Apartment Sales Jump 28% in the Third Quarter
For the second straight quarter, apartment sales showed robust growth as the transaction market continues to dust off a mediocre 2013.
Apartment sales hit $27.5 billion in the third quarter, a 28 percent increase compared to the third quarter of 2013, according to a report from New York-based research firm Real Capital Analytics (RCA). The quarter’s performance was driven by a staggering $22 billion in sales of individual properties, one of the highest quarterly figures on record. Three of those trades occurred in New York.
“In New York, there have been a bunch of big trades of large older buildings that are undergoing condo conversion or at least renovation,” says Ben Thypin, director of market analysis at RCA.
In the third quarter, portfolio sales actually dipped almost $500 million compared to the third quarter of 2013.
“We’ve had so many portfolios sell over the past few years that it’s unlikely any of them are going to be resold during the next few years,” Thypin says. “There are only so many portfolios out there.”
The quarter also saw a return of volume activity for mid/high-rise properties in the six major metros—New York, Los Angeles, San Francisco, Boston, Washington, D.C., and Seattle. In number of properties sold, however, secondary and tertiary markets led the way as investors continued pushing further out in search of yield and taking advantage of available debt.
“What was holding those markets back in the first few years of the recovery was that, with the exception of the agencies, debt financing wasn’t as readily available,” Thypin says. “But now, between CMBS, the banks, and the agencies, it’s fairly easy to get debt financing on a secondary market purchase.”
Groups that traditionally lend in the secondary and tertiary market space, regional and local banks and CMBS, also saw an increase in originations. Regional and local banks captured 17 percent of all apartment lending (after sitting at less than 10 percent before 2013), while CMBS secured 13 percent of the market (after originating almost nothing in 2010), so far this year.
Insurance companies continued to ramp up apartment lending after cutting back on other asset classes. With a mandated scale back in originations, the GSEs share of the multifamily market has fallen to 37 percent, which is half of their volume from just two years ago. But the GSEs' drop-off hasn't had much of an effect on the market because “debt is widely available and relatively inexpensive as other lenders have eagerly expanded to fill the gap left by the agencies,” according to the RCA report.*
Cap Rates Hit Record Lows in 3Q
Cap rates hit historic lows in the third quarter—falling 40 basis points (bps) to 5.9 percent, according to New York-based Real Capital Analytics (RCA). The previous low over the past decade was 6.1 percent, which occurred in the fourth quarter of 2012.
The cap rate for mid- and high-rise properties in major metros fell to 3.6 percent, which was almost 20 bps below the rates seen during the condo conversion craze of the mid 2000’s. Garden property cap rates fell 40 bps to 6.1 percent. Overall, mid- and high-rise properties fell 25 bps to 5 percent.
Not surprisingly, the decline in cap rates was the result of larger economic forces.
“A 25 basis points dip in mortgage rates and the weight of capital were primarily responsible for the cap rate compression,” RCA said in the report.
These low cap rates have raised the fear of a bubble, but RCA thinks this cap rate climate differs from the one that industry faced in 2007.
“The spreads between rates and treasuries are still pretty wide and the outlook for NOI is pretty good right now,” says Ben Thypin, director of market analysis at RCA. “I think the market would prefer that base rates increase sooner rather than later so we can absorb it over time instead of in a few years from now when pricing is higher and the outlook for NOI growth is less certain.”
Furthermore, RCA adds that lenders are getting a healthy risk premium in the current market with long-term fixed rate mortgages 160 bps above the risk-free rate, which was basically the same spread in 2007.
“These healthy debt spreads have not been accompanied by undue risk taking; valuation metrics for recent originations remain in line with the market and LTVs [loan to values] have increased minimally over the past year,” the report said.
The fact that investors and lenders haven’t lost their discipline is a good sign, but historic low interest rates could present risk.
