Expect select non-agency lenders to push leverage up to 80% this year to win deals over Fannie Mae and Freddie Mac.  The government-backed agencies will grab the lion’s share of multifamily deals because they offer the lowest cost of capital and provide second mortgage capabilities.  The GSEs won’t work in every circumstance and many other lenders will be hungry for multifamily deals.

CMBS lenders will be able to compete with 70% to 80% leverage.  Banks will focus on a 65% sweet spot, but a few will go up to 75% to win deals.  Life companies will provide leverage at 60% to 70%.  Non-agency lenders will offer DSC from 1.15x to 1.20x.  Debt yield will be a minimum of 9%.  Rates will land between 4% and 5%.

Look for JP Morgan Chase to be a dominant lender in the multifamily arena.  Opus Bank will offer leverage up to 75%, longer term loans and quick 30-day closings.  Others banks such as Deutsche Bank, Union Bank, Luther Burbank and Sterling Bank will be active.  Comerica and Bank of the West will do three- to five-year deals.  Apartment Bank can rate lock at application, provide a quick closing and offer step-down prepayments.  Prime Finance will provide short-term loans.  BMC Capital will be open to all classes of multifamily assets, with deals in the $500K to $7M range.  Private lender A10 Capital will provide loans in the $1M to $10M range, while Seattle Funding Group focuses on a $2M to $3M average.

Banks and bridge lenders will come into play on non-stabilized assets in transition, while the agencies will target stable properties.  Through the use of recourse and shorter term loans, banks and bridge lenders provide low costs of capital, which will give borrowers time to reposition an asset for a sale or permanent financing.  The banks will be attractive to borrowers that want short-term money, flexibility with prepayments and the ability to refi in the near future.  Also, keep an eye out for credit unions to pick up some multifamily deals.

Anticipate Prudential, MetLife, New York Life and Principal to be active in the multifamily space and provide long-term loans with favorable underwriting.  LCs will want high-quality properties with future lease-up capabilities.  They will pick up the deals just outside the GSEs’ box.  The agencies will focus on the large well-located assets, while CMBS lenders will allocate funds for smaller deals in secondary and tertiary markets.  Conduits will underwrite using current cash flow and look at pro forma versus historicals similar to the agencies.

Non-agency lenders will be willing to listen to the borrower’s story, while the agencies will be more rigid.  Banks, life companies, bridge lenders and CMBS can move quicker to close the loan, require less paperwork and consider a wider variety of deals.  Some lenders will offer incentives such as rate lock at closing and flexible prepayment options.  Many won’t require a trailing-12 analysis and will look at current rents.  The agencies could start to pull back by year’s end because of pressure from Congress.  After the election, the role of the GSEs will be uncertain.

Borrowers with strong equity and a feasible project will most likely find short-term financing through national banks, regional banks and possibly private money, but chances are the majority will be recourse loans.  Existing relationships can help hasten the process, especially when dealing with regional banks.  Due to risk levels, lenders are more likely to do business with a previous customer in good standing than develop a new relationship. 

The University of Kansas in Lawrence, Kan., receives a $16M construction loan from Mutual of Omaha Bank.  The proceeds will be used to fund a 205,591-s.f. student housing project, which will boast 172 units with around 500 bedrooms.  Buildout will take 36 months.  Mutual of Omaha SVP of Commercial Real Estate TJ Heither explains student housing has always been a good bet, but now it’s a safe one as well.  The Bank has recently financed several student housing developments at the major state schools in Texas, Nevada and Colorado. 

Piermont Properties inks a $7.7M loan from People’s United Bank for the acquisition and adaptive reuse of a site at 240 Jericho Turnpike in Long Island, N.Y.  The site will be converted from a former car dealership into a 30,000-s.f., high-end retail center.  The borrower had an existing relationship with the regional bank, which goes to show that prior relationships can help get deals inked in this environment.  The LTC was 75% for the two-year construction loan.  This is a floating-rate loan at a rate of Libor plus 200 bps.  At the end of the term, it can covert to a permanent loan based on the banks’ cost of funds at that time plus 190 bps. 

