The Last Mile of the Inflation Fight is Going to be Bumpy

Last week’s inflation news wasn’t good. CPI rose 0.4% again in March, following the same in February, and 0.3% in January. Fearing that a June rate cut by the Fed is off the table and uncertain about the possibility of subsequent rate cuts this year, markets reacted strongly, pushing yields on the ten-year UST to 4.65% at this writing.

The last mile of the inflation fight is going to be bumpy.

For months, we have all been leaning into the hope and expectation of rate cuts this year. First, it was six cuts, then maybe four, and then three. Now, no one is sure, and the talk is again of “higher for longer.” Once again, it’s “Stay alive until ‘25”.

As difficult as it is – and as eager as we all are to get back to closing deals – we’ve made a lot of progress. Inflation has fallen dramatically over the past two years, from a high of 9.1% in June 2022 to an annual rate of 3.5% in March. The economy is growing, consumers are spending, and the trends are, for the most part, positive.

And yet, a positive economic outlook does not necessarily mean good things for CRE and multifamily. The ULI Real Estate Economic Forecast, presented at the ULI Spring Meeting in New York last week, reinforced that idea. The report includes a consensus view that rates are still likely to fall slowly to 4.0% this year and 3.75% next year, but inflationary pressures from things like investments in energy transition, geopolitical factors, continued labor shortages, and the federal deficit will mean that the path will be, well, bumpy.

Those of us in multifamily are, by nature, optimistic. We have to be optimistic in order to make long-term investments and take long-term risks, but we also tend to think that the way things are right now—in good times and bad—is the way they will always be. It just isn’t so.  

Here's to the last mile, lower rates, and deals that pencil. The day will come.

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At AGM, we do our best to keep developers informed of proactive measures you can take to get the most from every deal. Please schedule a call if you have questions or want to discuss your next project. 

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About AGM Financial

Founded in 1990, AGM is a leading FHA lender and GNMA seller/servicer. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — AGM gets the deal done. Family-owned with over 30 years of experience, the firm has closed over $10 billion in FHA-insured multifamily project loans nationwide. We underwrite, fund, and service all of our loans. Developers and owners can count on AGM to be accessible, transparent, consistent, and ready to lend. From new construction to substantial rehabilitation to acquisition and refinance — for both market-rate and affordable projects — we can get the deal done. To learn more about AGM, call 800.729.4266 or visit agmfinancial.com.

Should You Be FORTIFIED Against Retained Risk?

At the NAHB IBS meetings in Las Vegas earlier this month, insurance, insurance premiums, and retained risk were major topics of discussion among multifamily developers and owners.

And it is no wonder. Multifamily property rates have gone up every quarter for the past twenty-five quarters. Seventy-eight percent of apartment owners saw a greater than 10% increase in premiums from 2022 to 2023. One-third saw increases of 25% or more. Coverage that used to require three or four layers now routinely takes thirty or more. While pricing is said to be stabilizing, higher rates, driven by severe convective storms (think hurricanes and tornadoes) and $1 billion losses, are here to stay.

Developers are responding by breaking up insured portfolios, placing coverage wherever they can find capacity, and retaining more risk in the form of much higher deductibles.

As presented by Alex Cary at IIBHS and Julie Shiyou-Woodard at Smart Home America at the NAHB IBS meetings, the Insurance Institute for Business & Home Safety (IBHS), a not-for-profit created and funded by the insurance industry, has developed the FORTIFIED program, including FORTIFIED Multifamily™. It is a voluntary construction and re-roofing approach designed to strengthen multifamily buildings against severe weather. The FORTIFIED Multifamily certification program helps building owners improve their multifamily structures’ ability to resist wind, water, and hail damage from tropical cyclones or convective storms.

There are three levels of certification – Fortified Roof, Fortified Silver, and Fortified Gold.

The Roof certification promises better roof performance against high wind and water penetration with things like stronger nailing patterns and sealed seams. Silver adds strengthened wall systems and openings. Gold includes a continuous load path from the roof to the ground. Studies suggest that FORTIFIED construction adds between 0.3% and 1.4% to the cost of construction. In coastal areas with the most stringent building codes, there may be little impact on cost beyond the small cost of certification.

