but also such entities as REITs and finance companies,
accounted for 27% of loan closings in the third quarter, up from
16.4% in Q2 and 13.1% a year ago, according to CBRE. These
lenders are also filling a gap left by traditional lenders with their
aggressive placement of construction and bridge assignments.
There is little sign today that liquidity will dry up. Not only are
multiple funds entering the market but the fund size for these
strategies continues to scale up, as two recent deals illustrate.
These are LaSalle Investment Management’s decision to buy a
majority stake in the $1.2-billion debt fund business of Latitude
Management Real Estate Investors and AXA Investment
Managers’ move to acquire a $9.4 billion portfolio of US commercial mortgage loans from Quadrant Real Estate Advisors.
Latitude provides short term, floating-rate loans against
middle-market CRE assets with a focus on originating
bridge loans for value-add and transitional properties.
“Latitude’s lending model targets a differentiated market segment that has enabled them to grow significant share in the
value-add, transitional asset space, while avoiding the risks
associated with development lending or higher leverage strategies,” says Jason Kern, CEO of LaSalle’s Americas private
As for AXA Investment Managers, its pending acquisition
helps fulfill its commercial real estate senior loan mandates
and turn the main focus of its real estate debt platform from
Europe to a more global one, according to Isabelle Scemama,
CEO of AXA Investment Managers-Real Assets.
DEBT PARTNERS WITH DEVELOPERS
Debt funds are also teaming up with developers in many cases
to build the assets they want, if they cannot find suitable ones
to buy, says Richard Kalvoda, senior EVP of advisory at the
Altus Group. “The developer looks at it not only as getting
financing from these alternative lenders during the development stage, but also as an opportunity to transfer the ownership or property without having to carry it themselves,” he says.
The lenders, for their part, come in as preferred equity as JV
partners. “It’s a way for them to get into the equity side of the
market without having to go out and compete for, or construct,
the asset themselves,” Kalvoda says.
So profitable is this game that some developers are starting
to lend to their counterparts, says Steven F. Ginsberg of Chicago-
based Ginsberg Jacobs. “Many are willing to take a safer
position, but one that also allows them to use their skill sets.”
Institutional investment in debt is also rising, especially as
certain vehicles become more palatable to investors. When
Fannie Mae recently added a REMIC structure to its CAS cred-
it-risk transfer program, REITs responded far beyond expecta-
tions, according to Laurel Davis, VP of credit risk transfer.
The GSE had been working for over a year on a way to convert
its CAS program to issuing it as a REMIC, or a real estate mortgage investment conduit. Fannie Mae’s solution, Davis explains,
was to change the tax selection on the loans as it acquires and
securitizes them into an MBS. Once the CAS notes are REMIC
eligible, they become debt for tax purposes.
The GSEs also, of course, are providers of plentiful debt on
the front end—meaning to borrowers. One example is the
recent $800.45 million in financing that Toronto-based Starlight
“Given the high-per-forming nature of the
assets and diversity of the income stream, Freddie Mac’s structured solutions group was able to customize an incredibly flexible and attractive debt execution,” HFF senior managing director Matt Kafka said at the time the deal was announced.
HOW SUSTAINABLE IS IT?
A key question for borrowers is whether this bounty of debt will
persist. The good news is that the GSEs will continue to lend at
approximately the same level in 2019 as 2018, according to the
Federal Housing Finance Administration’s recently released
2019 Scorecard. This is a significant signal, as it is each year,
of the amount of liquidity expected in the multifamily market.
“It’s definitely the headline to watch as multifamily is clearly a
very important part of our overall market,” Stoffers says.
The scorecard sets the caps for GSE lending and also outlines the categories that are exempt from these limits. Typically,
the exemptions are affordable, rural and manufactured housing, and in recent years, green financing.
GSE lending has been robust for 2019, and indeed the caps
and exemptions set for 2018 had been considered sufficient to
support market activity. Year-to-date through September, combined Fannie and Freddie multifamily loan purchase volume
totaled $90.7 billion, just shy of the record-setting pace of
$91.6 billion for the same period in 2017, according to CBRE
data. But the FHFA did modify the green exemption in its 2019
Scorecard, which is unfortunate since the platform has been a
Pricing has come down dramatically
with debt funds, probably because
of the sheer volume of their business
and the equity behind them that’s
looking get decent returns.
Brian Stoffers | CBRE Capital Markets