Category: Financing

Loans for Speculative Projects Continue to Flow in Industrial, SFR Build-to-Rent Sectors

While lenders are remaining disciplined, they feel there’s plenty of demand for industrial space and single-family rentals.

As this real estate cycle stretches out, the availability of financing for speculative development appears to be more constrained than during the last market peak, although opportunities continue to present themselves to investors betting on the growing e-commerce distribution sector.

Financing of speculative construction is somewhat common in the industrial sector and typically the only way development occurs when it comes to apartment, seniors housing and self-storage properties. It’s far less available for retail and office construction, but it is emerging in single-family build-to-rent communities.

“Things are robust and positive in terms of the overall amount of capital looking for investments in the real estate space,” says Lauro Ferroni, director of research with real estate services firm JLL. “We projected a minor decline in overall transaction volume for the U.S. in 2019, and we are really seeing the market moving in line with those expectations, so we aren’t seeing any real surprises at the moment.”

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Freddie Mac: Mortgage rates tick up, reversing course from last week’s 3-year low

This week, the 30-year fixed-rate mortgage averaged 3.75%

This week, the 30-year fixed-rate mortgage averaged 3.75%, slightly rising from last week’s 3-year low of 3.73%, according to the Freddie Mac Primary Mortgage Market Survey.

Despite this week’s increase, the rate is more than three-quarters of a percentage point lower than a year ago when it averaged 4.52%.

Freddie Mac Chief Economist Sam Khater said the country is experiencing a tug of war as the fixed income market flashes warning signs while the equities market continues to march higher with optimism.

“The data suggests the economy is weakening but is still on very solid ground with high consumer confidence and strong labor market,” Khater said. “Closer to home, the housing market continues to slowly improve and gain momentum as we head into the second half of the year, which is good news and should keep the economy growing.”

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New York Rent Rules Pose Risks for Apartment Lenders, Fitch Says

A Fitch Ratings report notes lenders that finance capital improvements to regulated apartment buildings might be affected.

(Bloomberg) –New York’s sweeping rewrite of rent stabilization laws could pose a credit risk to lenders that finance capital improvements to regulated apartment properties, according to a report today by Fitch Ratings.

The new state laws severely curtail landlords’ abilities to raise rents on stabilized units, and also put a cap on how much they may recoup for improvements they make to their buildings. Owners who make significant repairs won’t be able to raise rents by more than 2%. That’s down from 6% before the laws were passed last week.

“Absent significant creditor protections, exposure to such loans is viewed as incrementally credit negative,” Fitch said.

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Fannie-Freddie Shares Slide as Mnuchin Dims Investors’ Hopes

Mnuchin has said the Trump administration won’t release Fannie Mae and Freddie Mac from government control without an overhaul of the housing finance system.

(Bloomberg)—Treasury Secretary Steven Mnuchin made clear that freeing Fannie Mae and Freddie Mac from U.S. control won’t happen without a major overhaul of the nation’s housing finance system, potentially dashing investors’ hopes that they might soon make a windfall from their stakes in the mortgage giants.

In a June 8 interview, Mnuchin was adamant that the Trump administration won’t just let Fannie and Freddie build up their capital buffers and then release the companies. He also said he backed a key reform that can only be implemented by Congress, casting doubt on how ambitious the administration will be absent a legislative fix. Fannie and Freddie shares plunged on his comments.

“What we’re not going to do is business as usual with no changes, just re-capitalize them and float them,” said Mnuchin, referring to a possible public offering of Fannie and Freddie shares. “There needs to be housing reform as part of this.”

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Fannie-Freddie Revamp Risk for Trump: Higher Mortgage Costs

FHFA Director Mark Calabria doesn’t want to release Fannie and Freddie unless they have sufficient capital buffers, which would mean higher mortgage costs.

(Bloomberg)—Fannie Mae and Freddie Mac’s watchdog has a vision for ending U.S. control of the mortgage giants that hinges on the companies holding more capital. But that dream could run into a cold political reality of making home loans more expensive as President Donald Trump ramps up his re-election bid.

