The Five Cs of Credit in the Apartment Building Mortgage Lending Business
“Loan underwriters often refer to the five Cs of credit when evaluating and underwriting loan applications. What are the five Cs and how do they affect mortgage lending on apartment properties? The five Cs are: capacity, capital, character, collateral and conditions. We will attempt to explain each of these items and their effect on apartment lending credit decisions.”
Source: The Five Cs of Credit in the Apartment Building Mortgage Lending Business
Vacancies have risen and more units are expected to hit the market in 2015. Despite this news, apartment fundamentals remain strong due to more people choosing to rent than to buy. Here is the latest video by REIS Reports discussing the topic in more detail:
[CNBC, 04/02/2014] a lot of folks thought that the housing recovery would weaken rental demand and in fact, that sentiment hit the apartment reits pretty hard last year. investors were concerned about overbuilding. fast forward to the first quarter of this year. rental demand is still very strong. vacancies down 20 basis points to just 4% according to reit. rents continue to grow up over 3% from a year ago. they would be higher but landlords say that weak income growth is holding them in check. so with all that, it seems that investors have come back to apartment reits this quarter with a vengeance. the sector returned 12.75% in q-1 making it the top yielding of all commercial reit sectors.
via Apartment REITs returned to 12.75% in Q1.
By Michael Stoler, Commercial Observer
(MARCH 28, 2014) The residential rental asset class is one of the most sought-after investments by purchasers of commercial real estate. Investors from around the world, including private equity funds, real estate investment trusts and established long-time owners of real estate, all want to own this asset class, especially if the property is located in New York City.
The purchasers and the owners of this property class have been fortunate that the majority of commercial and savings banks, as well as Fannie Mae, Freddie Mac and Wall Street firms providing CMBS financing, are all very interested in financing rental apartments.
via Multifamily Lenders Scramble For Business | Commercial Observer.
By Summer Gell, Partner Engineering and Science Inc.
(MARCH 21, 2014) Multifamily housing investors’ options for financing sources have been shifting lately, and Fannie Mae’s recent major revisions to the Multifamily Selling and Servicing Guide–which went into effect in February 2014–are adding another layer of complexity to the multifamily lending landscape.
Fannie Mae’s Guide revisions included underwriting standard changes in addition to significant changes to the third-party engineering due diligence required for multifamily mortgage loans, more specifically the policies for Physical Needs Assessments (PNA, also called a Property Condition Assessment by other lenders) and Seismic Risk Assessments (SRA) for properties in high risk seismic areas.
via Charting a Course Through a New Multifamily Lending Landscape | Multi-Housing News Online.
The U.S. apartment market continued to see robust growth in 2013, but investors are keeping a wary eye on looming changes going into 2014, including the impact from rising supply, rising interest rates and the prospects of restructuring the nation’s two biggest government-sponsored enterprises (GSE’s) Fannie Mae and Freddie Mac.
via CRE Industry Faces Dramatic Changes in Multifamily Supply, Financing Environment – CoStar Group.
When supply increases; demand decreases. Buyers should remain sensitive to overpaying for multifamily properties in low cap markets, as the market continues to turn.
But as New York City’s “micro-apartment” project inches closer to reality, experts warn that micro-living may not be the urban panacea we’ve been waiting for. For some residents, the potential health risks and crowding challenges might outweigh the benefits of affordable housing. And while the Bloomberg administration hails the tiny spaces as a “milestone for new housing models,” critics question whether relaxing zoning rules and experimenting with micro-design on public land will effectively address New York’s apartment supply problem in the long run.
via The Health Risks of Small Apartments – Jacoba Urist – The Atlantic.
BY JANN SWANSONREITs, Sep 27 2013, 11:54AM
Commercial and multi-family mortgage debt increased by $24.5 billion in the second quarter of 2013, with $10.9 billion of that being debt in the multi-family sector. The Mortgage Bankers Association MBA said the increase in debt from quarter to quarter was 1.0 percent for all mortgage debt and 1.3 percent for multi-family. The aggregate outstanding commercial and multifamily debt at the end of the second quarter was $2.45 trillion; the multifamily portion was $875 billion.
via REITs, Pension Plans Increase Multifamily Debt Holdings.
“The purpose of this 5 minute process is not to nail down the specifics on a property. I don’t drive out and look at it yet, I don’t make a lot of phone calls or even show my wife yet. I do this same process dozens of times every week, mostly in my head in under a minute. There are two prices to note about the properties I examine:…”
via How to Buy a Small MultiFamily Property: A Step by Step Case Study.
Of course you want to minimize your expenses throughout the entire acquisition process, especially during the first thirty days of the due diligence. In reality, you may end up going through the property inspection process several times before you find the property that you are eventually going to own, so best to keep your costs as low as possible every time you evaluate a dealHere’s the first rule: Don’t write a check during the first two weeks of the due diligence process except for the earnest money deposit – but that’s a given.Just don’t do it.
via Multifamily Due Diligence – The Most Important Part of the Multifamily Process [POST 1] – Multifamily Investing Academy.