Low Rates Driving Multifamily Investment Market

"Loan rates for permanent financing have dropped considerably in the past six months, with most deals currently occurring in the 5.5% to 6% range," Cohen says. "As one of a small group of mortgage bankers approved by Freddie Mac in Florida, we generally get a real good picture of the market activity before anyone else."

Formed in 1994, Primary Capital is based in Atlanta, averaging $1 billion in annual volume, largely in the Florida and Georgia apartment markets.

"At worst case, even a 6% long-term rate is very attractive for a loan at 80% of value, which is considered the maximum leverage in the lending business," Cohen tells GlobeSt.com. In January of this year, the rate was over 7%.

"For a $15 million loan, for example, that is over $750,000 real interest savings in the first five years alone," the mortgage banker says.

Explaining the low rates, Cohen says most loan transactions are priced based on the 10-year Treasury (bond) rate, now under 4% with near-record lows going back to the early 1960s.

"In fact, at the first of the year, the Treasuries were at the 5% to 5.25% range and actually peaked in April near 5.5%," he says. Since then, Treasuries have fallen steadily from 4.85% on July 1 to a low of 3.61% on Oct. 9, Cohen says.

"As long as rates stay near the low levels and the uncertainty remains in the equity markets, it is expected that the demand for apartment loans will remain very high," the broker tells GlobeSt.com. "Deals that were passed over just as recently as a few months ago are being resurrected." He says, "It is very hard for apartment owners and buyers to pass up opportunities for the kind of interest savings we are seeing today."

Third-quarter market data from various brokerages "indicate that occupancies are ticking up and are now back in the low 90% vicinity," Cohen says. Those numbers "will result in a reduction in concessions and other perks, improving net income and property values."

Primary Capital already is seeing "a flurry of recent activity in the apartment front in the Orlando area," Cohen tells GlobeSt.com.

Primary Capital's Income Property Finance Division structures innovative credit facilities for customers with commercial income property needs from $1 million to $50 million. Cohen says the loans are for acquisition and development financing, permanent financing, new construction financing and mezzanine/equity financing.