NEW YORK - Berdon LLP Chair of Real Estate Services, Seth Molod, CPA, moderated a panel discussion on financing and lending trends as part of Bisnow's "NYC Multifamily Residential Outlook" held at Manhattan's Grand Hyatt on February 28, 2017.
In a career spanning more than 25 years, Mr. Molod has advised some of the nation's most prominent real estate owners, developers, managers, and investors on both commercial and residential projects. Mr. Molod works on transactions in the hundreds of millions of dollars; advises on restructuring and loan workout transactions; and assists with obtaining various types of financing - including traditional, mezzanine, and securitized financing - for a variety of projects.
Joining Molod on the Bisnow panel were:
The six industry experts covered a variety of topics during their 45 minute discussion, but focused the conversation on the current state of the financing market, 421a. and regulatory incentives impacting the industry, as well as the outlook on interest rates and the New York City multifamily market.
Financing and Lending Market
Molod asked Cannon about new programs from Freddie Mac in the last 12 months. Cannon noted that the Multifamily Green Financing program, "for vintage, older assets" provides mortgage financing to apartment buildings and cooperatives to finance energy and water efficiency property improvements.
In the construction financing market, Sedrish said that as credit markets have tightened, there has been a pullback in providing capital. "I don't see that changing in near future," he concluded. Cannon concurred, adding that regulators issuing warning letters caused concern for banks that if they keep providing construction loans; they will be subject to increased scrutiny.
On a positive note, Guttroff mentioned that the bridge market continues to be robust. He said that clients are now looking for more value added deals than they have in the past. Loans are maturing that may not qualify lenders for another 10 year loan.
"There is considerable competition in the market. Lenders are choosing their sweet spots so there is a lot of opportunity," said Guttroff.
Even though most lenders on the banking side are being cautious, Herzka said that construction and recapitalization deals are happening and there is still pricing that is competitive.
Molod commented that every market gives rise to different financing markets and asked the panel about the types of subordinate financing opportunities that are the most appealing in today's market.
"We are doing more on the preferred equity side. We do a lot of accrual in our rates. Portion is current pay and the rest is accrual," said Sedrish.
421a and Other Industry-Specific Incentives
Molod inquired about the prospects for low income housing and Fletcher commented that there are challenges due to the expiration of 421a. He said that land prices have been at incredibly high prices and a lot of development has been via new joint ventures. Regarding the future of 421a, Fletcher said, "Affordable housing has been a huge centerpiece of the de Blasio Administration and we are waiting to see what happens."
Molod turned to regulatory issues beyond the uncertainty over 421a and Fletcher felt that proposed regulations are promising and should provide a program to allow potential for developers to secure financing and build. The EB-5 Program (targeting foreign investors), up for reauthorization for 15 months, has been extended on a short term basis.
"Every time EB-5 is up for reauthorization there is uncertainty," said Fletcher. "The single biggest issue for developers is when will the capital through EB-5 be available?"
Interest Rates and Market Outlook
"Where are rates going over the next 12 months?" Molod asked the panel.
Looking at New York City's multifamily market, Herzka said that, "Infrastructure is important. In many buildings, tiles are falling." Looking ahead, he felt that major cities like NYC will benefit from job creation, which brings with it apartment needs. He was less sure that this demand would drive interest rates like it should. In fact, Herzka felt rates will likely not rise dramatically. "A lot of debt locked in long term rates. LTVs are good, and risk is taken more on equity and fund side and not bank side," he said.
Cannon offered a very positive outlook for the multifamily market. Noting that the age of buy and hold for generations is over, Cannon said that new buyers hold investments for only 3-5 years.
"This will increase the velocity of transactions and help drive capital to multifamily," said Cannon.