Halfway through 2021, Life
Companies are well on their way to their year-end goals and beyond. In the current low interest-rate environment, Life Co's ability to provide borrowers with a long-term fixed-rate financing option continues to be heavily sought after. In order to win multifamily and industrial deals, Life Co's continue to provide creative solutions to borrowers with prepayment flexibility, forward rate-lock ability, and higher proceeds in addition to their low-interest rates. As the vaccine rollout continues to take effect, the appetite for retail has expanded beyond the grocery-anchored centers. We're seeing suburban office deals close with favorable terms from Life Companies, as they continue to benefit from tenants returning faster than those in urban office locations.
As a result of the drop in treasuries over the past 2 months, Life Co's are managing spreads and interest-rate floors accordingly. Quality assets with a moderate leverage request continue
to see rates in the high 2s and low 3s. As we progress into the 2nd half of the year, we anticipate that Life Co's will continue their pace of production by offering borrowers the most attractive rates and terms in the market.
- Jacob Lee, Vice President
Agencies
As we enter Q3, the agencies are closely monitoring their 2021 caps of $70B for both Fannie and Freddie. Starting in early June, Freddie was behind pace to hit their cap so they reduced spreads and took on deals with a bit of structure to
aggressively win deals. That lasted for about 5 weeks as new business flooded in, and they are now back on pace. As such, their spreads have increased by 20bps over the past week.
Fannie on the other hand was incredibly active and aggressive in the first part of 2021. This caused them to outpace their $70B cap and they have been pickier on deals mainly focused on large pools with select premium sponsors and deals in tertiary markets with less competition from life insurance companies.
Given their 2021 increased focus on deals with affordable components, both Fannie and Freddie are still winning those deals on dollars and rate. Market rate apartments continue to face heavy competition from life insurance companies, banks, and credit unions. This may shift as 2022 agency caps will be issued closer to Q4.
- Grady Seldin, Vice President
Credit Unions
Credit Unions are usually the go-to lender for deals in which the borrower desires maximum prepayment flexibility. Their “box” remains similar to the rest of the finance world’s – apartments, industrial, retail, and office, in that order. They are generally comfortable with both
multi-tenant industrial and apartments and can go up to 70% LTV. Retail gets a little trickier because they usually want the highest-quality tenants with credit ratings. However, they are still very competitive on well-performing retail properties containing tenants with corporate guarantees and long-term leases with escalators. Rates are between 3.25%-3.75% for multi-tenant industrial and apartments. Retail and office will usually price around .25-.50 bps higher in this market. On lower-leverage deals, they are still at least somewhat generous on interest-only.
- Jonny Soleimani, Vice President
Debt Funds
Debt funds remain very active with rescue capital, loans for transitional assets, and money in need of a quick closing. There is no shortage of players charging 6-10% plus points for origination and exit fees for short-term interest-only capital with little to no prepayment structure. To differentiate themselves from the pack, some debt funds are offering creative structures like negative amortization where, during the loan term, the borrower pays a reduced pay rate with the difference between the pay rate and the actual interest rate accruing until the loan
payoff. Others have created alliances with permanent lenders in order to offer reduced pricing if the borrower will agree in advance to a refinance exit with one of the fund’s lending partners.
Debt funds also remain one of the few options for true non-recourse construction financing, although it is important to have an expert review loan documents very carefully as subtle language may effectively give lenders recourse if not negotiated. Pricing for these loans is expensive and often in the 8-10% range plus fees which is driven by the increased cost of capital for these lenders as well as the scarcity of lenders providing non-recourse construction financing.