Carlson Hotels secures financing for its Radisson Blu hotel, which will be connected to the Mall of America in Minneapolis.  The hotel will cost roughly $121M and the company was able to ink two hefty pieces of debt totaling $80M.  Tax exempt bonds will be used for $40M, while another $40M will come through taxable notes.  Of the total debt, approximately 70% was through investments by trade pension funds, with the remaining 30% of the taxable portion issued through several small consortiums of banks.  The hotel will break ground at the end of the month with buildout anticipated for March 2013.  The hotel will boast 500 rooms, roughly 28,000 s.f. of meeting space and a walking bridge to the mall.  It marks the second Radisson Blu in the U.S. with the first opening in Chicago this year. 

A joint venture between Normandy Real Estate Partners and investor Mark Yeager borrow $15.47M from The Provident Bank for the acquisition, renovation and construction of Summit Executive Center in Summit, N.J.  The Class A, 65,518-s.f. office property will be completed in March 2012.  The loan carries a 36-month term.  The lender was attracted to the location, the best-in-class sponsorship and the fact that the building is already about 50% pre-leased.

Student housing transaction volume for Q1 closed in on $500M.  If activity continues to pick up, transaction volume for 2011 should be even more than last year, which totaled more than $1B.  Despite high expectations for this year, expect things to slow in Q2 as companies finish off pre-leasing for the 2011/2012 school year.  Activity will come back in full force sometime in August, paving the way for heavy transaction volume through the rest of 2011.

During the last year, the surplus of capital has been going to larger players, while new or smaller operators haven’t been able to access debt as frequently.  Many believe the divide in availability of debt capital will narrow later this year and will allow the smaller players to pick up the pace.  CMBS players and life companies are winning some deals from Fannie Mae and Freddie Mac and increasing competition will force debt and equity sources to present more competitive terms, which should empower buyers to place more aggressive offers.  Keep an eye on interest rate volatility, which will be one of the greatest concerns in 2011. 

Phillips Acquisitions enters the Oxford, Ohio, market with the purchase of a 304-unit student-housing asset located half a mile from Miami University of Ohio.  The buyer paid $7.9M, nearly $26K/unit, to grab Candlewood Terrace.  The complex, which was originally constructed in five phases between 1965 and 1978, features a mix of garden- and townhome-style floorplans.  Rents range from $255/bed to $495/bed and $495/unit and $1,000/unit.  CEO Eric Phillips has no plans to increase rents at this time.  In addition to students, this off-campus buy is also home to professionals and families and is showing strong pre-leasing for 2011/2012.  Phillips budgets $400K for renovations and hopes to complete the work by the end of May or June.  Phillips Property Management LLC will manage the property.

Phillips looks at on- and off-campus housing and plans to acquire three to four more properties this year.  The company is a long-term investor and is open to all markets.  When making purchases, Phillips searches for value and properties with repositioning options to improve its standing in a market. 

Salmanson Capital LLC acquires an off-campus student housing complex in Lincoln, Neb., which serves the University of Nebraska.  Around $7.65M was paid for the 88-unit, 238-bed Claremont Park Apartments.  The company assumed a Fannie Mae loan in the amount of $5.18M.  The loan is interest only until August 2012 at a rate of 5.76% and matures in August 2017.  Salmanson bought the property based off its solid location, which is within walking distance of campus, and its upscale amenities. 

President David Salmanson notes that the barriers to entry are very high in Lincoln and there is very little land within walking distance of the campus to build any new product.  The property is 100% leased, which sticks to the company’s strategy of solely purchasing properties that have a proven track record of being fully leased.                  