So why pursue a FORTIFIED Multifamily certification?

FORTIFIED is too new to have had a real impact on insurance premiums. However, there is some suggestion that in times of limited coverage capacity, as we have experienced recently, FORTIFIED projects may find coverage where others don’t. There may also be some advantages in the market as renters learn the meaning of FORTIFIED construction.

It seems that the real reason to consider FORTIFIED is retained risk and higher deductibles, particularly for wind and named storms.

As owners take on more of the risk once covered by insurance, building better apartments that can withstand storm damage only makes sense. If a Fortified building sustains less damage and is back in service sooner than might otherwise be the case, owners will see lower out-of-pocket costs and less lost revenue.

The FORTIFIED approach to building has proven effective in Louisiana and other coastal areas, with FORTIFIED buildings performing exceptionally well in hurricane conditions.

Time will tell if developers adopt FORTIFIED or other building standards, as they and the insurance industry are forced to confront the reality of more severe convective storms and $1 billion in losses.

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At AGM, we do our best to keep developers informed of proactive measures you can take to get the most from every deal. Please schedule a call if you have questions or want to discuss your next project. 

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About AGM Financial

Founded in 1990, AGM is a leading FHA lender and GNMA seller/servicer. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — AGM gets the deal done. Family-owned with over 30 years of experience, the firm has closed over $10 billion in FHA-insured multifamily project loans nationwide. We underwrite, fund, and service all of our loans. Developers and owners can count on AGM to be accessible, transparent, consistent, and ready to lend. From new construction to substantial rehabilitation to acquisition and refinance — for both market-rate and affordable projects — we can get the deal done. To learn more about AGM, call 800.729.4266 or visit agmfinancial.com.

Emerging Trends: Office-to-Residential Conversion

At their fall meetings in Los Angeles earlier this month, the Urban Land Institute unveiled their annual Emerging Trends in Real Estate® for the US and Canada for 2024. Like the fall meetings themselves, ULI’s Emerging Trends is filled with uncertainty about the current state and near-term future of commercial real estate. The office sector – and downtown office properties in particular - are struggling amidst rising interest rates, oversupply, and changing patterns of work. An investment banker quoted in Emerging Trends summed it up this way:

“The fortress investments, the super secure investments in real estate—what the heck happened? Where did they go? Malls and office buildings were the storehouses of value, the great inflation hedges. And now the only thing that has really stood up over time has been multifamily.”

Faced with a seeming sea change in office, much of the discussion at the ULI fall meetings centered around the future of office and the downtowns in which they are located. Office-to-residential conversions were on everyone’s mind, and again, the path forward was uncertain.

A recent article in the Wall Street Journal entitled “Turning Offices Into Apartments Is Getting Even Harder”, pointed to the challenges of office-to-residential conversion – financing, construction costs, and slow approvals, among many others. And then, there are the challenges inherent in office floor plates ill-suited to residential uses and the risks inherent in major rehab projects.

Still, the Journal article cites CBRE as seeing a sharp increase in office conversions in the coming year. While some developers will wait for the value of underutilized office buildings to fall to their land value or purchase properties from lenders’ REO portfolios, many are finding creative ways to convert office to residential.

The ULI fall meetings included presentations by developers and design firms such as Los Angeles-based architects OMGIVNING on how even 1980s vintage office buildings can be converted to high-end multifamily properties.

Not too long ago, “return to cities” was the watchword in CRE and multifamily. The pandemic reversed those trends. Now, even in uncertainty, developers are looking for opportunity in multifamily office-to-residential conversion. The future of cities and their downtowns may depend on it.

To discuss your options or plans for your next multifamily project, AGM is ready to listen and lend.

