Construction lenders raised concerns about the possibility of future overbuilding in key multi-family markets, at the Mortgage Bankers Association’s Commercial Real Estate Finance / Multi-Family Housing Convention 2012, which opened yesterday in Atlanta. The financiers were speaking on the panel titled “Lending for Bank Portfolios—Easy Does it or Rocky Road?”

Ken Broussard, regional executive of the income property group of KeyBank, said the bank has had conversations questioning whether there is “too much development or structures that can cause a bit of a bubble” in multi-family. “No one is saying ‘yes, probably,’ but at least there is a discussion,” he said, “because across the country all of our regions are seeing a lot of requests on new construction in multi-family.” Broussard said 60 to 62 percent of the group’s new originations in 2011 were in the multi-family sector, primarily in permanent debt.

In particular, Washington, D.C. was singled out by the panelists as a market to be cautious about. Broussard said that the multi-family markets in Washington, D.C. and Baltimore are still holding up pretty well, but that there is much discussion about possibility of overbuilding in those markets. “We are seeing a ton of construction in Washington, D.C. and New York. The gateway cities are huge right now,” agreed Pete Matthews Jr., senior vice president of M&T Bank.

Marc McAndrew, executive vice president of PNC Real Estate, said there could be too much supply in both D.C. and Seattle if all the projects that are discussed are brought to fruition. While he noted that all markets are submarket specific, McAndrew added that a close eye should be kept on Texas, where it is easy to buy land to develop real estate. The supply and demand balance of multi-family housing is currently “pretty good” in Texas, but could disappear pretty quickly, he said.

While the lenders expressed concerns, they also said they intended to maintain, if not increase, their level of lending activity this year, whether of permanent or construction debt. “A lot of 2011 for many of us was continuing to cope with the residual of the financial crisis and the recession, but we are looking forward to getting some new loan growth,” said moderator Diana Reid, executive vice president of PNC Real Estate.

Matthews said M&T Bank will be focused on serving its customers and their liquidity needs this year. “We are taking advantage relative to 2011 of getting some new opportunities with different partners,” he said. He said the bank will provide construction capital and bridge financing, in “the right structures with the right players.”

In terms of lending to the different real estate sectors, Matthews said M&T bank is making some retail construction as well as refinance loans. Development in the retail sector, he said, is so difficult that there is no great oversupply. The office market is “lukewarm,” but the bank would lend in the right situation, while industrial properties are generally steady. M&T has also started providing capital for condominiums in New York City again, he noted.

McAndrew said PNC Real Estate is targeting $8 billion to $9 billion in new product this year, spread across construction, REIT and permanent financing.

As to favorite markets, the panelists unanimously agreed that New York City was the most desirable market in which to provide debt capital. It is difficult to overbuild in New York City, said McAndrew. In addition to Pittsburg, McAndrew said he also favors to certain multi-family submarkets in Washington, D.C.

Lenders are keen on the multi-family market, and the focus isn’t just on Class A communities. Acting on behalf of Santa Ana, Calif.’s Focus Development, Johnson Capital just closed a $75 million debt and equity financing deal for one of its clients, a Southern California-based full-service real estate investment and development firm, facilitating the acquisition of a 1,271-unit portfolio of Class B-minus and Class C apartment communities in Florida and Texas.

Johnson Capital orchestrated a strategic partnership with a private, low-profile equity source for the purchase of the nine apartment properties, and placed $48.6 million of Fannie Mae financing with Centerline Capital. Johnson Capital had its reasons for going with Fannie Mae as opposed to Freddie Mac. “With the Fannie Mae process, you get better pricing across the board,” Neil Bane, principal and head of the equity division at Johnson Capital, told Commercial Property Executive. “Our client gets better pricing and the lenders are able to achieve better pricing, and they sell it to the street because of the volume of the portfolio.”

And a bevy of equity providers took an interest. “The borrower has good experience in terms of renovation, redevelopment and repositioning, so there was some good upside,” he said. “And the fact that the properties were in relatively good markets that appear to have good upside and the client is buying at a pretty good cap rate — an 8.5 to 9 percent cap rate — gave those Fannie Mae lenders, who would otherwise not feel comfortable, the comfort to do the deal.”