Pre-leasing has already begun for the 2011/2012 school year and is on pace with last year’s leasing, even after implementing a solid rent increase along with some new revenue streams.  Salmanson typically likes to achieve at least double-digit, cash-on-cash returns on its investments.  University Capital Management LLC, an affiliate created by Salmanson Capital LLC, will manage the property.  The Claremont Park Apartments purchase brings the company’s student housing portfolio to 344 apartments and 942 beds.  Salmanson is ambitious and looks to grow its footprint in the industry.  The company has previously funded all deals without partners, but is open to taking on equity partners in an effort to create more deal opportunities. 

JMG Realty and Trident Partners have teamed up to buy an 816-bed student housing complex in Harrisonburg, Va., dubbed North 38, nearby James Madison University (JMU).  The purchase price for the 288-unit property was $32.75M, or $143,640/unit, financed through a seven-year Freddie Mac loan.   Wood Partners constructed the 19-acre property, which was completed in 2009.  JMG particularly liked North 38 because it is a newly constructed quality asset strategically located on the JMU bus line, just three miles from the University.  The unit mix is made up of three- and four-bedrooms, with an average unit size of 1,312 s.f. 

The asset was 94.6% occupied at the time of the sale and was already more than 60% pre-leased for the 2011/2012 school year.  Average rents are currently $490/bed and JMG plans to increase this by $15/bed to $20/bed.  JMG SVP Lori Johnson is targeting returns in the high-teens to low-twenties and plans to hold the property for three to five years.  JMG generally likes Class A products in growth markets.  The company prefers newer student housing products located close to campus and along campus bus lines.  

ING Clarion Partners picks up The Warehouse in Chapel Hill, N.C., for $19.9M located just three blocks from the University of North Carolina’s main campus.  ING is banking on stable demand, strong historical occupancy and challenging barriers to entry to provide an attractive risk adjusted return.  The transaction was partly financed at closing with a low LTV loan.  Built in 1999, the four-story property has 215 beds spread in 55 apartments in a mix of two-, three-, and four-bedroom units.  The Warehouse is 100% occupied and is currently 75% pre-leased for the 2011/2012 school year with full occupancy expected to happen in the near future.  ING acquired the asset as a long-term hold investment.  Campus Apartments, the existing property manager, will continue to assume management duties at the property. 

ING Clarion invests in all property types and typical transaction sizes range from $25M to $75M, however, there is no maximum deal size.  General acquisition criteria for student housing would most importantly include a strong location on-campus or within easy walking distance to campus.  Target markets include a major university with student populations generally greater than 8,000 that are anticipated to benefit from strong future growth.  An attractive amenity package and construction/design, which allows for straightforward long-term maintenance, are also important considerations for ING. 

Education Realty Trust (ERT) purchases two housing communities from Wade Apartments adjacent to the University of Virginia (UVA) in Charlottesville, Va.  ERT paid a total of $23M for the assets.  Wertland Square, which opened in 2006, is a 50-unit, mid-rise apartment complex with two- and four-bedroom unfurnished apartments.  The building contains a total of 152 beds with an average monthly rental rate of approximately $708/bed.  Jefferson Commons, which opened in 2007, is slightly smaller with a total of 22 unfurnished apartments.  The 82-bed complex has an average monthly rate of $578/bed.  Both buildings are within walking distance of UVA and are currently 100% occupied and fully pre-leased for the 2011/2012 academic year. 

Pierce Education Properties purchases Block 1949 for $52M near the campus of Arizona State University in Tempe, Ariz.  The property was bought from JLB Partners facilitated by a $38.5M acquisition loan provided by Deutsche Bank Securities Inc.  Block 1949 was developed in 2010 just in time for the 2010/2011 academic year.  The 640-bed, 225-unit student housing property is located 1.5 miles from campus and consists of studios, two-, three- and four-bedroom units.  The buy was strategic largely because Pierce Education recognized it as one of the highest quality student housing communities in the country.  The property is currently 95% leased.  Pierce Property Management, a division of Pierce Education Properties, will manage the gated community.