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Lending

Multifamily finance gains steam

Demand pushes multifamily construction

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Multifamily financing activity picked up substantially in 2012 as demand increased in the midst of a rapidly changing real estate market.

Last year, nearly 3,000 different multifamily lenders provided a total of $146.1 billion in new mortgages for apartment buildings containing five or more units, the Mortgage Bankers Association said. 

This represents a 33% increase from 2011 levels, with 67% of active lenders making five or fewer multifamily loans over the course of 2012.

"Low interest rates, strong property fundamentals and increasing multifamily property prices are all supporting a very favorable lending environment," said MBA vice president of commercial real estate finance Jamie Woodwell.

He added, "The 33% increase in lending volume in 2012 brought levels nearly back to where they had been in 2007."

The amount of multifamily mortgages originated last year went to a variety of investors.

By dollar volume, 40% went to Fannie Mae and Freddie Mac, which was the largest share per dollar volume, MBA pointed out.

When looking at just the total number of loans, 80% went to commercial banks, thrifts and credit union portfolios.

Meanwhile, the top five multifamily lenders in 2012 included JPMorgan Chase (JPM), Wells Fargo (WFC), CBRE Capital Markets (CBG), Walker & Dunlop (WD) and Berkadia.

It’s also important to note that demand will continue to fuel multifamily finance for the rest of 2013 and going into 2014, said Kim Betancourt, Fannie Mae's director of economics and multifamily research.

Multifamily continues to dominant the industry, given that many Americans still face challenges in obtaining a mortgage.

However, a perfect storm is brewing in multifamily as a new supply of properties is starting to unfold—something that did not occur in 2011 and 2012, Betancourt pointed out.

"Seeing the numbers from 2012 are not surprising because we’ve been witnessing this strength in the sector," she said. "Because of that, there has been larger demand for multifamily, and now is a good time for building to begin."

Fannie Mae issued $5.7 billion of multifamily mortgage-backed securities in the third quarter, backed by new multifamily loans delivered by its lenders. Additionally, the enterprise resecuritized $1.7 billion of DUS MBS through its Fannie Mae Guaranteed Multifamily Structures program, according to a recent report.

Meanwhile, Fannie Mae Capital Markets sold $2.7 billion of multifamily MBS from its portfolio.

New construction is expected to take place in the top ten national metros, including major cities such as New York, Austin and Seattle.

Currently, investors have been able to cherry pick where they wanted to build multifamily properties.

Looking forward — given the robust sector growth — many investors are rushing into the largest metros and trying to be the first to make a mark in these neighborhoods, Betancourt concluded. 

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