“The wide spreads investors and lenders currently enjoy indicate they are not ignoring risk and, by historic measures, are being well compensated for it—factors uncharacteristic of a bubble,” RCA said in the report.*
Greystone Selected as one of the First Multifamily Lenders for Freddie Mac’s Small Loans Program
Greystone, a leading national provider of multifamily and healthcare mortgage loans, announced it has been selected by Freddie Mac Multifamily to sell loans under the new Small Balance Loan offering. This new agency platform offers fixed-rate and hybrid adjustable-rate mortgage loans ranging from $1 million to $5 million on multifamily acquisitions or refinancings.
"As the #1 GSE Small Loan lender, we're honored that Freddie Mac has the confidence in Greystone's agency lending capabilities to select us to offer the Small Balance Loan offering," said Rick Wolf, senior managing director and head of Greystone's Small Loan lending group. "This designation enables Greystone to offer more financing options for small loans, an important segment representing affordable rental housing, and we look forward to growing our relationship with Freddie Mac over time."
"With its existing track record in agency lending and affordable housing initiatives, Greystone is a natural choice to offer our first Small Balance Loan offering," added David Brickman, Executive Vice President of Freddie Mac Multifamily.
The Freddie Mac Small Balance Loan Terms include:
Properties with at least five units
Partial or full term interest only available
Up to 80% LTV
1:25x debt service coverage ratio minimum, and 1.20x in top markets
60-120 day rate lock
Hybrid ARMs or fixed-rate balloon mortgage loan
Highly competitive rates
Greystone provides mortgage finance solutions across multiple platforms, including FHA, Fannie Mae, Freddie Mac, USDA, CMBS, bridge, mezzanine and other proprietary loan programs. In 2013, Greystone ranked #1 in combined multifamily and healthcare FHA lending; #1 in Fannie Mae Small Loans and #3 in Affordable Housing volume as a Fannie Mae DUS® lender; and as a top-5 Freddie Mac lender for seniors housing.**
Walker & Dunlop Buys Johnson Capital
Walker & Dunlop announced that it successfully completed its previously announced acquisition of Johnson Capital's loan origination and servicing platform. Johnson Capital, formerly one of Walker & Dunlop's largest mortgage banking correspondents, was a leading commercial real estate capital intermediary with direct lender relationships through Freddie Mac, HUD and many life insurance companies.
The combination of Johnson Capital's team of real estate finance professionals and long-standing correspondent relationships will expand Walker & Dunlop's national brokerage footprint in anticipation of the upcoming commercial real estate refinance wave. Guy Johnson, Chairman & CEO of Johnson Capital, brings his many years of commercial real estate experience to Walker & Dunlop in the role of Vice Chairman of the Capital Markets group.
"We are excited to officially bring the Johnson Capital team on board and are confident the integrated team will add significant value to Walker & Dunlop's brokered, agency, and proprietary originations. The addition of these talented originators and their collective experience furthers Walker & Dunlop's strategic goal of expanding our capital markets platform. The acquisition of Johnson Capital accelerates our progress towards becoming the premier commercial real estate finance company in the United States," commented Howard Smith, Walker & Dunlop's Executive Vice President and Chief Operating Officer.
Walker & Dunlop does not expect the transaction to have a material impact on its fourth quarter 2014 financial results but expects the transaction to be accretive beginning in 2015. The acquisition was structured as an asset purchase.**
- Gill Group plans to attend AHF Live November 19th – 21st in Chicago, IL.
- Cash Gill will be speaking on a panel Friday, November 21st entitled Acquisition Challenges and Opportunities
- Gill Group attended the National Leased Housing Associations (NLHA) Fall Seminar October 16th – 17th in Washington, DC.
- Gill Group attended the National Association of Housing and Redevelopment Official’s (NAHRO) Annual Conference October 16th – 18th in Baltimore, MD.
- Cash Gill attended the Missouri Real Estate Appraisers Commission’s Quarterly Meeting as an Active Commissioner September 16th – 17th in Jefferson City, MO.
- Gill Group attended the National Housing & Rehabilitation Association's Summer Institute August 16th - 17th in Newport, RI.
- Gill Group attended the Southeastern Affordable Housing Management Associations Regional Conference for Affordable Housing August 10th - 12th in Ft. Lauderdale, FL.
