Tag Archives: real estate
Are Banks funding Apartment Loans, ReFinancing and Commercial MultiFamily Construction Projects?
A common question being asked in todays financial climate, “Are apartment financing, MultiFamily property refinancing or apartment construction loans still available?” The answer to this question is a resounding YES. I continue see loans funded for apartment purchases, apartment refinances and construction lending. This is awfully good news in a time of a protracted credit crunch; a credit squeeze which has now gone global in its scope.
A source close to my company, one with ties to the top counsels of Fannie Mae and Freddie Mac, recently confided that Fannie and Freddie have been making money ONLY in the Apartment and Mobile Home Lending sectors. The upshot is this: These two venerable institutions of probity are determined to increase liquidity and strengthen apartment lending programs. The Fed needs to hang its hat on something, so why not strengthen an already existing stable lending platform to promote future growth in an industry already doing well: Apartments.
This protracted credit squeeze began as a virus. This virus started with the housing industry and contaminated the commercial real estate market along with just about every stock, financial instrument, business man, woman or line of credit in the country. Apartments have been the least impacted the credit crunch, but sales volume has still registered sizeable decline.
What a mess it has become. The chill in the credit markets began in October 2006. By October of 2007, this chill had become a deep freeze.
To understand the steep decline in the commercial real estate industry, one need only look at the numbers: Total commercial sales volume for October 2008 was barely one-quarter of its October 2007 level and just over 20% of the levels it achieved in 2006. Now that is a drop!
The aggregate deal volume and sales volumes for commercial real estate as a whole is down 75%, October 2007 to 2008.
For apartments, the fall off in deal volume has been sharp and steady: The number of properties trading hands has fallen 60% from October 2006 to October 2007 and has fallen another 75% this past 12 months.
There are several explanations for this but perhaps the number one reason is price risk, as measured between the spread of cap rates and the 10-Year Treasuries. In the apartment sector, this spread has more than tripled, (not Good) to a spread of 263 bps from their narrowest point in July of 2006, when it was 81 bps.
Between 2000 and 2004, the total renter households declined by 1.9 million as home ownership increase from 66.9 percent to 69 percent.
In 2005 this house-hold, rental-living trend began to reverse itself. Since the beginning of 2007,the home ownership rate has fallen by 110 basis points, resulting in 1.5 million additional renter households. This reversal is most pronounced in the younger age segment but it cuts across all age lines. The trend is up for rental-living-units.
In the end, Apartments are holding up well. Financing IS available and more people than ever are in need of rental housing.
Common Questions About Using Collateral On a Loan
Using collateral on a loan is the easiest way to get yourself approved and get yourself a great interest rate, especially when compared with unsecured financing options. But how does it all work? This can be overwhelming and confusing, but it certainly doesn’t have to be. These common questions cover basic things you’re going to want to know before you start diving into the world of financing.
What is collateral? Collateral is the security you promise to your lender. It’s saying to them that if you fail to make your monthly payments, they have this as security that they can repossess to cover their losses.
What is a secured loan? This is where you offer up some form of collateral. In unsecured financing there is none. In this type of loan your property can be repossessed if you don’t make your payments each month. By having this type of security the lender feels safer, that there is less risk, in lending to you. When there is less risk lending to you companies are more likely to approve your application and are more interested in working with you.
What can you use for collateral? The short answer is anything, but the longer answer is that every company sets their own standards. Banks will mostly only work with real estate and this is the most common form of security. However this is not the only type. The second most common option is a vehicle. It’s fairly easy to find a good number of lenders who will work with a car as collateral. Less common, but still out there, are those who will work with high priced items, like collectibles or jewelry.
Can I keep using my property while it’s being used as collateral? That depends on the item being used. When you are doing real estate or a car, then you can go on using your item as normal. With other high priced collectible items, however, lenders will often hold the item until you have finished making all of your payments.
Why would I want to do this? While there is certainly unsecured financing out there, using collateral makes it a lot easier to get approval. This is important if you have something like bad credit in your history. There are more benefits beyond that, however. By making the lender feel safer that you will repay things, and taking the risk off of them, they are more happy to work with you on things like the amount of your monthly payments, and most importantly, your interest rate. Secured financing is going to have the best interest rates available for you.