In the run-up to the Connect Texas Multifamily event, we are carrying out pre-event Connect CRE editorial interviews with upcoming panelists for the August 20th event at Virgin Hotels Dallas. Our first is with John Darrow, Principal at Slatt Capital.

Banks and other traditional lenders have been pulling back on debt for certain property types. Are they pulling back on debt for multifamily as well? When they do lend on multifamily, is it more likely to be an acquisition loan or a refinancing than a construction loan?  

In general, if you are talking about banks and traditional lenders pulling back on debt, it is regardless of the property type because of reasons like LTD ratio, market concentration, borrower concentration, etc.  Broadly speaking,  if they are pulling back on MF, they are likely pulling back on everything, but it is common for a lot of groups to be still lending in for example MF and industrial, not in hotels and office.  Some nuances to an acquisition and refinance respectively, but generally Indifferent on acquisition or refinance if the deal makes sense.

What would a “perfect” loan request look like as far as your company is concerned? What do borrowers need to support their case in the current environment that they may not have required in a lower-interest-rate environment?  

I was talking about this with a colleague the other day, but the pendulum swung after SVB collapsed from a borrower’s market to a lenders market.  Now there will always be exceptions for that if you have a super low leverage, high DSCR deals built in the last 10 years with strong occupancy, but even then, the lifecos know the banks are out of the market, and outside of MF the best time to do lifeco financing is 1Q each year, so if you are in the market at the wrong time, pricing may not be as great.  MF is different with the agencies there.

Looking ahead into early 2025, do you anticipate that the availability of debt and equity will improve, tighten or remain pretty much the same?  

Availability of debt is not a problem, so I would say that remains the same.  Equity wants to put money to work, but if the deal doesn’t make sense on a return metric (7% ROC untrended over 3 years generally) you likely don’t see a huge change.  Generally the only market we see a lack of debt liquidity in right now is office, with a bit of hospitality.  On the flip side, the only market there is a lack of “equity” liquidity is multifamily, however there is a lot of money there ready to go, the problem is the entire space hasn’t repriced enough yet.