- Cash Gill gave a lecture on Rent Comparability Studies
- Gill Group attended the Midwest Buyers/Sellers Conference August 18th - 19th in Indianapolis, IN.
- Cash Gill gave a lecture on Appraisals and CNAs
- Gill Group provided RAD and Affordable Housing Training July 29th - 30th in Alexandria, LA.
- Cash Gill gave a lecture on Appraisals, Market Studies, Rent Comparability Studies and Capital Needs Assessments (CNAs)
- Gill Group attended the Texas Affiliation of Affordable Housing Providers' Annual Conference July 28th - 30th in Austin, TX.
- Jerry Anderson presented on the "Rental Assistance Demonstration" panel
- Gill Group attended the National Council of State Housing Agencies’ Annual Housing Credit Connect June 25th – 27th in Chicago, IL.
- Cash Gill presented on a panel on Thursday, June 26th, entitled “Rural Development Opportunities.”
- Jerry Anderson presented on a panel on Thursday, June 26th, entitled “RAD Report.”
- Cash Gill attended the Missouri Real Estate Appraisers Commission’s Quarterly Meeting as an Active Commissioner June 17th – 18th in Jefferson City, MO.
- Gill Group attended National Association of Housing and Redevelopment Officials’ Annual Conference June 16th – 17th in Orlando, FL.
- Cash Gill presented on a panel on Monday, June 16th, entitled “Affordable Housing Appraisals, Market Studies, Rent Comparability Studies and Rent Reasonableness Studies.”
- Gill Group attended HUD’s RAD Training June 4th – 5th in Washington, DC.
- Gill Group provided affordable housing and RAD training at Great Lakes Capital Fund’s University of Affordable Housing May 22nd in South Bend, IN.
- Gill Group attended the Council for Rural Housing & Development of Ohio’s Midwest Rural Housing Summit May 19th – 20th in Columbus, OH.
- Cash Gill spoke on the Rural Housing Market Research panel on May 20th.
- Gill Group provided affordable housing training at a regional seminar April 29th in Franklin, TN.
- Gill Group attended Bank of Advance’s Annual Retreat and Meeting March 20th – 22nd in Norfolk, AR.
- Cash Gill attended the Missouri Real Estate Appraisers Commission’s Quarterly Meeting as an Active Commission March 18th – 20th in Jefferson City, MO.
- Gill Group attended MACO’s Annual Retreat and Meeting March 13th – 16th in Biloxi, MS.
- Gill Group attended the National Housing and Rehabilitation Association’s (NH&RA’s) Annual Meeting February 19th – 22nd in Palm Beach, FL
- Gill Group attended the Council for Affordable Rural Housing’s (CARH’s) Mid-Year Meeting January 26th – 28th in Las Vegas, NV.
- Gill Group attended 22 conferences and meetings throughout the United States in 2013
GROWTH (2013 - Highlights):
- Gill Group expanded our cutting-edge market analysis software and added our own in-house developed needs assessment software for CNAs, PNAs, PCNAs, PCAs, RPCAs, and every other acronym for this type of service.
- Gill Group added 4 offices with appraisers, market analysts, engineers and architects.
- Within the offices are three architects, one MAI appraiser, two general certified appraisers, five market analysts and 10 additional support staff.
- Gill Group expanded the footprint of its subsidiary, National Title & Escrow, to cover the entire United States with a local presence.
- Gill Group attended 20 conferences and meetings throughout the United States in 2012
GROWTH (2012 - Highlights):
- Gill Group developed cutting-edge market analysis software that will allow us to do preliminary analysis that is subject-specific in any market in the United States within minutes.
- Gill Group added 11 offices with appraisers, market analysts, engineers and architects.
- The offices now employ an additional 34 people.
- Gill Group expanded coverage of its subsidiary, National Title & Escrow, to cover the entire United States.
- Gill Group expanded coverage of its subsidiary, Gill Insurance Group, to cover the entire United States.
Gill Group has published the following:
- New York Real Estate Journal - How can low-income housing facilities translate into high profits?
- New York Real Estate Journal - Up, up and away: Home mortgage interest rates and gasoline prices continue ascending.
