The year 2024 has created a significantly different lending environment for commercial real estate owners and investors than the post-pandemic environment. As we approach the fourth quarter, circumstances are changing. Connect Texas Multifamilytaking place on August 20 at the Virgin Hotels in Dallas, Vic Clark, senior managing director at Lument, will be among the financial experts providing insights into what to expect. Before participating in the panel “Dealmaking Update: Making the Numbers Work,” Clark set the stage for the discussion.
Q: When you look at the current lending landscape, you see banks and other more traditional sources holding back on lending for certain types of properties. Are they doing the same for multifamily properties?
A: It partly depends on who you talk to. The banks, the pure banks, have been pulling back for many years. They are under enormous pressure to clean up their existing balance sheets and try not to extend the problematic deals any further. They are putting a lot of pressure on borrowers to either refinance, sell or otherwise pay down the loans significantly in order to reduce the bank’s risk. So depending on which bank you are talking about, you see a lot of that. But in general, most banks are in the same boat. They don’t want to make a lot of new loans until they have worked through their existing loan book.
Q: Do you expect this to remain the status quo for the remainder of 2024?
A: I think so. I think it will hopefully stay as it is. A slightly more aggressive assessment would be that most of this will be done by the end of the year. But relatively conservatively, I think that by the middle of next year – say spring or early summer – a lot of the big problem loans will have resolved themselves or been sold. That will open up people’s balance sheets to make more new loans.
Q: Given the current situation, what would a borrower’s self-running loan application look like?
A: For multifamily, you want to come to the negotiating table with very stable, often slightly increasing, revenues over the last three, six, or 12 months and stable expenses and completed tax assessments. And then you have a solid insurance quote. Given the upward trend in this sector, I strongly recommend that anyone get a new quote from three to five different insurance companies. So that’s the ideal: stable, solid expenses for insurance and taxes and solid revenues.
A: Are some of these elements things that would not necessarily be as important in a low interest rate environment?
A: Low interest rates obviously solve a lot of problems, right? They can guarantee lower collections and higher expenses and absorb troubling trends just because interest rates allow you to get proceeds that you otherwise wouldn’t be able to get or close the deal way too close in terms of covering debt service. So the nearly 100 basis point decline in Treasuries over the last six months has really helped significantly. When Treasuries were at 450 and above, the whole world was on hold because none of the deals were really working. But once they got above 380, my phone started ringing off the hook and I’m sure everyone else’s did too.
Q: Do you find that borrowers are becoming a little more creative when they come to you for a loan, or do they still expect the lender to come up with a creative solution?
A: We’re fortunate that most of our clients are repeat clients. And with new clients, it’s a team effort where we try to use our knowledge from working on hundreds of deals and offer solutions to the borrower. We also expect the borrower to offer solutions to try to fill the gap if there’s a gap, and there have been many gaps. It’s a two-way street. We want to continue the relationship with our clients. Ideally, they want to continue working with us. So we try to bring everything we can to the table.
Q: Would you like to make any further comments?
A: I’ve been telling my clients this for about three months: I expect that between now and the end of the year, all the lenders are going to be very busy. Both Fannie and Freddie have been busy already, basically since mid-June. And now we’re in early August. Over the next six months, it’s going to be a mad race to get the attention of all the lenders. And you’re going to have to get in line and be patient while the volume of business gets processed.
Today is the day! Visit us this afternoon in Dallas at Connect Texas Multifamily to receive input from executives and experts from the Lument, Legacy Partners, Tower Capital, Transwestern, Kairoi Residential, TruAmerica Multifamily, LaTerra Development, Helu Capital, Institutional Property Advisors, RCKRBX, Greystone, ZOM Living, and more! Don’t miss the most anticipated event of the year, bringing together the most active investors, owners, developers, forecasters, managers, brokers, lenders and more doing business in Texas. Register online or on-site and we’ll see you today at the Virgin Hotels Dallas venue!
