or as a marketing tool to boost front-end leasing.

5. Resident incomes are up. REIT executives, echoing our own data and analysis, confirm that their resident incomes are up, and despite increasing rents, that rent-to-income ratio remains very healthy in the low 20% range. This is well below the long-held 33% affordability threshold and illustrates that market-rate renters are keeping pace with market-rate rent increases.

6. Resident payments remain healthy. Resident payments and rental collections maintain strength. REITs are not seeing an increase in bad debt or delinquency while working through their backlogs and COVID relief money from the beginning of the pandemic.

7. No signs of recoupling… yet. With resident incomes keeping pace with rent increases, REIT executives have not yet noticed any signs of a “flight to affordability” via recoupling or doubling up. REIT executives will certainly keep a keen eye on any movement, but nothing has materialized on this front yet.

8. Expenses are up across the board. REITs noted that the largest expense item – property taxes – remains elevated heading into 2023. Large increases in utilities due to energy prices have emerged as inflationary pressure keeps maintenance, labor, and material costs stubbornly high. All said REITs anticipate elevated expenses to persist into 2023.

9. Cap rates are expanding. How much and to what degree is hard to tell as regional variations and slowing transaction volume have clouded the overall picture. Many REITs have slowed their own activity, pausing acquisition and disposition plans to take a wait-and-see approach, while the Fed continues its plans to fight inflation via prolonged interest rate hikes.

10. Slowing development starts in 2023. With uncertainty in the capital markets environment, many REITs are slowing or pausing their development pipelines in 2023, as development yields clash in a tug-of-war situation with cap rates and rising interest rates. The staggering volume of units under construction across the U.S. – over 900,000 at the end of 3rd quarter of 2022 – has likely peaked for the near term.

 

Source: 10 Common Themes Amongst Apartment REITs In 3Q22

https://www.creconsult.net/market-trends/10-common-themes-amongst-apartment-reits-in-3q22/

Mainstreet | 12.7.22 Market Report on Canadian Markets

Join the Mainstreet Global Council virtually as we get an update on Canadian markets from the Manitoba Association of Real Estate, while we give their members our market report. Enjoy this meet-and-greet opportunity with members of this Association and learn about real estate opportunities within this region of the world. You will have the opportunity to share your contact info, and network after when we break out into small groups.

For Mainstreet members who are attending the NAR Conference in November, you will also have an opportunity to meet many members of this association at our joint reception together on Friday, November 11th from 5 - 7 p.m.

 

Date & Time

Wednesday, December 7, 2022
10:00 AM - 11:45 AM CST

Format: Live Stream

Price: Free

Register

Source: Mainstreet | 12.7.22 Market Report on Canadian Markets

https://www.creconsult.net/market-trends/mainstreet-12-7-22-market-report-on-canadian-markets/

Mainstreet | 1.13.23 Commercial Economic Outlook Breakfast

Date & Time:
Friday, January 13, 2023
09:30 AM - 11:30 AM CST

Location:
Lorena's Banquet
543 W. Lake St.
Addison IL 60101
View Map

Format In-Person

Price: $35 Member $45 Non-Member

Register

Dr. Chan received his BBA in Finance & Investments from Baruch College in 1979. In 1983, Anthony received his M.A. in Economics followed by his Ph.D. in Economics in May 1986 from the University of Maryland. In addition, Anthony also spent time at the Board of Governors of the Federal Reserve in Washington, DC as a Doctoral fellow from 1985 to 1986. Upon graduating, he became an Economics Professor at the University of Dayton from 1986 to 1989 and successfully published many academic articles. Next, he joined the Federal Reserve Bank of New York as an Economist from 1989 to 1991. Anthony also joined Barclays de Zoete Wedd Government Securities, a Government Securities Primary Dealer, from 1991 to 1994 as a Senior Economist.

