M id A tlantic Real Estate Journal — Spring Preview —April 23 - May 20, 2021 — 3C
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M ultifamily F inancing By Brenner Green, Real Property Capital, Inc.
Can a Lousy Banking System Save Us from an Overheated Economy?
T
he article I didn’t get to write during COVID was to be called “Bank-
smart, they didn’t create a secret algorithm to wipe the scourge of inflation from the face of the earth, they just maintained a comparatively less crappy bal- ance sheet than the rest of the developed world which up to now has allowed the Treasury to take great liberties. This period appears to be coming to an end. Back to the original point and silver lining if you will. The bank- ing system is limited in its abil- ity to process loans. There is too much regulation and file review to scale rapidly, and capital mar- kets operations are run lean and mean and will not scale the way they did before the last recession.
Higher rates will affect cap rates (it’s always amazing how many real estate professionals aren’t familiar with band-of-investment theory if you don’t knowwhat it is please look it up) and thereby will suppress values. These condi- tions will limit activity somewhat and keep a lid on prices from further dramatic run-up. But inflation is already here, and it would be smart to get prepared. R. Brenner Green is a 20-year veteran in commercial real estate finance and President of Real Property Capital, Inc., a full-service commercial mort- gage banking firm based in the Philadelphia suburbs. MAREJ
with nearly 10,000 rental units currently under construction. This is compared to slightly less than 5,000 units in 2019. Take that in for a moment, it’s hard to comprehend, before putting it in context of the stories you have heard about people leaving cities over the last year. Our two millennial employees have both packed up after years in Center City and headed out to suburbia since the pandemic started and they aren’t looking back. The intent is not to be the foreteller of calamity, or to scare anyone, but the truth is I am old enough to have lived through a major recession but not old
enough to have lived through meaningful inflation. Not many still in the workforce are. The telltale signs would appear to be in place, with full employment and rising asset prices, and the accelerating rate of increase in the CPI that we saw last month. I have no way of knowing other than what I read because I was four in 1981, when the 10-year treasury topped out at 15.8%, and despite 20 years in the workforce I have only ever known 10-year yields that started at 6.0% in 1999 and have been es- sentially 2% or less for the last decade. Even though Greenspan, Bernanke and Yellen are all very
i n g U n d e r Water” which is what it felt l i k e p r e t t y much for the last year until recently. From a lending per- spective, ev- erything was
Brenner Green
in slow motion. Loan requests took forever to receive a response from most banks, and completed credit files tended to sit on bank - ers’ desks interminably while they waited their chance to get into loan committee. Astound - ingly, the typical lender had scant info on when he may get his day in court to present your case. So given where we were say 14 months ago, when we were reaching a crescendo of frenzied financial activity, it was possible during this period to try and take a positive view and say maybe this slowing down of lending ac- tivity will lessen some of the de- velopment pressure and reduce the risk of overbuilding in certain markets. It has not played out that way. The dramatic increase in the money supply, with over $4 TRILLION printed and handed out by the government in the last year, is having a very clear affect on asset prices across all facets of the economy from cryptocurrency to real estate. The most common place you may see it in the news or feel it firsthand is in the stock market. Bloomberg Radio said re- cently that 37% of people making between $35,000 and $75,000 in- vested at least some of their first stimulus check into the market, which is fascinating and really helps to visualize the run up, but it hardly stops there in terms of where the extra dollars are going. There is an outright run on urban and suburban for-sale housing, especially in the starter home price point. Stories of multiple offers above ask are common. The only difference from 2006 is that you cannot get 99% financing to make the purchase. The demand for certain asset types in commercial real estate is nearly as strong. There is cur- rently such a demand for subur- ban multifamily that I receive multiple inquiries a week from strangers looking for property to buy in this segment. Overall, the pace of multifamily devel- opment has eclipsed where we paused in early 2020. A wave of urban rental housing is about to descend on Philadelphia,
Recently Closed Loans
$14,500,000
$6,750,000
$3,000,000
Office Permanent Refinance
Multifamily Construction Loan
Office Permanent Refinance
Allentown, PA
Bloomsburg, PA
Limerick, PA
100% of purchase price 18 months after closing 4.20%, 10/30, 75% LTV, Non-Recourse
4.25%, 24-Months, Interest-Only, 75% LTC
Fixed at 2.71%, 10 year fully amortizing
65% LTV
Real Property Capital is a Philadelphia based full service commercial mortgage banking firm with a regional focus and national capabilities. Our business model emphasizes client satisfaction through a high-touch, analytical approach that distinguishes us from the competition. Learn more about our distinct approach and proven track record of success at www.realpropertycapital.com. FOR MORE INFORMATION: R. Brenner Green, President 303 Harry Street • Conshohocken, PA 19428 • 610 - 456 - 9644 • bgreen@realpropertycapital.com
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