Colorado Real Estate Journal - May 6, 2015
With the first quarter of 2015 in the books, lenders’ appetites for commercial and multifamily real estate loans continue to be some of the strongest on record. The Mortgage Bankers Association, a Washington, D.C.-based trade group that represents the broad capital spectrum of commercial and multifamily real estate finance, recently reported that total loan origination for 2014 was near $400 billion with a record year for life insurance companies and for the government-sponsored enterprises (Fannie, Freddie and FHA multifamily) and the second highest on record for banks. The commercial mortgage-backed securities market continued its rebound with securitizations of commercial and multifamily loans reaching $106.3 billion of the year’s total. Multifamily continues to be the leading property type by dollar volume of new loans, followed by office, retail, hotel and motel, industrial and health care. The 2014 dollar volume was 12 percent higher than the 2013 volume. With record loan maturities occurring in 2015, 2016 and 2017, industry leaders expect to see new loan origination volumes remain high. For the borrower, the positive news continues with record low interest rates persisting. Virtually all market participants agree that higher rates must come, but the timing remains cloudy at best. The competition among lenders for low-leverage loans to the most creditworthy borrowers on high-quality properties is continuing to surprise most mortgage bankers. Even higher leverage loans on lesserquality assets are drawing more interest than at any time since the downturn began in 2008. Another unique characteristic of the current market is the availability of very long-term money. While the 10-year term is the norm, many life companies are now offering fully amortizing loans with terms as long as 30 years. A few are even testing longer terms for the most desirable multifamily deals as a way to compete with the GSEs.
On the positive side for the lender is the fact that sound underwriting standards remain in place, and there are few instances of relying on “financial engineering” to make a deal work. Sound market fundaments are also in place in most markets, including declining vacancies and increasing rents, which serve to mitigate some of the concern over the decline in cap rates, especially in the apartment sector, where significant buyer demand is driving up prices. New speculative construction has been held in check, helping to increase occupancy levels. Colorado, and Denver in particular, is benefiting from the abundance of capital looking to invest in commercial and multifamily real estate. Denver continues to show strong employment growth, which, coupled with the state’s continued population growth (fourth-fastest growing state for the second year in a row), makes it a logical target for real estate investors and the lenders that provide them with capital. While the commercial real estate industry is cyclical in nature, most industry participants expect the current expansion cycle to continue for the foreseeable future, barring any negative unforeseen geopolitical events. If you are a long-term owner of income property, our best advice is to lock in today’s rates for as long as you can. Hindsight may just show that this was one of the best times in modern history to finance commercial and multifamily real estate.