Anthony joined JPMorgan in1994 and retired in 2019. During his tenure, Anthony addressed over one hundred thousand clients each year and delivered presentations to many Central Banks around the world, including China’s PBOC, the Bank of Korea, and almost every Central Bank in Latin America. Currently, Anthony also spends a great deal of his time traveling around the world (e.g., to Asia, Europe, and Latin America) and in the United States delivering Client Presentations that focus on the Global Economy/Global Financial markets. Anthony is also a member of the prestigious Blue-Chip Monthly Forecasting panel. In addition, he served on the Economic Advisory Committee of the American Bankers Association from 2001-2002. One of his most important responsibilities of this ABA group was to brief Alan Greenspan and the rest of the board members in Washington, DC twice a year in an off the record session.

Anthony has also been quoted in media outlets such as The Wall Street Journal, Barron’s, The New York Times, The Washington Post, The Chicago Tribune, The Los Angeles Times, and Investor’s Business Daily. He has made over 650 live TV appearances in media outlets such as CNBC, CNN International, Fox Business News and CGTN, Chinese Television.

Deeper Personal Background
From Public Housing to Banking Royalty
Turning Adversity into Impact

Dr. Anthony Chan spent a quarter of a century as chief global economist for JPMorgan Chase, driving imperative dialogue around world markets and their impact on consumers and global communities. He’s fluent in the needs of different cultures and geographies; able to tailor his talks to industries, sectors, and convenings that are looking for insight and inspiration from someone who built their career from the ground up.

While Anthony retired at the top of his game, he didn’t get there through luck or leverage. His story is one of sheer grit. Born in New York City, to a Puerto Rican mother and Chinese father, his parents were blue collar; the former a maid, the latter a waiter at a Chinese restaurant. Their drug infested neighborhood tested Anthony but the powerful work ethic instilled by his parents kept him focused, dodging the perils of drugs and other risky behaviors. He worked the fryer at a local KFC which left him with scars on his arms from hoisting lard in and out of the scalding hot french fry machines - scars that, mistaken for track marks, earned him street cred and a wide berth from menacing neighborhood youth.

Sadly, Anthony’s dad died of a brain aneurysm when Anthony was in elementary school; an event that rocked his mom and caused her to dissuade Anthony from pursuing higher education and a demanding career for fear he would meet the same demise. She wanted him to stay the course: stick to his working class roots and help keep the family afloat. Anthony wanted more out of life. After becoming intrigued by a segment about economics on tv, so he told his mom he was going out partying but he snuck off to the New York Public Library to learn more about his new found passion. He studied courses on his own since no one - not his mom or his teachers - would support him in his quest to be and do better. He was told he was a half breed and that kids like him would never make it into the higher levels of society.

Anthony went on to become the first person in his family to receive his high school diploma and his bachelor’s degree, all on public assistance. Let that sink in.

He would go on to get his master’s degree and then his PhD. His thirst for knowledge is boundless; his desire to engage and move the world forward unstoppable. And now, in the next chapter of his life, Anthony is putting his vast experience to work for your audience: sharing insights, information, and inspiration that will accelerate innovative thinking and results for organizations and the communities they serve.

Dr. Anthony Chan was Managing Director, Chief Global Economist at JPMorgan Chase & Co. (1994-2019) in New York City. He earned his B.B.A. in Finance and Investments degree from Baruch College in 1979, and his master's (1983) and doctorate (1986) from the University of Maryland. He has worked as a professor at the University of Dayton, and was an Economist at the Federal Reserve Bank and at Barclays. From 1985 to 1986, Chan was a Doctoral fellow at the Board of Governors of the Federal Reserve in Washington, D.C. Anthony also serves as the Treasurer of the Skyhook Foundation.

 

 

Source: Mainstreet | 1.13.23 Commercial Economic Outlook Breakfast

https://www.creconsult.net/market-trends/mainstreet-1-13-23-commercial-economic-outlook-breakfast/

 

'We've Got To Figure Out How To Turn That Around': Multifamily CEOs On The Industry's Image Problem

CBRE's Laurie Lustig-Bower, TruAmerica Multifamily's Bob Hart, BRIDGE Housing's Kenneth Lombard, Langdon Park Capital's Malcolm Johnson and Avanath Capital's Daryl Carter.

