Updated: Jun 11, 2022
May 02, 2022 at 08:28 AM
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Debt funds, life insurance companies and banks are out-competing the agencies on market-rate multifamily deals.
“For the first time in a while, there is an open question as to whether the agencies will use the full amount of their volume caps,” David Brickman, the former CEO of Freddie Mac and the current CEO of NewPoint Real Estate Capital, tells GlobeSt.com. It is a surprising turn of events, considering that the Freddie Mac and Fannie Mae, the two major agencies, have dominated the multifamily lending markets for years. However, in the first quarter, Fannie Mae saw $16 billion in originations, compared to $21.5 billion in for 1Q21, a 25% decrease. Although Freddie Mac’s volume increased to $14.9 billion in the first quarter from $13.9 billion a year ago, representing growth of 7.3%, when combined the two agencies saw a roughly 13% decrease compared to the same time last year.
“I expect that they are at something close to a Great Financial Crisis-level low in terms of market share. So much more business has gone to debt funds but also to banks and life companies. Life companies have been pretty aggressive,” Brickman tells GlobeSt.com. “If you are modest leverage, longer-term fixed rate financing, institutional product, the life companies have always been a good fit. If the agencies can’t provide higher proceeds, then they are not able to continue. That is where we are for non-affordable, non-mission properties.”
It isn’t only core and core-plus market-rate properties that are securing alternative financing. Value-add players are utilizing bridge lenders and debt funds in place of the agencies. Banks are also picking up a lot of business that would have otherwise gone to Freddie and Fannie.
“Banks have become more aggressive in trying to put multifamily onto their books the last few years as deposits have increased,” says Brickman. “It is a more well-rounded market than it has been in some time.”
Higher interest rates could change this dynamic and bring the agencies back into the fold, but Brickman also says the opposite is also true; higher rates could make them even less competitive. “It will be the interesting thing to watch as rates go up and potentially cap rates go up,” he explains. “Does that give them the opportunity to be more competitive or does that just propel forward the same market dynamics where they are having challenges.”
The agencies aren’t totally out of favor; they still generate a significant amount of business—but there has been an undeniable shift in the market and more activity from other financing sources. “The agencies are still huge players and are still influential,” says Brickman. “But, they have been less dominant and lower share than they have been.”
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