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About AGM Financial

Founded in 1990, AGM is a leading FHA lender and GNMA seller/servicer. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — AGM gets the deal done. Family-owned with over 30 years of experience, the firm has closed over $10 billion in FHA-insured multifamily project loans nationwide. We underwrite, fund, and service all of our loans. Developers and owners can count on AGM to be accessible, transparent, consistent, and ready to lend. From new construction to substantial rehabilitation to acquisition and refinance — for both market-rate and affordable projects — we can get the deal done. To learn more about AGM, call 800.729.4266 or visit agmfinancial.com.

FHA: An alternative to variable-rate bank debt.

A recent article in the Wall Street Journal points to multifamily, following on the heels of office buildings and malls, as the next real estate class to come under pressure from investors and lenders. The problem, “isn’t lack of demand – rents have soared since 2020 – it is interest rates.” Underwritten two or three years ago assuming aggressive rent growth and low interest rates, many multifamily projects now are seeing all of their NOI – and, in some cases, more – go to service debt, with little or nothing left for investors.

Bank CLS and mini-perm rates are typically priced with a spread over an index such as Prime or SOFR, are repriced as often as daily, and carry an all-in rate of the index plus a spread. On September 1, 2020, SOFR was 0.85%, and a loan with a 300 bps spread was priced all-in at 3.85%. Similarly, a loan priced at Prime plus 50 bps would have had an all-in rate of 3.75%.

As of this writing, SOFR stands at 5.31%. A CL or miniperm priced at SOFR plus 300 bps bears an interest rate of 8.31%. A loan at Prime plus 50 bps now is priced at 9.0%. 

For multifamily properties coming out of construction or in a mini-perm, rates of 8.5% or 9.0% are punishing, even in the face of strong rent growth since 2020.

At AGM, we are seeing FHA refinance opportunities as borrowers, many new to FHA, are looking for alternatives to variable-rate bank debt. FHA offers – and always has offered – attractive terms for multifamily borrowers. This includes:

• Rates today at 5.75% plus MIP

• 1.176 DSC

• 35-year amortization and a 35-year term

• Non recourse

For market-rate projects built to National Green Building Standards, MIP is 25 bps; otherwise, it’s 60 bps. And reducing your interest rate is actually quick and simple when rates come down.

If you have a multifamily project with a floating rate loan, an FHA refinance may be a great solution to the interest rate problem.

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About AGM Financial

Founded in 1990, AGM is a leading FHA lender and GNMA seller/servicer. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — AGM gets the deal done. Family-owned with over 30 years of experience, the firm has closed over $10 billion in FHA-insured multifamily project loans nationwide. We underwrite, fund, and service all of our loans. Developers and owners can count on AGM to be accessible, transparent, consistent, and ready to lend. From new construction to substantial rehabilitation to acquisition and refinance — for both market-rate and affordable projects — we can get the deal done. To learn more about AGM, call 800.729.4266 or visit agmfinancial.com.

Embracing the Shift: Multifamily Real Estate Finds a Measured Path Forward

Last month, reflecting on a headline from the New York Times, we pondered, “Will Real Estate Ever Be Normal Again?”. Recent developments suggest that multifamily developers, owners, and lenders might be witnessing a transition towards a more consistent environment, even if it's not entirely the "normal" we remember.

Signs of Economic Balance?

While the larger economy still faces challenges, there's a sense of cautious optimism in the air. The once-pressing concern of inflation seems to be easing slightly, and job growth is holding its own. Many are hopeful that interest rates might stabilize soon. Amidst these varied signals, the multifamily industry is witnessing some positive momentum. Occupancy and renewal rates show promising trends in several markets, and demand is holding steady, even with the introduction of new properties. This suggests that the sector's appeal is enduring, albeit in a potentially evolved form.

A Hint of Stability Approaching.

At AGM, we've noted some indicators of more stable construction costs. From our discussions with multifamily builders, the consensus is that construction costs might be stabilizing. While some material costs have risen and others have dropped, the previously frantic pace of price hikes appears to be easing. GCs report that subcontractors, looking at their own pipeline of jobs, are calling and looking for work nine to twelve months out.

Navigating Promising Yet Unfamiliar Terrain.

