What’s going on in multifamily lending is a challenge and both borrowers and lenders are trying to adjust. In an interview with GlobeSt, CEO Edward Ring explained current financing hurdles and how New Standard Equities is changing its strategies.
“Everything that can pencil to today’s debt yields that lenders are requesting means that we’re effectively 50% or 55% leverage, which is missing the mark on some of our assets that went through the pandemic eviction moratoria cash shortfalls,” Ring commented. “Assets weren’t performing. On some of our properties, it’s fine. On some it’s challenging to get to the level of debt we need to finance or make it pencil for the equity yields.”
New Standard Equities typically passes on bank financing for non-bank entities “because we refer to borrow on a non-recourse basis and banks usually have a recourse component,” Ring said. “We have had banks in the past, but sometimes banks get caught up in their own portfolio problem and wind up pulling back from credit, like now. For example, a bank loaded with office-related loans probably won’t be too interested in financing multifamily.”
Ring added that he’s also seen “lenders trying to stretch, trying to make it palatable for whatever the borrower is trying to do. However, they will add terms like interest rate floors so they can consider their own cost of money when making a variable-rate loan. It’s matching that capital to the business plan and having some certainty around what the cost is.”
He noted that it appeared the industry was caught off guard. “Not that interest rates moved but so much happened so quickly. I think most people expected 200 to 300 basis points and this was a 500-basis point movement that was too much to bear too quickly.”
Read the full GlobeSt.com article here.
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