As the world begins to open back up, there’s no shortage of interest in apartments, according to Steve Rosenberg, CEO of Greystone.
“We’re definitely seeing the economy opening up and the asset classes that we’ve participated in, particularly on the multifamily side, valued as high as ever,” Rosenberg says. “Multifamily pricing has not come down at all. It has become even more of a global asset class than it was before.”
That popularity is attracting capital from all corners. “We’re seeing even more sources of capital coming in, and we’re having to compete harder and get even more aggressive and creative,” Rosenberg says. “The asset class itself is a hot asset class. We’re seeing a lot of capital chasing it.”
The terms on loans are also getting better for borrowers. “If anything, we’re going up the capital stack to compete better,” Rosenberg says.
Rosenberg says there was an expectation that Fannie Mae and Freddie Mac would focus on affordable housing and become less aggressive in the market-rate business. And, in the process, their credit box would become even tighter. But that hasn’t materialized.
“They started out that way [backing off], but the reality is they haven’t been able to achieve the volumes that they anticipated achieving,” Rosenberg says. “So we’re seeing even those boxes opening up a little bit.”
While it is mainly the same players competing on the permanent side, a host of new entrants have entered the bridge space. And, existing asset managers are allocating more capital to the multifamily asset class.
“On the bridge and repositioning financing, the competition is coming from individuals or entities that are asset managers,” Rosenberg says. “So whether it’s a Blackstone or an Apollo, everyone has got a transitional loan program these days.”
REITs are even jumping into the bridge lending space. “We’re even seeing large, publicly traded real estate ownership companies coming to market with a debt product,” Rosenberg says. “It’s not a long-term debt product. Everyone wants to get some additional yield. So we’re seeing traditional owners utilizing their cash to make loans.”
REITs can take advantage of the arbitrage between what they’re paying in their dividend and what they’re earning on bridge loans.
“If their average cost of funds is 2.5% or 3% and they can lend money out at 6% or 7%, that’s huge,” Rosenberg says. “It makes a lot of sense. They know the asset class because they’ve been on the equity side of it. So they understand the assets and they’ve got easy access to cheap capital. Why shouldn’t they participate? It makes a lot of sense.”
The net effect of all of this competition is better terms for borrowers. “Sometimes it’s good to be a lender,” Rosenberg says. “Other times, it’s good to be a borrower. This is one of those times where it’s pretty good to be a borrower.”