Why you must buy multifamily now, lending updates

What's up guys? So today I want to introduce to you one of the top mortgage brokers in the nation. This is a guy who's behind the scenes. You probably haven't seen his name out there very much unless you are one of the top industry leaders in real estate investing in multifamily commercial real estate. This is the guy that all the big industry leaders that you probably have heard of uses for financing, getting their deals. He's financed tens of millions of dollars for our deals and also he is our preferred lender for our group, our mastermind. So recently we had him come and share with our group and it was just gold he brought just bombs like it was amazing. He did a full on speech and Q and a on just the lending environment. What happened since Trump's been elected, you know, all these different things. What is going on with the market, the lending environment today? What can you expect if you're getting into multifamily, if you want to scale in multifamily or just in real estate in general, especially commercial, you need to check this video out. So I'm going to share this with you. It was so much value for our team and our group that you guys need to see it. So without further ado, I'm going to introduce Chris Lichler. He is coming on, he's going to share a training with you. I hope you enjoy this and I'll be back at the end.

My name's Chris Litzler. I sit here in Cleveland, Ohio. I'm a mortgage broker. So I arrange all different types of financing for all different product types with all different lenders. So we have a mortgage banking company where we have access to every different type of lender. The life insurance companies, Wall street money, pension funds, government agencies, which are Fannie, Freddie and HUD banks, credit unions, bridge lenders, whatever. So we have all different types of capital and then we arrange financing for all different types of deals. So self storage, retail, office, industrial, apartments, you name it, all different types of property and for all different types of loans. So construction, loan, refinance, mezzanine loan, equity placement, et cetera. And I arrange money all across the country. So I sit in Cleveland, Ohio. Maybe 30 to 40% of my business is in Ohio, maybe another 25, 30% is in the Midwest and then the balance of it is all across the country. I'll focus all my comments today on apartments. I know this group is primarily focused on multifamily. Probably 75 to 80% of what I do is multifamily. The reason being there's just the most liquidity in that market. Right? There's the most assets, there are most trades. It just tends to be the most liquid. So high level. There's several different ways to finance apartment buildings. The most standard are banks and credit unions. The second way is the government agencies and then there's kind of transitional lending which is like the institutional bridge lending space. So I'll start with the banks and the credit unions. Banks and credit unions typically always win on sub $1 million loans. There's really no institutional money for sub a million bucks. So the best type of lender for that is just going to be your local community bank or credit union banker. Credit union terms today are, you know, call it 75ish, plus or minus percent out, a couple years of interest only, followed by a 25 year amortization, plus or minus 30 year amortization on the nicer newer stuff, 20 year amortization on the stuff that might not be so nice or. So your plain vanilla deal is probably 25 year amortization. Pricing today is probably somewhere in the mid sixes to low sevens. You know there are thousands and thousands of banks in the country. Every bank prices deals differently. Everybody's balance sheet's in a little bit different situation so. But market terms are probably in the, you know, mid to high sixes. Banks are good because they will fund some construction money. They're also the cheapest, easiest to deal with and the most flexible. Right. So there's typically very minimal prepayment penalties. They're typically pretty cheap to close with. Banks are, you know, one, one type of, of money. I'll move on to agency or permanent financing. So this is going to be the best money that's out there. It's for stabilized loans, over a million dollars in loan amount, no max for properties that have been 90% occupied for 90 days. 5 year money, 7 year money, 10 year money, 15, 12, 25, 30, however long you want. We got all different types of terms, lots of interest only. You know on a 10 year deal we're doing five or six years interest only for full leverage deals followed by a 30 year amortization. These loans are non recourse and they have the best pricing. So you know, 10 year T today is what like 420? I mean we're doing deals with 130 spreads. So I mean we're still doing low to mid 5% deals with the agencies, life insurance companies, CMBS, a little bit, a little bit wider than that. They're non recourse but they typically have prepayment penalties. So it's, it's best on deals that are going to be held for a long, long time. Or you could price in some flexibility in the prepay, but it's an adder in interest rate. Most loans today are sized to a debt service coverage ratio depending on vintage and market. That might be a 120, that might be a 125, 35, 145, up to 80% LTV. So long as it covers debts or in place, cash flow covers debt service 1.25 times. So you got the bank loan on the small stuff or something that's a little bit transitional. You got the institutional money on something that's more stabilized and you want the best possible rate, long amortization. But if those two aren't available on an acquisition, sometimes we got to use institutional lenders, we call them bridge loans. So think of a bridge loan as something that's transitioning from, you know, underperforming to future stabilized improvement in value. So we're bridging that gap. Two to three year deals, maybe a couple of extension options. Typically they're interest only. They're going to be the most available dollars. So it's you know, 75, 80% loan to cost, but they're going to be more expensive. I mean these are probably ranging between on institutional stuff, probably in the low eights up to could be as high as in the 10s. They're typically non recourse, they're typically pretty cheap to get out of. Bridge fees is 1% origination fee and a 1% exit fee typically negotiable depending on the lender. So it's a good avenue if a, the bank is not available. Right. A lot of times the banks only lend to guys or gals that are local to the subject property. If you're buying a deal in Murfreesboro, Tennessee, if you're not local to that market, sometimes the banks won't lend you money, so it's not an option. In that case you may need to use a bridge loan, buy the property, improve it, season it up a little bit and then refinance it with, you know, some cheaper form of capital. So we talked about the banks and credit unions, we talked about the permanent loans and then we talked about the bridge loans for you know, a transitional asset or you know, sometimes when the bank's not available or the borrower is very averse to recourse, banks or credit unions always going to require a full repayment guarantee. Bridge lender is typically Non recourse, which means you're not fully guaranteeing repayment of the loan. That's kind of the different types of, types of ways to finance apartments. We talked about rates. So when you think about interest rates, you got to think about the two components of rate of an, of an interest rate for a mortgage. The first is the index and the second is a spread. Typical construction loan for example would be floating rate, very short. So it's going to be priced over sofr which is the same as the Fed funds rate. So when you hear them saying we're cutting rates 50 basis points this month, that's, that's what that affects. So sofr today is 4.75%. Don't know where it'll be next month, don't know where it'll be a year from now. But that's the, the overnight borrowing rate for the Fed. That's what floating rate loans are priced over. So you got that index and then you have the long end of the yield curve which is the five year treasury, seven year treasury, ten year treasury and longer. And that's what permanent loans are typically priced over. So you take a five year treasury which is at 4% today, and you're going to take some spread. Industry standard spread for a permanent loan would be called 200 over. So you're looking at 4% index plus a 2% spread puts you at a 6% coupon industry standard. You got SOFR at 475 today, you got the 10 year USD at 420, you got the 5 year USD at 4%. They change every single day. I can't give you an outlook on where I think they'll be, but that's kind of where they're at today.

All right guys, that was amazing. Chris Litzler is the guy, he's the mortgage broker. He's obviously the senior vice president of capital markets at Marcus and Millichap. If you want to connect with him, reach out to us. We'd love to get you introduced. He's a strong partner with us in our group. If you're looking for a mastermind of these types of players, guys that are really going to make deals happen and help you get deals, deals funded, help you find better deals. However, you need help in scaling in commercial real estate or multi family, let us know, there's a link in the description, click that book a call with our team. We'd love to see if this might be a good fit for you. All right, God bless you.