The fixed- and floating-rate debt came in the form of loans totaling $35.8 million for five properties in Tampa and two in Orlando, and $12.8 million of bridge financing for the remaining two properties, located in Pasadena, Tex.

“It’s often hard to get floating rate programs on B and C properties, I think we did a good job of being able to identify a number of lenders who were willing to do that here,” Bane said.

Image courtesy Flickr user laverrue

It’s good to buy when opportunity presents itself and, capitalizing on one of those opportunities, a consortium including affiliates of Starwood Capital Group, the LeFrak Organization and Invesco Ltd. have purchased a beachfront, mixed-use property in Miami’s South Beach, including a hotel formerly known as the Gansevoort.

While the terms of the deal were not disclosed, the partners announced a $100 million renovation project for the property, which already includes 334 hotel rooms, 255 condo units across 294,000 square feet and 90,000 square feet of retail space. The hotel rooms will be renamed The Perry South Beach until its re-launch in 2013, when a new brand will be unveiled after the renovation. The partners also anticipate improvements to the condos, which will put the units on the market in late 2012.

Barry Sternlicht, chairman & CEO of Starwood, said that “global interest in the Miami marketplace is close to surpassing an all-time high,” noting that his firm has the opportunity to “create an outstanding destination resort and residences in this outstanding city.”

According to a report by Marcus & Millichap Real Estate Services Inc., Miami saw a 9 percent increase in demand for hotel rooms year-to-date in August of 2011, as compared to the same period a year prior. Additionally, the sector as a whole performed well into the fourth quarter of last year, with Florida as a whole seeing occupancy rise by 4 percent on a 6.7 percent jump in room demand. And, to Sternlicht’s point, not all of the spending has been from domestic sources: “A weak dollar relative to the euro has also boosted international travel to leisure markets such as Miami and Orlando,” the report noted.

As Commercial Property Executive previously reported, a Jones Lang LaSalle Inc. report sees hotel investment volume to hold steady in 2012, reaching the same $30 billion range as last year.

The property was sold by entities controlled by Credit Suisse, which had acquired it through foreclosure in 2010. Jones Lang LaSalle Inc.’s hotels group brokered the transaction for the financial-services company.

SL Green Realty Corp. may be New York City’s largest office landlord, but the REIT hardly has tunnel vision when it comes to property types. In two separate joint ventures, SL Green has completed the acquisition of eight retail and residential assets in Manhattan’s Midtown and Upper East Side submarkets.  The REIT had announced plans for the $416 million purchase of the properties in October of last year.

In a partnership with Jeff Sutton, SL Green snapped up the 65,000-square-foot retail building at 724 Fifth Ave., relying on a $120 million, five-year mortgage loan to make the purchase. The property counts Prada as its lead tenant; the Italian luxury goods retailer leases 20,700 square feet of retail space on various levels, in addition to a boutique office space.

SL Green also just claimed 402 residential units and even more retail space for $193 million through its joint-venture purchase with Stonehenge Partners. The group of assets includes the 260-unit apartment building at 400 E. 57th St., which also features 16,000 square feet of ground-level retail, and 400 E. 58th St., a 125-unit residential tower with roughly 3,300 square feet of ground-level retail space. SL Green secured seven-year mortgage financings totaling $100 million to facilitate the acquisition.

Interests in the four-story retail building at 752 Madison Avenue and 19 & 21 E. 65th St., two mixed-use properties encompassing 17 multi-family units and 9,000 square feet of retail space, were also part of the SL Green-Stonehenge joint venture deal. And two commercial properties, the 6,000-square-foot mixed-use building at 762 Madison Ave. and the five-story commercial building at 44 W. 55th St., round out the group.

SL Green’s penchant for joint venture pursuits — both acquisitions and dispositions — continues, as indicated during the REIT’s fourth-quarter earnings conference call. “On both sides of the table, we were active, we continue to be so in 2012, notably 10 East 53rd Street, which was not discussed in December, is our latest acquisition,” Marc Holliday, CEO of SL Green, said. “It fits right in with our core business line of acquiring, repositioning and redeveloping prime New York midtown Manhattan assets in prime location. And in that case, we subsequently brought in a foreign and institutional equity joint venture partner to both leverage our equity, enhance our returns and increase our opportunity set.”

