thought leader Provided by Newpoint Real Estate Capital
While many investors are waiting for interest rates to fall, maturing borrowers are turning to creative funding sources and solutions.
Multifamily investors are engaged in a guessing game about when interest rates will start to drop and by how much. According to two financial experts, Newpoint Real Estate Capital, Borrowers are anxiously expecting 10-year Treasuries to fall below 4% before considering voluntary refinancing.On the other hand, I agree that acquisitions depend more on stability than price. laurie morphin and mike ortripboth managing directors of NewPoint.
“If the Treasury market is stable for 30 days, sellers will think the market is starting to flatten,” Morfin said. Stagnant federal funds rate is only part of the stabilization challenge There is no clear definition of stability, but Morfin defines it as when the 10-year Treasury bond's volatility narrows to a range of 10 basis points, as opposed to the current volatility, which often sees weekly fluctuations of 30 bps. Then he said. “There would have been essential stability in the Treasury had it not been for the heightened expectations and expedient reactions to data releases such as CPI, PPI, and retail sales,” Ortrip added. “If everyone practiced breathing techniques, the market might calm down a bit.” As for where the decade needs to settle, both Morfin and Ortlip agree that once they see the three-handle, magic will happen. “Mathematically, a 5 basis point difference between 3.95% and 4.00% is negligible,” Morfin says. “But when people see that '3', there's a psychological shift.” They expect it to spark new activity in both refinancing and acquisitions. The difference between Morfin and Ortlip is when the 10-year rate falls below 4%. Mr. Ortrip believes the Fed will cut rates by 25 basis points for the first time in September, but Mr. Morfin is “cautiously optimistic” that a rate cut will occur after the June FOMC meeting. In the meantime, if you know who you're trading with, the trade is still happening. There is no one-size-fits-all solution for borrowers. When asked about the strategies that borrowers are using when it comes to funding sources and loan structures, Morfin and Ortrip point out that we first need to understand some broad categories of borrower scenarios that are in play. said.
Experienced developers, companies with decades of experience doing their own contract work, can still deliver products efficiently. These groups continue to leverage their banking relationships for their construction needs and have the capital to do so efficiently. Regarding exits, Morfin and Ortlip note that NewPoint has been successful in providing these developers with attractively structured and price-stabilized bridge loans, allowing them to recycle bank construction debt. .
Smaller developers and syndicators with “high octane” construction and bridging debt are another story. Exit rates have increased from underwriting rates of 4% two years ago to 5.5% or 6.25% now, “which is a problem, but these companies still have options,” Morfin said. “This problem can be resolved by agency enforcement with a favorable amortization period, but the borrower will have to bring in some state capital, and the Treasury is likely to issue a capital call until it drops below 4%. ” And some borrowers are nearing the end of their fixed-rate loans. We recommend tempering expectations regarding cash outs, as the existing debt was taken on in a completely different economic climate. “Markets function for all of the above and more, but capital sources are more selective and the parameters of what fits into one bucket or another can change rapidly and unexpectedly. ” Ortrip says. “As a result, we advise our clients to clear the entire market with each new opportunity.” He said sponsors have a deep bench and extensive relationships to ensure deals are brought to the right funding sources, including agents/HUD, insurance companies, bridging lenders and other third-party capital solutions. He added that he should rely on his team. Although different financial institutions have very specific criteria for each transaction, the quality of the sponsor is now of paramount importance. “Regardless of how good the market or deal is, lenders want to know about the sponsor's history, capitalization and portfolio,” Ortrip says. “From my perspective as a mortgage banker, a deep understanding of the borrower's needs and the strengths of the transaction is critical. If we believe we can find the capital to facilitate the transaction, we will I’m going to take on the assignment and execute the deal.”
