Extinct Debt Terms & Agency Muscle in Multifamily

Here's a quick update on the pulse of the debt market:

Earlier this week, I had the great pleasure of spending time with colleagues at the Counselors of Real Estate at their annual convention here in San Francisco. During a Capital Markets forum, the panel was asked their views about the types of deals lenders are willing to do these days, in light of the currently constrained credit markets. That discussion humorously morphed into "what kinds of debt terms are extinct these days". So here are a couple of the debt market's newest extinct species:

• Full Term I/O: Lots of nods on this one -- wide agreement that lenders are back to old school underwriting, requiring at least 25 to 30 year amortization for most loan terms over three years. On a 5+ year loan, the borrower may be able to get up to two years I/O.

• Cashout Refi: In light of rates, spreads and cap rates having moved up, creating the risk of lowered valuations, lenders are particularly hard-pressed to finance profit-taking anymore.

Plus a Snippet on Apartment Financing

There was a strong consensus that the agencies (Fannie Mae, Freddie Mac) are emerging as true winners in financing apartments during the debt market's latest gyrations. They are putting out large levels of debt for apartments, using their own underwriting criteria and benefitting from less competition. The audience felt that the strong presence of the agencies makes the multifamily market the strongest asset class out there for now.

While this blog is heavily focused on green real estate, I like to bring in capital markets commentary since green real estate, after all, is still real estate.