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:
The secret to long term investing is figuring out how to be active in every market. It’s all about having a “line in the water.” Today, most NYC multifamily investors have been pushed to seek higher yield, and sometimes more risk, in their investments.
This has kept pricing very competitive in the value-add segment of the NYC multifamily market, while pricing on repositioned and finished assets have softend since 2015. Some observers call this a “mispricing of risk.”
While transaction numbers have generally been in NYC, the New York Multifamily team at Marcus & Millichap closed more than $100 million in sales in the back half of summer 2018.
With 18 closed sales this summer across Manhattan and the boroughs and another 22 in contract, it was an active summer.
Home to some of most coveted real estate in the world, it is no surprise that living in New York City comes with a hefty price tag.
What if I were to tell you that there was a way to legally avoid paying market rent for an apartment in the Big Apple, would that be something you might be interested in?