2024 has posed a markedly different borrowing environment for commercial real estate owners and investors than we saw coming out of the pandemic. As the year gets closer to the fourth quarter, the circumstances are beginning to shift yet again. At Connect Texas Multifamily, taking place August 20 at Virgin Hotels Dallas, Vic Clark, senior managing director at Lument, will be among the financing experts providing insights on what to expect. Ahead of his participation in the “Dealmaking Update: Making the Numbers Work” panel, Clark set the stage for the discussion. 

Q: Looking at the lending environment right now, banks and other more traditional sources have been pulling back on lending for certain property types. Are they doing that with multifamily as well?  

A: It depends partly on who you’re talking to. The banks, pure banks have been pulling back for many years. There’s huge pressure on the banks to clear their existing balance sheets and to try not to extend the deals that are troubled any further. They’re putting a lot of pressure on borrowers to either refinance, sell or somehow pay down the loans significantly, to lessen the bank’s exposure. So you’re seeing a lot of that, depending on which bank you’re talking about. But in general, most of the banks are in the same boat. They don’t want to do much new lending until they deal with their existing inventory of loans.  

Q: Do you anticipate that this will remain the status quo for the balance of 2024? 

A: I do. I think it’ll stay pretty much where it’s at, hopefully. A somewhat aggressive opinion would be that most of that stuff gets worked out by year end. But on a relatively conservative note, I think that by the middle of next year—say, spring or early summer—a lot of big problem loans will have worked themselves out or have been sold. That’ll open up people’s balance sheets to do more new lending. 

Q: Given the current environment, when a borrower comes to request a loan, what would a no-brainer loan request look like? 

A: On the multifamily side, you want to come to the table with a trailing three months, six months, 12 months of very stable, oftentimes slightly increasing collections with stable expenses and people having their tax assessment concluded. And then have a solid insurance quote; I highly recommend everyone gets a new bid from three to five different insurance companies, given the upward trend in that sector. So that’s the ideal: stable, firmed-up expenses for insurance and taxes, and solid collections. 

A: Are any of these elements anything that wouldn’t necessarily be as important in a lower interest rate environment? 

A: Well, obviously low interest rates solve a lot of problems, right? You can underwrite lower collections and higher expenses and absorb unsettling trends just because the rates will allow you to get the proceeds that you could otherwise fail to get or otherwise wind the deal up way too tight as far as debt service coverage goes. So the treasuries dropping almost 100 basis points over the past six months really helped substantially. When the treasuries were 450 and above, the whole world was just sitting on hold because none of the deals really worked. But as soon as they got into the 380s, my phone started ringing off the hook and I’m sure everybody else’s is as well. 

Q: Are you finding that borrowers are becoming a little more creative when they approach you for a loan or do they still expect the lender to come up with the creative solution?  

A: We’re fortunate that most of our clients are repeat clients. And with new clients, it’s a team effort where we try to take our knowledge from working on hundreds of deals and offer solutions to the borrower. We’re also looking for the borrower to offer solutions, to try and meet the gap if there is a gap and there have been a lot of gaps. It’s a two-way street. We want to continue the relationship with our customers. Ideally, they want to continue with us. So we try to bring everything to the table that we possibly can.  

Q: Are there additional comments that you’d like to make?  

A: I’ve been telling my clients this for about three months: I anticipate that between now and the end of the year, every lender is going to be very busy. Both Fannie and Freddie were already busy, from basically the middle of June onward. And here we are in early August. It’s going to be a mad rush to get the attention of every lender over the next six months. And you’re going to have to get in line and be patient as the volume of business is worked through.

Today is the day! Join us this afternoon in Dallas at Connect Texas Multifamily to learn from and connect with leaders and experts from Lument, Legacy Partners, Tower Capital, Transwestern, Kairoi Residential, TruAmerica Multifamily, LaTerra Development, Helu Capital, Institutional Property Advisors, RCKRBX, Greystone, ZOM Living, and more! Don’t miss out on the most anticipated event of the year that brings together the most active investors, owners, developers, forecasters, managers, brokers, lenders, and more that are doing business in Texas. Register online or onsite, and we’ll see you today at the Virgin Hotels Dallas venue!