Multifamily Lending Leadership on how Market Volatility Impacts Investment Strategies
The multifamily market has proven to be one of the strongest in 2022. As a sector once hit hard by the pandemic, the multifamily market has rebounded with force across the country. There are, however, several factors that have impacted the market’s expansion. Rising interest rates have led to a slowdown of investment activity, and rental price growth and demand have skyrocketed, leading some investors to re-evaluate their investment strategy.
Bisnow spoke with leadership from real estate finance firm NewPoint Real Estate Capital — President Jeff Lee, head of production Geri Borger Urgo and head of capital markets Elie Tannous — to see how the firm and its borrowers are adjusting strategies during this volatile market.
Bisnow: Is there any economic period in our recent history that is similar to what is going on today?
Tannous: There are similarities with every period of turmoil. The big difference here is that we are in the midst of everything playing out. If you look at the onset of the pandemic, lenders were trying to figure out if they could close a loan. There were a lot of unknowns, but we got through it. Between the inflation surge, supply chain issues and ongoing war in Ukraine, there are many scary unknowns. The same held true for the pandemic, the dot-com bubble and the financial crisis of 2008, they just needed time to play out.
Bisnow: How has market turbulence impacted NewPoint?
Lee: Despite the uncertainty in the market, the NewPoint platform and business have expanded dramatically, growing from a team of 90 to roughly 250. We’ve brought a leading HUD/FHA platform into the fold with the acquisition of HHC Finance and have expanded our agency affordable and senior housing licenses. In August, we launched the NewPoint Impact platform, a suite of next-generation affordable housing finance solutions that pairs private capital with government-subsidized products. We’ve also built the smoothest loan process I’ve seen in today’s market.
As a firm, we are continuously developing new proprietary solutions to appeal to a broader array of clients and investors. That is the vision that NewPoint CEO David Brickman has set for us — to have an unrivaled suite of products built for today’s market but ready for what comes next.
Borger Urgo: To elaborate on how the loan process works, a sense of urgency is paramount to success with rapidly changing conditions. For now, that means being a leader in Freddie Mac’s Index Lock and Fannie Mae’s Streamlined Early Rate Lock executions. In addition to focusing on efficiencies and responsiveness, we are also making sure we have a good risk tolerance; partnering with the right sponsors and making smart assumptions so that we can take advantage of rates as they move throughout the day, which is what Elie’s team specializes in.
Tannous: Internally, the day-to-day volatility has only strengthened NewPoint. Geri has successfully expanded our originations platform with some very prolific players, which has been a game-changer for us. There is teamwide trust in the process and we consistently make it work, despite the noise.
Bisnow: How is this volatility and uncertainty impacting how NewPoint clients are conducting business?
Borger Urgo: While we are still seeing a lot of demand for our floating-rate bridge product, the recent increase to the cost of capital has some borrowers shifting to fixed-rate options. When there is market uncertainty, borrowers tend to get comfortable with less leverage and look to remove interest rate risk from the equation. That is why we are seeing increased demand for the agencies, who have recently stepped into their countercyclical role of ensuring market liquidity, when things get volatile.
Lee: Some of our borrowers are hitting the pause button to a degree. The uncertainty surrounding property values and the long-term direction of rates has slowed down financing and investment activity. A year or so ago, there was relatively little expectation that rates or values might go lower. Today, no one is quite so sure which direction things may go. This is not unusual, however. It means we have a period of discovery, uncertainty and a lack of conviction. There is also a distinct risk of a downturn and Fed-driven liquidity pressures.
Bisnow: What are the major influencing factors to your day-to-day at NewPoint?
Borger Urgo: One area we are focused on is building out our seniors housing capabilities. The demographic drivers we’ve been hearing about for years are starting to materialize, and we are seeing a lot of optionality on the age-in-place idea. With our acquisition of HHC Finance, we now have a borrower network in the healthcare space served by our HUD relationships and expertise. But to hit the full market across the continuum of care, it is key that we thoughtfully grow our Agency Seniors Housing platform. Sean Huntsman is anchoring our originations efforts there, and platform lead Kathy Stewart is focused on smart, efficient growth and helping originators serve clients who are examining the seniors housing space.
Tannous: In my opinion, it’s treasuries. We have seen spreads widen since the beginning of the year, but the bigger effect is the uncertainty, stock market volatility and level of the treasuries. While the Fed is trying to tip its hand in terms of what it is willing to do to combat inflation, we expect this uncertainty to continue as each week brings conflicting indications. It is a constant calibration to the inflation numbers. There was certainly a shift in perspective after June’s 9.1% CPI figure — time will tell if the slight cool-off seen in July’s figure is a blip or part of a trend in the right direction. The stock market also needs to settle down and figure out where the bottom is. In the big scheme of things, it is not so bad. We haven’t lost any bidders and there are still people actively making markets.
Lee: I’m continuing to focus on execution. We have been investing in streamlining the loan process and bringing as much transparency to our borrowers as possible. While developing proprietary technology plays a part in this execution, it really comes down to our people. Our borrowers have voiced that our approach to lending is refreshing, and we are continuing to build off that momentum.
–Originally published in Bisnow