CRE Gurus Get Inside the Multifamily Capital Stack

MIAMI—Everybody wants a look inside the capital stack. That was the topic of a panel discussion at RealShare Apartments East earlier this week.

Steven Moreira, CCIM president of Magic Companies, moderated the “Inside the Capital Stack” panel. The speakers were: Michael D'Onofrio, managing director of Engineered Tax Services; Elie Rieder, founding principal and CEO of Castle Lanterra; Susan Tjarksen, founder of KIG; Marc Suarez, director of Hunt Mortgage Group; and Elliot Throne, managing director at HFF.

The first question on Moreira's mind was how capital markets are impacting lenders looking at debt. Elliot answered first, noting that spreads are “widening dramatically.” The typical CMBS deals he sees are getting done at 5%—that's 75 basis points more than just two weeks ago.

“That's the fear and concern,” Elliot said. “On the flip side, with Treasury yields so low we do a lot of institutional deals. We're battling floors. We can't go any lower because of how low Treasuries are. We are locking in one-year fixed year money at 3.5% with full term I/O. It's pretty unbelievable what you can get out there.”

For Hunt Group's part, Suarez reminded that the firm operated as Centerline Capital before the Hunt family acquired it—and the firm was strictly a Fannie-Freddie shop.  But in today's world, he said, lenders have to diversify. Still, the firm is staying largely true to its roots.

“We prefer what our clients prefer and our clients prefer—Fannie and Freddie,” Suarez said. “A lot of groups tried to expand their capital capabilities by tapping into the Federal Home Loan Bank. That recently got wiped out and was literally executively taken down. Credit is being tightened. It's real. Some say as Freddie and Fannie go, so goes the world. But as CMBS goes, so goes the world. It does affect capital markets and what's going on.”

Castle Lanterra likes interest only deals, Rieder said, because the firm likes cash on cash. Castle's strategy is value add.

“On a deal that has a quick value add, we'd rather have the luxury of being able to refinance and then perhaps put permanent debt on it,” Rieder said. “On a deal that's more stable, in certain opportunities it makes sense to take locked debt. I like to look at what can go wrong instead of what can go right. I am not afraid of risk. I just want to understand risk.”

Tjarksen is witnessing a “switch” in the marketplace. Lenders are looking for mortgage contingencies in their agreements.

“Last year, our business was 75% value add and 25% in core in terms of assets we brought to market,” she says. “This year, so far nine are core and three are value add.”

Cost segregation—identifying personal property assets that are grouped with real property assets and separating the personal property for tax reporting reasons—is a hot industry in this market. Against that backdrop, D'Onofrio sees plenty of additional value his firm can bring to the table. “Cost segregation, or what we do on the engineering or operational side of the business, is strategic on how it fits into an investment play.”

Want more RealShare coverage? Check out my story: How Volatile is the Multifamily Lending Market?

MIAMI—Everybody wants a look inside the capital stack. That was the topic of a panel discussion at RealShare Apartments East earlier this week.

Steven Moreira, CCIM president of Magic Companies, moderated the “Inside the Capital Stack” panel. The speakers were: Michael D'Onofrio, managing director of Engineered Tax Services; Elie Rieder, founding principal and CEO of Castle Lanterra; Susan Tjarksen, founder of KIG; Marc Suarez, director of Hunt Mortgage Group; and Elliot Throne, managing director at HFF.

The first question on Moreira's mind was how capital markets are impacting lenders looking at debt. Elliot answered first, noting that spreads are “widening dramatically.” The typical CMBS deals he sees are getting done at 5%—that's 75 basis points more than just two weeks ago.

“That's the fear and concern,” Elliot said. “On the flip side, with Treasury yields so low we do a lot of institutional deals. We're battling floors. We can't go any lower because of how low Treasuries are. We are locking in one-year fixed year money at 3.5% with full term I/O. It's pretty unbelievable what you can get out there.”

For Hunt Group's part, Suarez reminded that the firm operated as Centerline Capital before the Hunt family acquired it—and the firm was strictly a Fannie-Freddie shop.  But in today's world, he said, lenders have to diversify. Still, the firm is staying largely true to its roots.

“We prefer what our clients prefer and our clients prefer—Fannie and Freddie,” Suarez said. “A lot of groups tried to expand their capital capabilities by tapping into the Federal Home Loan Bank. That recently got wiped out and was literally executively taken down. Credit is being tightened. It's real. Some say as Freddie and Fannie go, so goes the world. But as CMBS goes, so goes the world. It does affect capital markets and what's going on.”

Castle Lanterra likes interest only deals, Rieder said, because the firm likes cash on cash. Castle's strategy is value add.

“On a deal that has a quick value add, we'd rather have the luxury of being able to refinance and then perhaps put permanent debt on it,” Rieder said. “On a deal that's more stable, in certain opportunities it makes sense to take locked debt. I like to look at what can go wrong instead of what can go right. I am not afraid of risk. I just want to understand risk.”

Tjarksen is witnessing a “switch” in the marketplace. Lenders are looking for mortgage contingencies in their agreements.

“Last year, our business was 75% value add and 25% in core in terms of assets we brought to market,” she says. “This year, so far nine are core and three are value add.”

Cost segregation—identifying personal property assets that are grouped with real property assets and separating the personal property for tax reporting reasons—is a hot industry in this market. Against that backdrop, D'Onofrio sees plenty of additional value his firm can bring to the table. “Cost segregation, or what we do on the engineering or operational side of the business, is strategic on how it fits into an investment play.”

Want more RealShare coverage? Check out my story: How Volatile is the Multifamily Lending Market?