Q&A With KeyBank’s Amber Rao: Plenty of Capital

With Texas enjoying a strong multifamily market, the question could be whether enough capital is available to continue financing the growth. Connect Media chatted with Amber A. Rao, vice president, multifamily capital markets lending, KeyBank Real Estate Capital, to get her take on what’s going on with the capital stack in the Lone Star State. Rao is one of the panelists at Connect Multifamily Texas, which is taking place Aug. 24.

Q. Is there enough capital available for financing multifamily acquisitions and construction in Texas?
A. There continues to be significant interest for multifamily acquisitions in Texas across all major markets, from both a debt and equity perspective. Additionally, with the cap rate compression that has occurred in the major markets, many prospective buyers are chasing deals in secondary and tertiary Texas markets. That’s on the acquisition side. As far as construction capital, many developers are finding it more difficult to secure bank construction loans in today’s lending environment. More often, the first mortgage leverage constraints are pushing developers to use preferred equity. Much of this trend has to do with where we are in the cycle and the fact that most banks have remained disciplined with their construction portfolios. HUD has been helping to fill the gap with its 221(d)(4) construction loan program. In the past, this program would account for a smaller portion of HUD’s overall pipeline. Today, we’re seeing a record number of experienced developers who are venturing into the HUD process for the first time, given the dearth of conventional construction financing. For those willing to undergo a lengthy process, the HUD program offers high-leverage and non-recourse debt at competitive interest rates.

Q. Are certain metros in Texas more appealing to lenders than others?
A. The majority of the Texas markets remain very strong with steady rent growth and low vacancy figures. With the current momentum across the major Texas markets, I do not anticipate a slowdown in the next 12-18 months. Houston has seen a slowdown due to the energy slump, but it is expected to remain a viable market for the long term, once the new multifamily supply gets absorbed. Despite the challenges that Houston has had, lenders have not retreated from that market, and capital remains available for the right deal with the right sponsor.

Q. What should potential borrowers keep in mind when it comes to capital availability?
A. Multifamily builders and developers will definitely find it more difficult to finance construction than acquisitions. With that said, there is still plenty of capital available for viable projects in good markets with a strong sponsor. Lenders place a great deal of focus on the sponsorship and their history in weathering a downturn, as well as their abilities to perform throughout market turns. Gaps in experience can be overcome by partnering with a strong management company or joint-venture structure that brings credibility and financial strength.

For comments, questions or concerns, please contact Amy Sorter