The 133-unit Montoya Apartments in Branford, Ct.

Walker & Dunlop L.L.C. has come through for Principal Management Partners with a $163.8 million loan package for the refinancing of a four-property apartment portfolio in Connecticut. The group of assets encompasses a total of 1,170 residential units.

Two of the properties, the 349-unit Hoyt Bedford Apartments and the 238-unit Morgan Manor Apartments, are located in Stamford, while the 450-unit Seramonte Apartments and the 133-unit Montoya Apartments are sited in Hamden and Branford, respectively.

Four properties, four loans. Walker & Dunlop provided the financing under Freddie Mac’s Capital Markets Execution Program. The loans, at loan-to-value ratios ranging from 79.2 percent to 80 percent, were structured with a seven-year term with two-years interest only and a 30-year amortization.

The private lending community certainly made its presence known as a viable option for certain borrowers in the thriving multifamily market last year, but Freddie Mac and Fannie Mae remain strong go-to sources. “Banks continue to lend but generally speaking only on shorter duration loans with floating interest rates,” Willy Walker, president and CEO of Walker & Dunlop, noted during the company’s fourth-quarter earnings conference call in November. “I expect that, during the remainder of 2011 and into the first part of 2012, we are going to see a continuation of the current competitive landscape, where the agencies are lending, banks are trying to understand the regulatory landscape and deploy short-term floating rate debt, life insurance companies continue to actively lend, and CMBS exists but not as a major market force.”

Walker & Dunlop, a Fannie Mae DUS, Freddie Mac Program Plus and MAP- and LEAN-approved FHA lender, closed 2011 with a loan origination volume of $4 billion, $2.7 billion of which was through the two government-sponsored enterprises. Walker added of the current lending climate, “This landscape allows Walker & Dunlop to do what we do best, grow our agency lending business with limited pricing pressure from other sources of capital and expand our business into new areas of lending as a publicly traded non-bank finance company.”

The new Republic at Lubbock housing community.

Aided by $52 million of financing placed by Holliday Fenoglio Fowler L.P., The Scion Group and Arch Street Capital Advisors have snapped up two student housing properties in Texas. The Retreat at Denton and The Retreat at Lubbock, renamed The Republic at Denton and The Republic at Lubbock following the acquisition, offer an aggregate 1,345 beds near the University of North Texas in Denton, and Texas Tech University in Lubbock, respectively.

Scion and Arch Street purchased the off-campus apartment communities from a joint venture between the developer and an institutional real estate private equity fund.

The financing came in the form of two five-year, fixed-rate, interest-only loans, one for $18.2 million and another in the amount of $34 million, placed through Freddie Mac’s CME Program. As a sub-sector of the thriving apartment sector, student housing is an appealing risk to the lending community and the high-quality assets that Scion and Arch Street recently acquired have particularly desirable features.

Age is more than just a number, it is a coveted characteristic in commercial real estate financing and The Republican at Denton and the Republican at Lubbock are brand new, both having opened their doors in 2011. High occupancy rates are also a draw and in that category, the assets get high marks with respective occupancy levels of 97 percent and 98 percent. Additionally, student housing in general has a bright future. Population growth and a boom in the college-age population — Generation Y, or the babies of the Baby Boomers — continue to push up enrollment.

With strong fundamentals in place, student housing is hot and getting hotter and the lending community’s fondness for the sub-sector is pushing up the already high transaction volume even higher. “Given the current lower cap rate environment, the high demand by owners/developers to monetize and the high demand by investors to deploy equity, 2012 should see a substantial increase in activity for both total transactions and total dollar volume,” a report by the ARA National Student Housing Group noted.

HFF has certainly been active in the financing of student housing trades these days. Just one week ago, the commercial real estate and capital markets services provider announced that it had secured a $56 million loan for the refinancing for AIG Global Real Estate Investment Corp.’s 260-unit Sterling Collwood student housing community near San Diego State University in California.

The apartments a 2222 Smith St. in Houston.

