When the Banks Blink: How Alternative Financing Can Rescue Multifamily Deals From a "Frozen" Market

By Scott Podvin

Capital Advisors?USA

The multifamily sector has not been immune to the turmoil in the broader commercial real estate financing arena. As noted in a recent?NAI Global?article, multifamily buyers and sellers have been waiting for each other to blink as bid-ask gaps remain and?cap rates?have risen from the low-to-mid-4% range at the start of 2022 to around 5% today.

Around $270 billion in commercial real estate debt held by banks will mature this year, and small and mid-sized banks hold at least 70% of that, according to Yahoo Finance and Axios. With?Signature Bank's recent closure, the second-largest lender for NYC apartment buildings is now out of the market. Overall, across all property sectors there were 7% fewer lenders in the market in Q4 2022 than in Q4 2021, according to MSCI.

The?lending freeze?is poised to impact the construction of desperately needed new apartment units. As supply remains scarce, rent prices—a key driver of consumer inflation—are likely to stay elevated. As?Goldman Sachs' Richard Ramsden noted, "You will see banks pull back on?commercial real estate commitments?more rapidly in a world [where] they're more focused on liquidity."

Carroll, CEO and founder of the $8B real estate firm Carroll, likened the?Fed's recent rate hike to "rubbing salt in the wound" of the industry. "The capital markets have been essentially frozen for months now and lending is already disappearing," he said. "I haven’t seen anything like this since 2008/2009 and in my opinion this may be worse, and nobody seems to know what is happening next. When there’s no clear direction for valuations, it creates instability for everyone participating in the market."

For?Capital Advisors USA's multifamily clients, there are options beyond traditional bank lending. Alternative financing arrangements like asset-backed loans,?mezzanine loans,?revolving lines of credit, and revenue-based financing are available. By leveraging these alternative structures, CRE players can continue keeping?multifamily deals?moving despite uncertainty in the traditional lending market. Overall, in times of lending constraints, a diversified approach to financing multifamily transactions is key to navigating challenges and seizing opportunities. #alternativelending #realestateloans #multifamilyinvesting