Facts about the Capital Stack: Connect Texas Multifamily
Capital is the lifeblood of any kind of multifamily development or investment. And, invariably, the question arises as to whether there is enough of that lifeblood to go around. According to panelists participating in the recent Connect Texas Multifamily, the answer is “yes” — the capital exists. However, in “The Ultimate in Texas Hold ‘Em: Buy, Sell, Build, Sell & Lend” panel, moderated by The Multifamily Group’s Paul Yazbeck, that capital might not necessarily be coming from the typical sources. Namely, the agencies.
“Fannie and Freddie are trying to pump the breaks, and they’re being a lot more selective, because they don’t want to reach their cap before the end of the year,” observed Hunt Real Estate Capital’s John Sloot. If the project is affordable, or is green, or is both, then the sponsor can still get decent pricing from the GSEs. However, if it’s not, “we are recommending borrowers to wait until the end of this year, so it’ll be up early next year,” Sloot said.
James Eng with Old Capital Lending also pointed out that Fannie Mae and Freddie Mac are becoming more selective when it comes to smaller loans. “Right now, the number of small loans coming through Fannie and Freddie are high, because the interest rate is low,” he commented. “When non-recourse is in the high 3% or low 4% range, it won’t be around for long. Fannie and Freddie will stop doing those types of loans, until interest rates are pushed.”
The agencies are a little leery of refinancing, as well. Jay Porterfield with PGIM Real Estate Finance told everyone in the room that, at this point, Freddie Mac’s stance is that it doesn’t want to deal with discretionary refinances, but will continue to support refis attached to maturity dates. “Fannie hasn’t taken that stance yet,” Porterfield added. “But they’ve hinted they might, if business doesn’t slow down.”
However, private borrowers and asset-based lenders, such as Parkview Financial, are open for business, and aren’t concerned about any kind of cap or ceiling. “We’d like to have the opportunity to provide you with construction loans, and can do so sooner than the agencies,” the company’s Larry Perry said, to chuckles from panelists and attendees. “Keep that in mind.”
At one point during the panel, Yazbeck asked the finance experts what might catch their attention, especially as it pertains to Class B and Class C assets. While Sloot pointed out that an upgrade in curb appeal and customer service were important, Perry indicated that a focus on the amenity side also required attention.
The session concluded with Yazbeck’s question: What advice would the panelists offer to new syndicators that needed to get deals done? Sloot and Perry stressed that having the right operations people in the right place was important, while Old Capital’s Eng and PGIM’s Porterfield suggested that syndicators take their time and build their reputations.
“Maybe on the first deal or two, partner with a key principal with experience,” Porterfield suggested. “It might help you get the deal done more quickly, while building your experience and reputation.” Added Eng: “Don’t try to hit a home run on the first deal. Take a little less leverage and less equity; just make sure the partners are happy. There’s plenty of time to make more money on the second deal.”
Pictured (L-R): Paul Yazbeck (The Multifamily Group); James Eng (Old Capital Lending); John Sloot (Hunt Real Estate Capital); Larry Perry (Parkview Financial); Jay Porterfield (PGIM Real Estate Finance)