The Morgan Group, a company focused on development, construction and property management of luxury multi-family properties, has arranged financing of $146 million on behalf of its affiliated investment partnerships. The proceeds were obtained from bank, agency and insurance company loans with terms ranging from five to ten years, collateralized by five apartment properties in Texas, Florida and North Carolina.

“Current loan rates for multifamily projects were extremely attractive,” Mike Morgan, the firm’s chairman & CEO, said. “It appeared to be a good time to lock in terms for stable, core assets. The five apartment properties we refinanced represent more than 1,700 units in our portfolio.”

These properties include: 2222 Smith Apartments and 33Thirty-Three Weslayan Apartments in Houston, financed by BBVA Compass Bank and Northwestern Mutual Life; The Village at Lake Lily in Maitland, Florida, and Arelia James Island Apartments, in Jacksonville, Florida, which were financed by FNMA and Metropolitan Life; and Spectrum South End Apartments in Charlotte, North Carolina, financed by New York Life.

Finding financing for apartment properties is unlikely to prove difficult in the coming year, as the sector just came off an extremely positive 2011. “The multi-family sector continued its marathon-like recovery in 2011, and has entered full expansion mode in virtually every market,” Hessam Nadji, managing director, of research and advisory services for Marcus & Millichap Real Estate Services Inc., said. “Favorable demographics, the release of pent-up demand as young adults debundle from family and roommates, and increased renter demand due to changing attitudes towards homeownership — which has become increasingly difficult in this country — drove more people into renting. Although the private sector created 1.8 million jobs last year, even greater job creation will be needed to sustain the white-hot levels absorption recorded after the recession.”

Lenders continue to look favorably upon the multi-family market, and student housing is no exception. Acting on behalf of AIG Global Real Estate Investment Corp., real estate and capital markets services firm Holliday Fenoglio Fowler L.P. has obtained a $56 million loan for Sterling Collwood, a premier student-housing property near San Diego State University in San Diego.

Collwood sits on seven acres approximately one mile from the SDSU campus. The apartment community opened its doors in 2010, featuring 260 units in three buildings. M&T (FNMA) provided AIG with a seven-year loan carrying a 4.57 percent fixed-rate for the refinancing of a construction loan on the property.

The glory days of loans being handed out like candy are just a distant memory. Extreme caution is the key characteristic of the capital markets right now. However, the multi-family sector was the first to bring lenders off of the sidelines and it continues to be a favorite for financing. But while it’s not just any asset that can lock in a good loan, Sterling Collwood makes the grade.

It’s new, it’s 99 percent leased and the prospects for maintaining high occupancy for the near future get an A-plus.  ”Demand for off campus housing is about 15,000 units more than what the local area is currently providing, thus positioning Sterling Collwood for long-term success,” Zachary Koucos, associate director with HFF, said. And the property’s holding of a coveted designation is unlikely to hurt; Sterling Collwood is the first asset in San Diego to be certified LEED-Gold by the U.S. Green Building Council.

Nationally, the student housing sub-sector of multi-family remains strong, having held a position near the top of the class throughout the economic downturn. Demographics, like the continued upswing in enrollment, are good. “Generation Y, the progeny of the enormous Baby Boom cohort continues to swell the ranks of Americans aged 18 to 24 years, the sweet spot for full-time college enrollment,” according to a recent report by Red Capital Group, a multi-family debt and equity provider.

Image courtesy Flickr user Creativity103

The reports on multi-family’s continued surge keep coming in, and the latest comes from Marcus & Millichap Real Estate Investment Services Inc. In the company’s 2012 National Apartment Report, the multi-family sector takes center stage amid a supporting cast that includes customers of prime renter age, the larger investment picture and, of course, jobs.

“The multifamily sector continued its marathon-like recovery in 2011, and has entered full expansion mode in virtually every market,” Hessam Nadji, managing director of research and advisory services for M&M, said. “Favorable demographics, the release of pent-up demand as young adults de-bundle from family and roommates and increased renter demand due to changing attitudes towards homeownership – which has become increasingly difficult in this country – drove more people into renting.  Although the private sector created 1.8 million jobs last year, even greater job creation will be needed to sustain the white-hot levels absorption recorded after the recession.”

