Bridge lenders are seeing increased demand from multifamily borrowers amid rising FHFA regulations. Cade Vander Broek, managing director, West Coast at Money360, is talking about trends in the multifamily lending market ahead of his appearance at GlobeSt.com Apartments on October 26 and 27.
“With the extreme interest in, and demand for multifamily debt and further considering the high priority FHFA has put on affordable housing, we see increased requests for multifamily bridge loans seeking time to stabilize or reposition themselves before they are ready for an optimal permanent loan,” Vander Broek tells GlobeSt.com.
While there is increased demand, volatility in the apartment market—from low rent collections to double digit rent fluctuations in some markets—has made it challenging to underwrite apartment deals. Vander Broek says that a realistic business plan is the key to securing capital in the bridge space. “While the market is hot now and rents seem to escalate in most markets, the tide can change quickly. Not all markets and all assets even in multifamily are created equal,” he says. “We must have experienced sponsors in the multifamily space with the value add or repositioning success in those markets.”
It isn’t unusual in the current market to see investors enter new geographic markets or niches within multifamily. That can be a red flag. “We often see investors coming into markets they have never been in, seeking very high leverage along with aggressive business plans that may not be achievable in the market,” says Vander Broek. “These are challenges we see. Just because multifamily is in vogue does not mean anybody can be successful without market knowledge and a track record.”
Borrowers should come to the table with a vetted business plan that includes potential costs, timelines and vendors who can perform on time and on budget, according to Vander Broek. “They also need to be able to estimate with a feasibility study or other market data that post renovation plans will yield the rent bumps they are planning on,” he says.
To ensure deals make it to the finish line, Money360 focuses on vetting deals thoroughly up front. “Overly aggressive business plans can lead down a road that neither us as the lender or the borrower want to go down,” says Vander Broek. “We dig into deals pretty heavy on the front end to avoid surprises on the back-end or during the loan term. We really want to feel good about a deal before we put a quote out there.”