3 Ways Lenders Are Impacting the NYC Market
3 Ways Lenders Are Impacting the NYC Market
Anticipation and fear of significant changes in the lending market have been on people’s minds for the last 9 months. It’s been the big talk among anyone in NYC interested in real estate. But has anything really changed? In order to answer that question, I asked Andrew Dansker from our Capital Markets team to highlight current financing trends as they relate to the NYC market.
Lets hear from Andrew…
The industry has been anticipating a rising interest rate environment for almost a decade. This year, rates have finally begun moving up, and the Federal Reserve will likely raise them again. According to Andrew, this opens up three important items for real estate investors.
Volatility and Opportunity
When most people talk about investing, using the words “volatility” and “opportunity” in the same sentence does not typically happen. However, today’s volatile environment is an opportunity for real estate investors.
In fact, in the past 45 days, rates have retreated. On stabilized NYC multifamily properties, we are now quoting loans again at 3.5%! To understand a bit more about why this is happening, here is a good review from Bankrate – Mortgage Rate Trend Index Down: June 7, 2017 (http://www.bankrate.com/news/rate-trends/down/).
Yes, it is true that rates moved up 60 basis points post-election. But this was purely on the expectations of:
- Tax cuts
- Infrastructure spending stimulus
- Cash repatriation holiday
- Other business-friendly measures
Until these things occur, however, investors should make moves on rate dips. This reminds me of the phrase, “Growth doesn’t always move in straight line.” Well, neither have rates. That means that investors can act now to capture the low-cost debt before it disappears.
You Are Changing My Loan Amount?
With rising interest rates comes the constriction of lending parameters. Many banks prefer to lock their loans’ interest rates 2 to 3 days prior to a closing. This practice causes increased unpredictability, as proceeds may be cut at the last minute due to a debt service covenant. I increasingly hear anecdotal reports of borrowers finding themselves short of proceeds 48 hours before a closing.
What can an investor do? Always try to seek out lenders that will allow them to lock their loan’s interest rate well in advance of the closing date.
Also, be sure to look at a variety of lenders. In the current atmosphere, we have seen that many traditional lenders are changing their guidelines, and a significant amount of new alternative lenders have entered the market over the past 24 months.
Slow Increases…Fast Terms
So far, the interest rate increases have been slow, and I expect this to continue. Here’s why:
Our debt yields have become closely tied to geopolitical shocks. Every time there is an adverse event on the world stage, interest rates in the United States are depressed further. Although the Federal Reserve is working to move rates up, there is continued downward pressure from investors seeking safety from geopolitical upheaval by investing in treasury securities.
The real volatility in the lending environments is with regard to the terms, not the rate. In fact, the terms are impacting the market the most. Investors should be wary of curve balls coming from the banks themselves, not the rate environment.
Conclusion: Would I Borrow Short or Long Today?
For value-add purchases, we are still recommending shorter duration, more flexible financing options because we don’t foresee dramatic rate changes in the near term.
For core and stabilized assets, we recommend obtaining the longest term debt possible. On a historical basis, rates are still incredibly low. Opportunities are shifting but remain abundant for those who are willing and able to act quickly to capitalize on them.
Andrew Dansker is part of the New York Multifamily team and handles financing for all types of clients. He can be reached at 212-430-5168.
Keep up-to-date with market commentary by following here!
Buy Peter's Book Today! Available on Amazon.
Catch up on our most recent posts here:
t’s not what you make, it’s what you keep. While helping New York City owners buy and sell investment properties, the ultimate objective is very clear: either improve cash flow or increase appreciation.
Becoming more tax efficient is a very important part of that strategy. This month, I have asked Rob Rainer from Cost Recovery Solutions to explain cost segregation and why it’s beneficial for New York City multifamily owners.
Behind The Bricks is the #1 podcast on New York City Multifamily Real Estate Investing. Through discussions with the most influential NYC apartment building owners, we get a deeper look into this exciting investment industry.
The goal of these talks is to go behind the transactions and explore what drives these individuals and the investment choices they make.
Stock market trading activity is very low. According to a WSJ article because the economy is not too hot, and not too cold, investors are acting as if the best move is not to make any move at all. In the world of investing, is holding cash (and not investing) a good investment?
For NYC multifamily, after the pricing peak in late 2015 and subsequent transition (where prices declined between 5-8%), pricing has been somewhat flat in 2017. Multifamily investors are asking the same question: what is the right move in a flat market?