The industry does still face challenges, such as varying insurance costs and fluctuating interest rates. Yet, there are inklings that we might be on the cusp of a meaningful evolution. It's possible that, instead of a full return to the old norm, we might see a blend of the familiar with the new, creating a more balanced environment. Those in the multifamily sector, accustomed to navigating its many shifts, are gearing up for this next phase – one where innovation meets tradition and stability counters unpredictability. The story of this multifamily landscape continues to unfold, and its path remains intriguing.

Rely on AGM’s Steady Hand.

Given these subtle yet positive indicators, now might be the right moment to contemplate your next venture. At AGM, with over 30 years of experience as a family-owned FHA lender and GNMA seller/servicer, we have deep insights into the multifamily CRE lending world. You’ll enjoy an easy, personalized experience and continuity throughout your transaction with a single, knowledgeable point of contact. It’s no wonder more than 60% of our borrowers are repeat clients. Count on our experienced team to guide you through every step of the FHA financing process and bring your deal to its successful completion.

Regardless of the economic backdrop, FHA is always a sound solution. AGM is here to collaborate, ensuring you secure a reliable multifamily loan. Please contact us with any questions you may have.

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About AGM Financial

Founded in 1990, AGM is a leading FHA lender and GNMA seller/servicer. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — AGM gets the deal done. Family-owned with over 30 years of experience, the firm has closed over $9 billion in FHA-insured multifamily project loans nationwide. We underwrite, fund, and service all of our loans. Developers and owners can count on AGM to be accessible, transparent, consistent, and ready to lend. From new construction to substantial rehabilitation to acquisition and refinance — for both market-rate and affordable projects — we can get the deal done. To learn more about AGM, call 800.729.4266 or visit agmfinancial.com.

Rising Multifamily Project Starts and Normalizing Construction Costs Create Hopeful Tailwinds

“Will Real Estate Ever Be Normal Again?”

That was the headline for an article in the New York Times, not last week, but in November 2021. The article documented early COVID distortions in the single-family market, with skyrocketing prices and intense competition among buyers.

In the multifamily industry, we are still asking that question.

Housing market predictions are a topic of much debate among experts. Housing construction – single-family and multifamily – is strong. Multifamily starts are up and construction costs are moderating, while at the same time, higher rates and higher labor, insurance, and other costs make deals much harder to pencil. There is a sense, but not a consensus, that rates and costs will come down in 2024, as will multifamily production as projects are completed and fewer projects get underway.

Where are we going?

It has been a long time since we saw a business cycle that went anywhere but up. We don’t really know when it will be “normal” again, but we can be sure that it will. Business cycles still happen, and the laws of economics haven’t been repealed. Rates will fall, costs will moderate, and demand for housing in the U.S. will not abate. “Normal” will no doubt be the “new normal” but it will come around again.

Multifamily remains a great investment class.

Multifamily housing has distinguished itself from other asset classes through all economic cycles and has been viewed as a safe haven during recessionary cycles. As we look ahead to 2024 and beyond, there’s no reason to think this will dramatically change. Those who can create and execute good deals will continue to come out ahead.

When you need a trustworthy partner on your side, count on AGM.

As a family-owned FHA lender and GNMA seller/servicer with over 30 years of experience, we know the multifamily CRE lending process inside and out. You’ll enjoy an easy, personalized experience and continuity throughout your transaction with a single, knowledgeable point of contact. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — we go to bat for our clients to bring deals to their successful completion. That’s probably why more than 60% of our borrowers are repeat clients. Count on our experienced team to guide you through the FHA financing process and help you get the deal done.

Whether real estate returns to normal or is on the threshold of a new normal, FHA financing is the smart, secure solution. AGM will partner with you to get an attractive multifamily loan you can count on. Please contact our helpful team today.

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About AGM Financial

Founded in 1990, AGM is a leading FHA lender and GNMA seller/servicer. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — AGM gets the deal done. Family-owned with over 30 years of experience, the firm has closed over $9 billion in FHA-insured multifamily project loans nationwide. We underwrite, fund, and service all of our loans. Developers and owners can count on AGM to be accessible, transparent, consistent, and ready to lend. From new construction to substantial rehabilitation to acquisition and refinance — for both market-rate and affordable projects — we can get the deal done. To learn more about AGM, call 800.729.4266 or visit agmfinancial.com.