Multifamily landlords are feeling the burn of unfavorable perceptions of their industry.

Affordable and market-rate apartment CEOs speaking at the Bisnow Multifamily Annual Conference this week in Los Angeles agreed that their industry had an image problem.

"We have to change the perceptions of the industry," Avanath Capital CEO Daryl Carter said. Avanath owns and operates about 16,000 apartments across 14 states. More than 80% of their units are affordable in the traditional sense, including tax-credit or Section 8 properties.

Carter said the AMI in the markets where his company is increased by around 12%, but he didn't think that he would be increasing rents that much, even though that measure dictates how much rents at his largely subsidized affordable apartments can go up.

"We have to think about the fact that we could do a 15 or 20% increase doesn't mean that it's responsible to do that," Carter said.

The pandemic brought a roughly two-year streak of runaway rent growth that now seems to be coming to a definitive halt. Stories of how well large multifamily owners did financially during the pandemic were a stark contrast to the tales of families with mounting rent debt.

"I think landlords, unfortunately, have become pariahs," TruAmerica Multifamily CEO Bob Hart said. "And now, we've got to figure out how to turn that around."

Langdon Park Capital CEO Malcolm Johnson, however, had a different perspective, saying that, over the last two years, "I've been met with more optimism and interest from great talent in joining a company like ours."

Langdon Park Capital's focus is on naturally occurring affordable housing in higher-cost areas like Los Angeles and Washington D.C., attempting to fill in the so-called missing middle housing for those who make too much to qualify for low-income housing but who are still renters by necessity because of the high cost of housing.

"I think today's worker wants to have some sort of passion about what it is they do and what it is we do presents that opportunity," Johnson said.

The public's negative views on apartment landlords are more than just words. Carter noted that these negative sentiments have undoubtedly fueled legislation in the Los Angeles area, like Measure ULA, and nationally, as rent cap laws have made a strong showing in markets where they were on the ballot, NBC News reported.

Some panelists acknowledged local legislation was a direct response to that anti-landlord sentiment, one that could have an impact on a big part of their business.

"It's going to affect buying and selling patterns in Los Angeles," Hart said of Measure ULA. It would likely, in the near term, be good for brokers, as some sellers push up their timelines to sell buildings before the tax goes into effect, said Hart, whose firm has over $10B in assets under management.

Panelists also discussed changes to the market that have come from rising interest rates, namely the return of negative leverage, or the phenomenon of interest rates on a property's mortgage being higher than the property's return rates.

"The reality is, we've had a universe where we've done lots of business at higher interest rates and at negative leverage," Carter said. "I think, to me, what stands out in the housing business is that we have an undersupply of housing that is chronic, and the fundamental demand drivers are very, very strong."

Hart said that prior to the Great Recession in 2008, doing deals with negative leverage was not uncommon. Hart said it remained to be seen whether that will once again become normalized and people will find a way to do deals again in similar circumstances.

"We're going to be banking on growth," Hart said. "That's what's driving the durability of this business, and you're going to suffer in the short term from less cash flow. Whether the investor wants to take that ride, time will tell."

BRIDGE Housing CEO Ken Lombard said that he fully expects people with well-capitalized projects to continue to wait for conditions to improve, knowing that the cyclical nature of the business means that conditions will, eventually, improve.

"If you've been around the block, you've seen numerous cycles similar to the one we're in now," Lombard said. Lombard is at the helm of one of California's largest affordable housing developers with a $3B portfolio and 14,000 units under management.

 

 

Source: We’ve Got To Figure Out How To Turn That Around: Multifamily CEOs On The Industry’s Image Problem

https://www.creconsult.net/market-trends/weve-got-to-figure-out-how-to-turn-that-around-multifamily-ceos-on-the-industrys-image-problem/