CMBS Multifamily Demand Has Roared Back

Multifamily borrowers are finding alternatives to the agencies. Irvine, California-based lender Sabal Capital Partners recently closed on the $70 million refinance of a 17- property multifamily portfolio in the Bronx borough of New York through its S-CRE program. The portfolio includes five loans secured by a total of 477 rental units. The borrower refinanced out of a Freddie Mac loan, and the deal is an example of growing interest in alternative loan options.

“We had financed the property through the Freddie Mac program earlier, so we new the real estate and we new the operator,” Pat Jackson, founder and chief executive of Sabal, tells GlobeSt.com. “It so happens that they needed to finance the property because it was rolling into a maturity term, and the agencies went through a period of time this summer where they were not very competitive. We had a non-agency solution that was terrific, and it gave them some benefits that they would not have been able to get through the agency program.”

The agencies’ pause in activity this summer left some concern in the market about lending alternatives, but it also created an opportunity for lenders like Sabal to address the market demand. “It was really our opportunity to pivot and give them a product that met their requirements,” says Jackson. “The big benefit is that Sabal is looking across the broad sector of how we can provide capital solutions to our borrowers.”

For this particular borrower, CMBS was actually a better fit. Sabal was able to offer low LTV, high cash flow properties, meeting CMBS standards in just 32 days. “It just turned out that the CMBS product was a really good fit for this borrower. Based on what their specific needs were for this portfolio,” adds Jackson.

Demand for CMBS had dissipated due to a slew of problems; however, Sabal’s S-CRE program is not your average CMBS product. Sabal is the lender and life-of-loan servicer, and it owns the B-piece. Getting the benefits of CMBS without the issues has made it highly competitive with the agencies. “I think that there will be business that we probably did with our CMBS program that would have normally stayed with the agencies, and those buyers will continue to stay with agencies as long as they have a competitive product,” says Jackson. “However, a CMBS solution that is not fraught with the historic problems—like not knowing who the servicer is; not knowing who the b-piece buyer is; and getting trader on the back-end when it is funding, which are the things that the agencies eliminate—restore confidence not in all CMBS but in our CMBS product specifically, and we are going to count on the business coming our way that might have normally gone to the agencies.”

The agencies’ pause in activity this summer—while it planned its new lending caps and programs for the next five quarters—helped to drive CMBS activity, but it isn’t the only driver. “I think that Freddie and Fannie taking the summer off didn’t hurt, but it is more than that,” says Jackson. “We are focused on a niche that is really underserved. When borrowers are getting a quote, there is certainty of getting what the term sheet says is very high. That is resonating in the market place. It goes beyond just a rate issue.”