HUD Increases Large Loan Threshold from $75 million to $120 million: What it means for you

The Federal Housing Administration (FHA) is increasing the threshold for large loans from $75 Million to $120 Million.

This is the first increase in the threshold since 2014 and will facilitate additional underwriting flexibility for lenders like AGM when submitting FHA Multifamily insurance applications. FHA may increase it each year in $5 million increments. The changes are designed to simplify underwriting for multifamily housing development.

Why is this good news for developers?

FHA’s standard underwriting - 1.176 DSC and 85% LTV - is now available on loans up to $120 million. With higher leverage, fixed rates, longer terms, and all nonrecourse now available for larger loans, FHA financing is even more attractive.
 
If you have any questions or want to discuss how we can help with project needs, please reach out to us.

Newsletter: June Pulse Check - A brighter outlook?

Friend, Is a brighter outlook ahead?

A blog post published by the New York Fed on June 16 suggests that the economic outlook may be brightening. While not an official forecast, their latest post points to higher output and lower inflation later this year and into early 2024. This is a marked revision from March’s forecast.

“Output growth is projected to be much higher throughout the forecast horizon than in March,” and “long-term inflation expectations have dropped by about 45 basis points in 2023…a very large change by historical standards.” Inflation expectations drop to 2.5 percent in 2024 and 2.2 percent in 2025, down significantly from projections earlier this year. According to the new forecast, inflation returns close to the FOMC’s long-run goal of 2.0% inflation by the end of 2025.

In a presentation one day earlier at the Urban Land Institute’s midsummer meetings in Cincinnati, PNC’s senior investment strategist, Marc Dizard, pointed to a mixed outlook for the economy, noting both the strength in the labor market and resilient consumer spending on the one hand and persistent inflation and tightening credit on the other as just some of the mix of economic signals.

So, is the outlook brighter or “mixed”?

Perhaps the two points of view converge in Dizard’s comment that “the path forward continues to be driven by the path of inflation and the ongoing response from the Fed.” If inflation — and inflation expectations — moderate as the New York Fed suggests, and the Fed moderates its inflation response, the outlook could indeed be just a bit brighter.

As always, if you have any questions, please contact us. Until then, please enjoy this month's newsletter.

June Newsletter: Read More

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About AGM Financial

Founded in 1990, AGM is a leading FHA lender and GNMA seller/servicer. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — AGM gets the deal done. Family-owned with over 30 years of experience, the firm has closed over $9 billion in FHA-insured multifamily project loans nationwide. We underwrite, fund, and service all of our loans. Developers and owners can count on AGM to be accessible, transparent, consistent, and ready to lend. From new construction to substantial rehabilitation to acquisition and refinance — for both market-rate and affordable projects — we can get the deal done. To learn more about AGM, call 800.729.4266 or visit www.agmfinancial.com.

Interest Rate Caps are Dealing Crushing Blows to CRE Developers. Here's How to Avoid Them.

Using floating rate debt to finance multifamily projects is commonplace, unremarkable really—until it isn’t.  

With rising rates, an inverted yield curve, and wider spreads, getting or keeping variable rate debt on multifamily projects is becoming more difficult.

The CRE landscape is ripe for cash flow havoc.

A typical bank construction loan or mini-perm is priced based on the Secured Overnight Financing Rate (SOFR) plus a spread.  As the Fed has raised rates, SOFR has risen too. A year ago, SOFR stood at 0.79%. As of this writing, SOFR is 5.06%. Spreads are widening, too. Loans that were priced at 150 or 200 basis points over SOFR a year ago can price today at 300 over or more. Increases of that magnitude play havoc with construction loan interest reserves and can quickly push cash flow negative, even on otherwise healthy operating properties. 

Interest rate caps only add to the complexity.

