Established players such as Goldman Sachs, JPMorgan, Deutsche Bank, Morgan Stanley, and Citibank have also been in the market but aren’t winning many multifamily deals. Yet the sector is growing more creative. Many CMBS lenders maxed out at 70 percent loan-to-value (LTV) in 2010, but by the fourth quarter, some were going up to 75 percent. Some firms, like Bridger Commercial Funding, have added a mezzanine program to their CMBS platforms, offering to go up to 85 percent LTV for multifamily properties.
“Not only are we seeing CMBS lenders be more active, but they’re starting to be more aggressive in the marketplace. One of the ways they’re competing is with some additional dollars,” says Bill Hughes, managing director of Encino, Calif.-based Marcus & Millichap Capital Corp. “I believe that CMBS lenders will become much more available next year.” Climbing Up
In 2010, multifamily started to look good to investors again. Buyers believed that the sector’s woes were largely in the past and that both the availability of cheap capital and strong risk-adjusted returns of apartments present a good bet. And this year will be more of the same. “The amount of broker opinions of value and assignments that we’re getting suggests that we’ll have a very good transactional market in 2011,” HFF’s Kavanau says.
The bonanza of deeply discounted distressed deals never really materialized, flummoxing all of those opportunity funds that found themselves returning equity to investors. But there may be a bigger flood of distressed assets this year, particularly as the FDIC continues to work its way through troubled bank holdings.
The FDIC concentrated on stabilizing the largest banks first. But the subsequent pace of smaller bank failures has overwhelmed the FDIC, resulting in delays in closing “zombie” banks, some of which probably should have been shuttered a year ago. KeyBank, along with Midland, have signed up as exclusive servicers for the FDIC, processing the loans that come out of bank foreclosures. “And the FDIC is basically telling us to buckle our seat belts for 2011,” says KeyBank’s Sublett. Continued smaller bank closures are the biggest trend yet to unfold. “These community banks are chock full of B-minus or C-quality multifamily properties,” Sublett says. “So there will be more distress sales next year on the lower quality, smaller assets.”
Overall, 2011 will likely see a rebound in transaction velocity and values. “This growth, although relatively slow, is sustainable and should build from this point forward,” Hughes says. “It seems like we’re at the bottom of the big hill on the roller coaster, and let’s just hope it keeps going up.”
—Additional data compilation by Les Shaver
