Continued strong performance in the multifamily market will result in another record year, according to Freddie Mac Multifamily 2019 Outlook. That’s because rent growth and vacancies will again outperform historical averages, even as new supply remains elevated into 2020, because originations are expected to continue to rise.

“Even with continued growth in supply, we expect vacancy rates to remain below historical averages in 2019, and we see rent growth reaching 4 percent,” said Steve Guggenmos, vice president of multifamily research and modeling for Freddie Mac. “Along with demographic trends and the shift in consumer preferences toward urban areas, we examine the comparatively high cost of homeownership by market and that is another important factor that will continue to drive healthy performance in the multifamily market.”

Among other key takeaways are the following:

• The multifamily market enters 2019 strong, with solid rent growth and only modest increases in vacancy rates despite an elevated level of new supply.
• Rents and vacancies will continue outperforming historical averages through 2019. Even as new supply remains elevated into 2020, robust demand related to changing demographics and consumer preferences continues to push rents up and vacancies down.
• Rents will vary across markets, with rents above historic averages projected for Colorado Springs, Charlotte, Fort Worth and Denver. Meanwhile, New York City, Washington, D.C., Riverside, Norfolk and Orange County will all see rents below historic averages. Even in areas with slowing rents, most metros will see rent growth surpass the target inflation rate of 2 percent.
• Cap rates will begin to increase with the rise in Treasury rates. Cap rates typically lag Treasury rates. Although they remained low and even fell slightly in 2018, the outlook projects rising cap rates in 2019 if Treasury rates move above 2018 highs.

Multifamily origination volume is projected to grow to $317 billion in 2019, driven by solid market fundamentals and strong investor demand for multifamily properties. The 2019 figure will exceed the $305 billion in originations estimated for 2018.

Acres Capital Corp. closed around $500 million in transactions in 2018, according to the company.

“In a highly competitive lending environment, we managed to grow our origination volume and cultivate new borrower relationships—all without sacrificing our rigorous underwriting criteria,” said Mark Fogel, CEO and president of Acres. “The significant progress achieved in 2018 is a testament to the competitive advantages of our unique debt platform and advances our mission of becoming the nation’s premier commercial real estate middle-market lender.” a leading commercial real estate middle-market lender

Acres’ customized bridge loans are available to sponsors and are secured by a geographically diverse collection of multifamily properties.

Among the deals the firm completed last year are the following:

• $30.5 million first mortgage loan to finance the acquisition and conversion of an existing residential rental building to an upscale, full-service, boutique hotel located in the historic district of Los Angeles.
• $45.0 million first mortgage loan to finance the redevelopment of a 93-unit residential condominium community in Fremont, Calif.
• $35.3 million first mortgage loan to finance the development of a Class A, 194-unit, 592-bed, student-oriented townhome and mid-rise apartment complex near University of Louisiana at Lafayette.

Also, Acres recruited some industry veterans to the firm: Jonathan Gilfillan joined Acres as a senior vice president, focused on alternative lending. He joined from Huntington Bank, where he grew the portfolio of commercial real estate loans to $500 million under assets, from than less $100 million, over three years. Peter Hills has sign on to handle originations and sponsor relations in the Atlantic region. Prior to joining Acres, Mr. Hills contributed to the development and management of finance platforms in the Americas, Europe and Asia for Morgan Stanley, JPMorgan Chase and Credit Suisse.

Hunt Real Estate Capital provided a Freddie Mac Small Balance Loan in the amount of $5.85 million to refinance a multifamily property located in the Roxboro- Manayunk neighborhood of Philadelphia.

The loan is a 10-year fixed rate loan with a 30-year amortization schedule. The property also benefits from a 10-year tax abatement. Terrace Lofts is a four-story mid-rise style apartment complex with 32 units.

"The sponsor of the project is a real estate investor with 11 years of direct investment experience in multifamily assets in the Philadelphia market," Harris Heller, managing director for Hunt Real Estate Capital. "We were pleased to partner with the sponsor as the finance entity on this deal to secure a quality rental option in a solid market."

CIT Finances Miami Apartment Building

CIT Group has financed $31 million in financing to acquire and renovate a multifamily apartment building in Miami.

The Miami-based property is being acquired through a joint venture between Mill Creek Residential and Rockwood Capital. The building is a 20-story, 166-unit multifamily building in Miami's Health District.

"The property offers the opportunity to invest, with a partner in a Class-A cash-flowing asset with renovation, development and operational upside," said David Streicher of Rockwood.

Freddie Mac has completed its first its multifamily credit risk transfer offering on a pool of $915 million, working with Aon, a reinsurance broker.

Freddie Mac has purchased credit risk insurance for the first 5 percent of credit losses on the deal, which includes 55 loans in enterprises Bond Credit Enhancement and Multifamily Participation Certificate program portfolios.

“This transaction is the first of many we hope to bring forward through the multifamily credit insurance pool initiative,” said Robert Koontz, senior vice president of Multifamily Capital Markets for Freddie. “This is yet another great credit risk transfer offering that complements and completes our existing suites of capital market executions. We have successfully delivered similar reinsurance offerings through our single-family business, and now we’re finding similar efficiencies on the multifamily side.”

The average loan balance in the pool is $16.6 million, and most of the 55 properties in the pool include rent-restricted units that are affordable to low- and very-low-income families, helping to fulfill Freddie Mac’s affordability mission.

Here’s how MCIP transactions work: Freddie Mac enters into long-term credit insurance contracts covering credit losses from existing multifamily loans in the company’s portfolio or bonds that Freddie Mac fully guarantees. The structure transfers a percentage of credit risk to reinsurers, helping reduce Freddie Mac’s need to hold capital for the underlying loans in the pool.

“This offering introduces a new form of credit risk transfer on Freddie Mac’s Multifamily loans,” said Victor Pa, vice president investments and advisory for Freddie Mac Multifamily. “Through long-term insurance contracts we can help alleviate pricing volatility and reduce execution uncertainties, allowing us to broaden our production capabilities on various types of loans that may be structurally more complicated or need longer time to aggregate. The bottom line is that we will be able to better manage risk and provide more liquidity for affordable rental housing, helping fulfill our mission.”