Federal Housing Finance Agency Director Mark Calabria, who became Fannie and Freddie’s regulator in April, has said the companies need to raise capital buffers to protect against the kinds of catastrophic losses they had during the 2008 financial crisis. He doesn’t want to release Fannie and Freddie unless they have sufficient backstops to prevent another taxpayer bailout.

“It was insufficient capital that triggered the conservatorship, and it’s going to be sufficient capital that triggers an exit,” Calabria, a Trump appointee, said last month at a mortgage banking conference in New York. He added that he wants Fannie and Freddie ready to start raising funds by January.

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Multifamily Borrowers Still Have Lots of Options for Constructions Financing

Banks continue to have an appetite for loans on multifamily construction projects.

Investors can still find the financing they need to develop apartment properties.

“If you can get a site to build, there are people who would love to lend on it,” says Bill Leffler, vice president in the multi-housing group of real estate services firm CBRE.

Interest rates remain low and many lenders are willing to make multifamily construction loans. However, these lenders have become more cautious as the cost of construction has grown faster than apartment rents in many parts of the country. Lenders are looking very carefully at the sponsors who ask for construction loans and the markets where they plan to build.

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How the Interests of EB-5 Investors and CMBS Lenders Can Sometimes Be at Odds

Situations where a property changes hands or defaults may prove tricky for situations where an EB-5 project is financed by a CMBS lender.

A notable characteristic of the real estate capital markets over the last 20 years has been the ability to access non-traditional sources of capital for both debt and equity investment in U.S. commercial real estate. One such source is the EB-5 investment/visa program. Created by Congress in 1990, the EB-5 program creates a fast track for non-U.S. citizens toward a green card in return for capital investment in qualifying U.S. domestic businesses and projects. The EB-5 program has garnered its share of controversy for possible abuses, but can also lower the cost of equity capital for a developer.

An often overlooked issue is the interplay of EB-5 financing with the requirements of a CMBS lender, where the developer, EB-5 investor and CMBS lender have objectives that are in conflict, at least initially. In particular, the EB-5 investor may seek decision-making and investment accrual rights not acceptable to CMBS lenders.

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Keep Bridge Loans in Your CRE Finance Arsenal

As banks raise their requirements and construction costs rise, these loans have become an even more useful tool in the value-add and redevelopment space, says Calmwater Capital’s Tristine Lim.

In today’s commercial real estate lending climate, owners and developers increasingly see bridge loans as an essential tool―almost a magic bullet―that can overcome hurdles to remain competitive in the multifamily marketplace. As the cost of home ownership continues to price middle-income earners out of the buyers’ market and into the rental marketplace, multifamily owners continually invest in their properties to attract this group and grow profits.

When it comes to the cost of value-add construction or redevelopment―whether it’s the cost of construction, the need to refinance or consolidate debt, or a desire to buy out other owners―bridge loans have become the weapon of choice in this segment of the market.

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Borrowers Cash in on Competitive Debt Fund Space

Debt funds looking to make bridge loans are facing high competition for deals.

Borrowers are taking advantage of the crowded debt fund space to find some pretty sweet deals on short-term bridge loans.

Competition has heated up in the past six months on financing transitional assets that have a renovation plan or a value-add component, especially those that have in-place cash flow.

“We are seeing some very, very aggressive loans being done,” says Vicky Schiff, managing partner and chief operating officer of Mosaic Real Estate Investors in Calabasas, Calif., a debt fund manager and private lender.

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Bank of America aims to boost homeownership, will give borrowers up to $10,000 to close a loan

Launches $5 billion affordable homeownership initiative

Bank of America is committing $5 billion to help boost homeownership for “low- to moderate-income and multicultural homebuyers and communities” across the country, the bank announced Tuesday.

According to the bank, it plans to commit an additional $5 billion over the next five years to its Bank of America Neighborhood Solutions program, which “will help more than 20,000 individuals and families thrive through the power of homeownership.”

And as part of the program, Bank of America is rolling out a host of new loan programs and options, including grants of as much as $10,000 to help a borrower close a loan.

One of the new options in the Neighborhood Solutions program, which is set to launch in the second quarter, will see the bank giving “eligible borrowers” as much as $10,000 that can be used toward their down payment or closing costs when they get a Freddie Mac Home Possible mortgage.

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