When a global pandemic shut down much of the world in March, multifamily property owners were among the first to feel the pinch. With the almost instantaneous skyrocketing of unemployment, many renters were left unable to pay, but property owners still had bills to pay and debt to service.
As the government moved to give the economy a boost, interest rates have fallen to historic lows, making refinancing attractive to many property owners. With the need for more cash on hand rising, refinancing could be a great option for some in the multifamily space.
Rent payments fall but demand for amenities rises
In spring 2020, the unemployment rate rose to nearly 15%, and while it had fallen back to 6.7% in December, that’s nearly double what it was in December 2019, meaning fewer people had the ability to pay their bills, including rent.
Urban core markets like Downtown Los Angeles, San Francisco and Austin top the list for rent decreases, declining much as 8.4% according to an article from Globest. As the affects of the pandemic stabilized some in Q4, occupancy rates hovered around 95% for the urban core markets, down slightly from 2019.
But it’s not all doom and gloom throughout the country. At the virtual Kansas City Commercial Real Estate Summit in October, real estate professionals agreed that Kansas City’s diverse economy had spared the Midwest city much of the upheaval found in larger cities. Frank Sciara of Grandbridge Real Estate Capital said most tenants are continuing to pay their monthly rent despite early concerns about a high number not being able to manage the payments.
Even as some areas struggle with renters not being able to pay, tenants are changing what they want in a multifamily structure. Where once gyms and pools were high on the list, now prospective renters are more concerned with green spaces, designated workspaces and high-filtration HVAC systems, which can be expensive items to add to an existing building. Doug Bartels, senior vice president – development for Russo Development in Carlstadt, New Jersey, tells Real Estate New Jersey:
“Social distancing will have renters looking for locations that meet their need for more on-site open space while still providing the conveniences of urban living.”
Interest rates favorable for refinancing
With the uncertainties wrought by the pandemic, many multifamily property owners are looking to keep a bit more cash on hand to weather the ups and downs. With historically low interest rates, refinancing can be the answer for some multifamily owners.
With the Federal Funds Rate set by the Federal Reserve nearing zero, borrowers can find refinancing rates in the 3-4% range. Don Bernards, partner in charge of accounting and consulting firm Baker Tilly’s housing transactions team says:
“With these rates, I think it’s incumbent upon us to look at these deals.”
On Baker Tilly’s BuzzHouse podcast, Garrick Gibson, a partner on Baker Tilly’s transactions team, points out that refinancing a loan from a rate of 4.45% to 2.75% left a client with an increased cash flow of $85,000 a month.
But refinancing isn’t just about getting a low rate. Understanding your current loan is key to deciding whether refinancing is right for you.
Mark Costa, Chief Revenue Officer (CRO) of LendingStandard and Mutlifamilydebt.com, provides some best practices for refinancing your multifamily loan:
Know your options.
When shopping loans, take the time to compare several options and learn how each can meet your refinancing goals. For example, If you have a $1M-$5M refi, you’ll have a lot of options open to you. While a HUD loan will provide you long-term financing at an attractive rate, many borrowers don’t have the patience or time to go through the 6-9 month process. A Freddie or Fannie loan may be a better option while still providing a competitive interest rate with a five, seven or 10-year term. There is also a vast selection of both private and bank and credit union options with competitive rates and flexible terms, widening the pool of loan options. Leveraging a technically enabled brokerage like Multifamilydebt.com can help you evaluate all of your options in one place while and consulting with you to determine the best choice for your financial goals.
Evaluate your portfolio
Assess your portfolio of properties and loans to see if consolidating of your long-term hold assets can provide a better rate and less cost. There are portfolio loans that can provide a competitive rate while helping you manage costs. Depending on your portfolio, this could be a better option when compared to multiple transactions over time.
Get to know your loan officer.
Even as the industry moves to more technical interactions between investors and lenders, it is still key to work with a loan officer and build a relationship based on trust. With the right partnership, a loan officer can provide valuable insight to help you make the best loan decision for your multifamily property.
Lenders may be reluctant
Many private lenders have backed away from the multifamily space. National Real Estate Investor says “Lenders of all types are likely to make fewer loans to apartment properties in 2020 than they did the year before.”
However, Freddie Mac and Fannie Mae loans are most likely to still be an option. Mitchell Kiffe, senior managing director and co-head of national production for debt and structured finance for McClean, Va.-based CBRE Capital Markets, tells National Real Estate Investor:
“Freddie Mac and Fannie Mae have been very supportive of the market. They are designed to be counter cyclical.”
When deciding on a refinance, identify the possible lenders, then weigh the benefits versus any penalties of your current loan to make the best decision.
Finding a lender
If you decide to refinance, don’t let the process of choosing a lender and submitting all the paperwork become overwhelming. Simplify the process with MultiFamilyDebt.com’s loan-matching tool. Simply enter the location of the building, the number of units and the building class along with construction cost, gross income and expenses. Our tool calculates the estimated mortgage and presents you with several refinance options.
Once you’ve determined the best type of loan for you, simply upload the required documents and examine your offers. The MultiFamilyDebt loan calculator makes the process simple by keeping all your required documentation in one place, taking the stress out of applying for a loan and helping you cut through the red tape.
While the pandemic has brought new challenges to multifamily property owners, refinancing your property doesn’t have to be one of them. Apply today to see what you qualify for at MultiFamilyDebt.com.