More than About Interest Rates: Connect Texas Multifamily

by Amy Sorter

Though slowly up-ticking interest rates are top-of-mind when it comes to real estate investments, lender panelists at the recent Connect Texas Multifamily conference focused on much more. During the “Chasing and Financing Deals in Multifamily” panel, moderator Jon Krebbs with The Multifamily Group presented questions and issues ranging from blended rates, to energy conservation, to different types of financing.

This is not to suggest, however, that interest rates weren’t a topic of discussion. Old Capital Lending’s James Eng acknowledged that lower leverage is more of an issue, meaning higher equity, meaning lower returns – leading to what he termed “a little more hesitancy in terms of deals on the market.”

Still, John Darrow with Red Capital Group countered, pointing out that “if you like the deal, take it. There are some good rates out there.” But when it comes to screening some of the deals, Darrow acknowledged that, these days, he reaches out to appraisers more and more. “Time was, you could do calculations on a back of an envelope. But as deals have become tighter, I’m talking to appraisers before quoting a deal in Texas,” Darrow remarked.

Tertiary markets in Texas were also discussed, but the lenders here cautioned that Fannie Mae and Freddie Mac might not be as enthusiastic in such areas, despite the higher potential yield. “It’s important to understand bridge financing and other options besides Fannie and Freddie in those markets,” Eng said. “Also, make sure you can get the rents. Some people go there with Dallas eyes, and they don’t come back happy.”

Under the topic of energy conservation, Parkview Financial’s Larry Perry focused on energy efficiency finance programs such as the Property Assessed Clean Energy Authority, or PACE. He pointed out that PACE could finance up to 20% on a capital stack over a 20-yar amortized rate at 6.5%. “The blended rate between the PACE program and our costs means capital that costs less,” he said.

Finally, when it came to which metro made sense for investment, the panelists acknowledged that the Capital City is a good target locale. Darrow noted that, while he likes DFW, “If I went down to Austin and paid a 4-cap, I’d still buy. They grew up on the internet.” John Sloot with Hunt Real Estate Capital agreed, adding: “If you can find a deal for a good price in Austin, grab it.”

l-r: Jon Krebbs (The Multifamily Group); James Eng (Old Capital Lending); John Darrow (Red Capital Group); John Sloot (Hunt Real Estate Capital); Larry Perry (Parkview Financial)

For comments, questions or concerns, please contact Amy Sorter