As we approach the end of 2021, Life Companies are patting themselves on the back for a job well done and starting to schedule closings for Q12022. Life Cos across the board have put out their total
annual allocation and then some, which is certainly a great “problem” to have. That being said, we’re seeing several Life Cos with competitively priced solutions that are longer than the typical 10-year term, offering borrowers an opportunity to lock in a low 3s interest rate and hedge against any potential rise in rates. For example, PSRS recently locked rate on a deal with one of our correspondent Life Cos at 2.98% on a 15-year term. With the recent increase in treasuries, we have seen some spread compression from the Life Cos and rates remain competitive in the low 3s. While the days of sub 3% deals may be gone, for the time being, Life Cos are offering forward-rate locks for deals that can close in Q12022. Multifamily and Industrial properties continue to receive the most attractive interest rates in the low 3s and most aggressive leverage, 65% LTV and above in some cases, from Life Cos.
As we look into 2022, we anticipate that
Life Cos will increase their annual goals and allocations by 10%-20%. To achieve those lofty goals, we expect them to remain aggressive on multifamily and industrial deals while expanding on their demand for office and retail products.
- Jacob Lee, Vice President
Agencies
Agencies are able to outcompete other lenders on any multifamily deal with an affordable component anywhere in the nation. They've been able to win even against the most aggressive banks by utilizing more interest-only terms. Rates, in
general, are slightly up from last year, but agency lending is still very much in demand because of how tight they can underwrite deals and their ability to win with interest-only components. Rates start from slightly inside 3.00% for more conservative deals all the way up to the 4.00% range. It really depends on the leverage request and how they underwrite debt service coverage ratios.
- Jonny Soleimani, Vice President
Credit Unions
Similar to most debt providers, credit unions are enjoying a strong 2021 with most already achieving their annual production goals for the calendar year. The bulk of this production has been through repeat borrowers who already have gone through intensive underwriting with a clean debt service
payment record. Credit unions, like most lenders, prioritize existing borrowers when their pipeline is bogged down, which has been the case for 2021. Borrowers also feel comfortable with a repeat lender especially with tight timelines to fund and/or close deals. The ability for credit unions to recognize and execute on tight timelines is further driving the repeat business as the acquisition market is incredibly aggressive with diligence being waived, buyers offering condensed closing timelines, and all-cash offers becoming the norm. For these reasons, borrowers are willing to take on the recourse, intensive underwriting, and slightly above market rates, compared to having the luxury of time to find a non-recourse, low-rate leader.
Credit unions generally offer standard 5- & 7-year fixed-rate terms with an option to extend for another 3-5 years for a mark-to-market rate. For credit unions who typically play in the more conservative, 50%
LTV, space rates are in the 3.25%-3.75% depending on deal specifics and desired term. Those who are willing to increase leverage to 65-70% are pricing in the 3.75%- 4.25%. While the underwriting process is intensive with a heavy focus on the guarantor’s global cash flow, credit unions serve a niche in the financing market, especially for repeat borrowers.
- Grady Seldin, Vice President
Banks
Banks and agencies are currently the most competitive lenders for multifamily assets. The combination of tight debt service coverage ratios, high LTV’s, and some form of a flexible prepayment schedule make banks ideal lenders specifically for apartment purchases or refinances with a cash-out
component. Although the 10-Year Treasury has stabilized relative to its fluctuations during Covid-19, Banks are aggressively sending out tear sheets and email blasts, showing their high interest for multifyfamily deals. Industrial financing demand remains high, with some banks adding interest-only terms in either multifamily or industrial deals to distinguish themselves and win the deal. Banks are more selective on retail, showing preference for grocery-anchored or those occupied by creditworthy tenants.
Retail headwinds seem to have stabilized as lenders seem to better understand the impact of e-commerce on the brick and mortar landscape. The path forward for office, however, is much less clear since work-from-home trends have continued. Apartment and industrial pricing from banks are usually around 3.25%-3.50%, higher or lower depending on the level of risk inherent in each individual deal and arising from other components such as
location, sponsor, tenancy, etc. Although relatively attractive rates, the lowest rates in the apartment and industrial lending markets continue to be from Life Companies on lower-leverage deals, and by a wide margin.
