Local and regional banks are working hard to fund ‘small’ apartment building investments in their local markets. Small loans in the $1-3 million dollar range are the ‘sweet spot’ for these lenders and investors looking for loans in the $3-5 million range are finding even more choices. For loans under $1 million the market is still pretty fragmented with lenders there averaging only five loans of that size.
“Banks are trying to create more aggressive lending programs in the small-balance multifamily financing space.”
In the West, banks like Sterling, KeyBank and Bank of The West are mentioned as being active in these loans. While Fannie Mae’s small loan program has advantages for borrowers, banks have some of their own as well now.
A few bullet points from the MHN Online article:
- Banks are aggressively seeking out multifamily financing in the petite department also because the multifamily sector has recovered and fundamentals are strong.
- many [banks] have resolved their balance sheet issues and are seeking to balance their deposits and generate revenue again by putting out debt. “Banks overall now are ‘overdeposited,’”
- Banks are finding the multifamily product has a great risk profile. The vacancies are low, occupancies high, and the demand for rentals is strong. Multifamily seems to be an area in which there are good returns.
- Small loans provide the bank with greater diversification by allowing lending to a greater number of properties and a broader range of maturities to balance larger loans that are being provided.
- [Compared to] Fannie Mae financing, banks may now be burning into the agency’s market share by offering a number of features that are winning favor with borrowers.
- Many borrowers today are seeking to avoid yield maintenance, which require the borrower to compensate for the yield lost by the debt holder should the loan be paid before maturity. Most commercial banks impose a more favorable step-down prepayment penalty during the fixed rate terms
- when it comes to small loans, banks are often financing across the footprint of the country. “Local banks in particular know the area and are willing to lend to apartment projects in tertiary markets.”
So with good occupancy, rising rents and financing available at low rates; apartment building investing is a very viable option for those looking for solid returns and potential retirement security.