The report tracked 44 markets across the country in its National Apartment Index, and noted that all locales are set to post effective rent growth in 2012. U.S. apartment vacancy is set to decline 40 basis points to 5 percent by year’s end, which will be coupled with a 4.8 percent increase in rent.

As Commercial Property Executive previously reported, a majority of survey respondents feel that multi-family is poised to be the main leader in the CRE space for 2012. In fact, a Morgan Stanley analyst went as far to call 2012 “the year of the landlord” due to rising rents and falling supply.

The performance of a given metro was strongly tied to the local economy. Markets with strong showings in the technology, financial and hospitality industries made the biggest positive moves in the report’s index. Seattle, at the eighth position, and Las Vegas, at number 36, each rose seven points from the 2011 index. San Jose and San Francisco occupy the top and number-two spots, respectively, followed by New York City at number three.

Barring any unforeseen shocks to the global financial markets, an array of lenders will continue to finance multifamily developments and acquisitions in 2012 against a backdrop of historically low interest rates, according to William Hughes, senior vice president & managing director of Marcus & Millichap Capital Corp. “Fundamentals and a favorable spread against Treasuries will promote multifamily development this year. Fannie Mae and Freddie Mac will remain the chief suppliers of apartment loans in an increasingly crowded field of providers.”

“In fact, monetary policy – both domestically and worldwide – should keep interest rates low for several years to come,” added Hughes. “Expect life companies and commercial banks to grow market share by pursuing assets with good credit features and stabilized revenue.”

Total apartment completions will reach nearly 85,000 units. Household formations are forecast to increase by 29 percent to an annual average of 1.4 million through 2015, aided by rising immigration and 2.1 million echo boomers entering the prime renter-age cohort.

The Varsity near the University of Maryland

American Campus Communities Inc. has just expanded its portfolio by nearly 2,000 beds with the acquisition of 26 West Apartments in Austin and the purchase of a controlling stake in The Varsity in College Park, Md. The total asset value of the premier properties is $208 million.

In Austin, American Campus shelled out $86.2 million to snap up 26 West, a 1,026-bed apartment community sited on five acres just one block from the University of Texas. The building also offers a 1,000-space parking facility and at the time of the closing of the transaction, recorded a residential occupancy level of 98 percent. While the property is only five years old, American Campus plans to take the asset to a higher level with the investment of $2.8 million in capital improvements and amenity enhancements.

American Campus also added The Varsity, a top-of-the-line student housing community across from the University of Maryland, to its holdings with the acquisition of a 79.5 percent interest in the entity that owns the property. The purchase price of the controlling interest was based on a total asset valuation of $121.5 million. The Varsity made its debut less than a year ago in August 2011, featuring 901 beds and 23,000 square feet of student-oriented retail offerings.

The student housing market, unlike most sectors of commercial real estate, remained strong during the debilitating economic downturn, and demand is on track to increase further. “Student housing demand tends not to be impacted by the broader macroeconomic conditions, and the expected growth enrollment is a positive for the industry,” William Talbot, executive vice president of investments, told Commercial Property Executive. “Each individual university market has its own unique supply and demand characteristics. Most enrollments tend to be stable and have slow-moving trend lines.”

Of course, as is the case with any commercial real estate sector, failure is an option in student housing. “Oversupply is the greatest risk to each individual market,” he added.

American Campus has done its homework and identified the appropriate markets for expansion of its portfolio. The REIT will deliver 11 properties, representing approximately $385 million in total development, in time for occupancy for the fall semester this year. The group of assets ranges in size and locations and includes the 978-bed University Pointe at College Station near the University of Portland in Oregon, at a project cost of $87.8 million and Casa de Oro, a $14.6 million, 365-bed student housing community near Arizona State University in Glendale.

“We look at opportunities nationally,” Talbot noted. “Today, we are developing properties from Oregon to New York.” American Campus is keeping mum on the specifics of its target markets for future pursuits; however, the REIT certainly has the money for additional acquisitions and construction. The company relies on a handful of sources to fund its endeavors, including cash on hand, credit facility borrowings and proceeds raised under the ATM program, under which the company sold approximately 1.9 million shares of common stock for net proceeds of roughly $74.1 million in the fourth quarter of 2011.