- Tax Credit Advisor - Boston MSA Market Snapshot
- Tax Credit Advisor - Seattle MSA Market Snapshot
- Northeast Industrial Development Resource Guide - What Appraisers Know About Investing.
- Affordable Housing Finance – Urban and Rural Market Studies.
- Tax Credit Advisor – LIHTC Appraisals 101
Cash Gill, MAI has had the opportunity to speak on the following topics:
- (Indianapolis, IN) National Council of Affordable Housing Market Analysts - Maximize Your Market: Understanding the Methodology Behind Market Studies.
- (Reno, NV) Nevada Council of Affordable and Rural Housing - Don't Get Caught in the Red. New Guidelines for Audits and Inspections.
- (Washington, DC) The Institute for Professional and Executive Development - Nonrecourse HUD Deals - So You Closed Your Nonrecourse HUD Deal. Now What? And Is It Really Nonrecourse?
- (Arlington, VA) Council for Affordable and Rural Housing - Property Valuation: The Correct Way to Value Properties.
- (New Orleans, LA) National Council of Affordable Housing Market Analysts - Affordable Housing Site Analysis
- (Las Vegas, NV) Nevada Council of Affordable and Rural Housing - Auditing and Accounting Guidelines for Section 42 Low Income Housing Tax Credits.
- (Washington, DC) Council for Affordable and Rural Housing - Rural Development Appraisals and Market Studies
- (Miami, FL) Council for Affordable and Rural Housing - The Equity Market - Impact on Rural Housing
- (Washington, DC) Council for Affordable and Rural Housing - How to Foster Affordable Green and Rural Housing Needs Assessments
- (Indianapolis, IN) Affordable Housing Association of Indiana - Market Analysis – Best Ways Use Market Studies to Ensure Application Points
- (Portland, ME) Enterprise Buyer/Seller Conference for RRH 515 Properties – Valuing the Product. What Is My Development Worth?
- (Washington, DC) National Housing and Rehabilitation Association – Financing and Underwriting Special Needs Housing.
- (Atlanta, GA) National Council of State Housing Agencies – Comprehensive Market Analysis.
- (Chicago, IL) AHF Live – Strategies for Rural Deals.
- (Dallas, TX) Crittenden Multifamily – Financing Special Use Properties.
- (Washington, DC) Council for Affordable Rural Housing – Rural Housing Preservation
- (Denver, CO) National Council of State Housing Agencies – Rural Housing Strategies
- (Denver, CO) National Council of State Housing Agencies – Y15: Preservation and Disposition Seminar
- (San Antonio, TX) Rural Rental Housing Association – LIHTC Legislative Update
- (Key Largo, FL) Council for Affordable Rural Housing – How National Appraisal Practices Impact USDA Assisted Properties
- (San Francisco, CA) National Council of State Housing Agencies – Changes and Challenges in Rural Housing Development
- (Chicago, IL) AHF Live – Preservation of Older LIHTC Deals
- (Franklin, TN) Regional Affordable Housing and RAD Training – Valuation, Feasibility and Capital Needs Assessments
- (Columbus, OH) Council for Rural Housing & Development of Ohio – Rural Housing Market Research
- (South Bend, IN) Great Lakes Capital Fund’s University of Affordable Housing – Valuation Risks Using Financing for RAD Deals
- (Chicago, IL) National Council of State Housing Agencies – Rural Development Opportunities
- (Orlando, FL) National Association of Housing and Redevelopment Officials – Affordable Housing Appraisals, Market Studies, Rent Comparability Studies and Rent Reasonableness Studies
- (Alexandria, LA) Regional Affordable Housing and RAD Training – Valuation, Feasibility and Capital Needs Assessments
- (Ft. Lauderdale, FL) Southeastern Affordable Housing Management Association (SAHMA) – Rent Comparability Studies 101
- (Indianapolis, IN) Midwest Buyer/Seller Conference – CNAs and Appraisals
- (Chicago, IL) AHF Live – Acquisition Challenges and Opportunities
*as seen on multifamilyexecutive.com
**as seen on multifamilybiz.com