Mortgage News - Lenders Are Scrutinizing Multifamily Borrowers More Closely

Lenders Are Scrutinizing Multifamily Borrowers More Closely

Mortgage News June 26, 2023

Multifamily investors and developers are facing increasing difficulties in financing their ventures due to recent bank collapses and rising interest rates. Banks are becoming more cautious, offering fewer loans and prioritizing profitable assets to manage their capital and avoid future risks. This cautious approach has impacted loan amounts available to clients, as banks underwrite to higher interest rates than what is advertised. Refinancing is also challenging, as borrowers may qualify for smaller loan amounts and require additional cash or alternative capital sources.

Financing construction projects is particularly tough, as the absence of cash flow raises lenders’ risk. Despite a significant number of multifamily properties under construction, the higher interest rates on construction loans, typically above 8 percent, make it harder for projects to be financially viable.

Fannie Mae and Freddie Mac, taking on a larger market share, are also becoming more selective, with loan-to-value ratios (LTVs) currently around 50-55 percent, compared to 70 percent a year ago.

Private lenders like DLP Capital have seen a surge in debt business as banks have reduced their lending. Borrowers are struggling to make deals viable due to borrowing costs surpassing cap rates. Negative leverage hampers real estate activity. Despite the challenges, borrowers are adjusting underwriting and focusing on income and cash flow. However, higher interest rates, reduced leverage, and lower cap rates limit property affordability. Waterton and other borrowers are building larger financial buffers to adapt to increased costs and lending constraints.

Noah Kaufman, an acquisitions associate at Universe Holdings, highlighted the importance of adaptability in response to changing Treasury rates. The firm is capitalizing on compressed cap rates in suitable opportunities. Universe Holdings has adjusted its loan strategies to align with the current market conditions, focusing on conservative loan periods with compressed capitalization rates.

Remaining cautious in underwriting practices, considering assumable financing and positive leverage, has yielded positive results for the firm. Despite financing challenges, Universe Holdings continues to receive numerous offers and remains optimistic.

The multifamily sector enjoys advantages such as sustained demand and accessible agency lending. Higher interest rates in the single-family market and healthy employment figures contribute to opportunities in multifamily investments. However, many lenders do not differentiate between property types, which may lead to caution and reduced lending after experiencing losses in their portfolios.

Need a loan officer list, real estate agent list, insurance agent list, investment advisor list or contractor list in your area? Contact Jennifer Swanson at 260-223-9203 or Jennifer@SpecialtyContactDatabases.com

Mortgage News Blog

Lenders Are Scrutinizing Multifamily Borrowers More Closely

Contact Us/Order Samples