Authored by Michael Ratliff, the editor of ALEX Chatter.
The multifamily bridge loan space has become an increasingly popular lending sector as the current multifamily cycle has progressed. This is largely due to the rise of the value-add investment strategy.
Strategic multifamily investors have benefitted greatly from the prevalence of older, mismanaged apartment inventory that’s suitable for physical improvements and operational overhauls. Nearly a quarter of 2014’s $42B transaction volume in the top six markets (New York, Los Angeles, Chicago, San Francisco, Washington D.C. and Boston) was value-add in nature, according to RCA. These repositionings take anywhere from 18 to 36 months to execute, meaning that many investors are currently in the market for quality permanent financing solutions for their now stabilized properties.
Moving forward, market participants predict an increased appetite for bridge product, particularly in the $1 million to $5 million range, as multifamily investment activity shifts towards secondary markets and Class B/C product. According to CREFC’s 2016 Market Outlook Survey — which examines multifamily and commercial lending sentiment — private capital sources estimate that 18% of their loan profile will be comprised of bridge product, up from 15% the year prior.
With increased demand comes increased competition. The combination of strong yields and demand has drawn a torrent of new bridge and hard money lenders into the market within the past five years. Firms range from newly formed regional lenders that focus on short-term loans to new dedicated bridge product lines at global financial institutions.
Bridge-focused lenders who are able to offer their clients seamless access to non-recourse, permanent financing solutions with market-leading low interest rates will have an increasing advantage in this competitive landscape.
In 2016, the Arbor Realty Trust acquired the agency and servicing platform of Arbor Commercial Mortgage, LLC, bringing the firms’ two platforms under one operating company. As a leading Fannie Mae, Freddie Mac, FHA and CMBS lender, Arbor can ensure a borrower’s assets stay on the right financial path by providing an efficient and cost effective means of transitioning their asset to optimum permanent financing. As a one-stop shop lender, we may be able to bridge the timing gap toward an FHA loan by coordinating the permanent financing strategy in tandem with the bridge financing.
ALEX Chatter editor Mike Ratliff has been writing about about commercial real estate since 2010. Formerly an editor at Multi-Housing News and Commercial Property Executive, Ratliff was the 2014 recipient of the National Association of Real Estate Editor’s (NAREE) Ruth Ryan award for Best Young Journalist.