Of course, lenders and developers can choose to hedge interest rate risk with caps. Fannie and Freddie require borrowers to purchase interest rate caps for the loan term or until the date of a permitted conversion to a fixed rate. What was once a backstop or just another cost of doing business is now out of reach for many borrowers and deals. Depending on the deal size, strike rate, and term, caps that once cost tens of thousands of dollars can now add millions to the cost of a project.

Remove the risk with FHA financing.

FHA financing for multifamily can be an excellent alternative to floating rate debt. With lower debt service coverages (DSCs) and longer amortization and terms (35 years for a refinance and 40 years for new construction), FHA can offer more proceeds on a given deal and eliminate both interest rate and refinance risk. 

When you need a trustworthy partner in your corner, rely on AGM.

As a family-owned FHA lender and GNMA seller/servicer with over 30 years of experience, we know the multifamily CRE lending process inside and out. You’ll enjoy an easy, personalized experience and continuity throughout your deal with a single, knowledgeable point of contact. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — we go to bat for our clients to bring deals to their successful completion. That’s probably why more than 60% of our borrowers are repeat clients. Count on our experienced team to guide you through the FHA financing process and help you get the deal done.

When the cost of doing business is steep and filled with risk, FHA financing is the smart, secure solution. AGM will partner with you to get an attractive multifamily loan you can count on. Please contact our helpful team today.

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About AGM Financial

Founded in 1990, AGM is a leading FHA lender and GNMA seller/servicer. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — AGM gets the deal done. Family-owned with over 30 years of experience, the firm has closed over $9 billion in FHA-insured multifamily project loans nationwide. We underwrite, fund, and service all of our loans. Developers and owners can count on AGM to be accessible, transparent, consistent, and ready to lend. From new construction to substantial rehabilitation to acquisition and refinance — for both market-rate and affordable projects — we can get the deal done. To learn more about AGM, call 800.729.4266 or visit www.agmfinancial.com.

How Davis Bacon Wages Impact Multifamily Construction - Enlightening New Research

The Davis-Bacon Act requires laborers and mechanics employed on FHA-insured housing projects to be paid wages at rates not less than those prevailing in the local market, as determined by the Department of Labor (DOL). When considering FHA-insured financing for new construction or substantial rehab projects, multifamily developers often express concern about the impact of Davis-Bacon wage rates on construction costs. However, our analysis shows that Davis-Bacon requirements have little, if any, impact on construction costs for residential projects in right-to-work states.

While looking at the impact of Davis-Bacon residential wage rates on project costs in heavily unionized and right-to-work states, we gathered information on both Davis-Bacon wage rates and average market wages as reported by the DOL's Bureau of Labor Statistics for seventeen MSAs around the country. We selected the MSAs based on size and the availability of wage data to gather a representative sample.

For the purpose of this research, we looked at wage data for six trades associated with multifamily construction - heavy equipment operator, carpenter, plumber, electrician, roofer, and general laborer. In right-to-work states, Davis-Bacon hourly wages are lower than reported MSA or state hourly wages for all but two of the occupations - heavy equipment operator and roofer. By comparison, Davis-Bacon hourly wages are well above the reported MSA and state average wages for the listed occupations in heavily unionized states.

The numbers in bold are the lowest of the three wage rates reported (Davis-Bacon, MSA average, and state average) for that occupation in the MSA. The numbers in red are minimum rates set nationally by Executive Order 14026 and serve as a minimum Davis-Bacon wage rate for that occupation.

The results are presented in the tables below.

Data from Clark County, Nevada, offers a case in point. Nevada is a right-to-work state, and Clark County, including Las Vegas, is its largest MSA. In Clark County, Davis-Bacon wages for five of the six occupations studied – heavy equipment operator, carpenter, plumber, roofer, and general labor – are lower than reported average hourly wages in the market and the state. Only one - the wage rate for an electrician - is significantly higher than the reported MSA and the state averages.

In right-to-work states, the Davis-Bacon wage requirements would appear to serve only as a floor for hourly wages on FHA-insured multifamily projects for the six trades studied. In those states, Davis-Bacon wages are, on average, 8.5% lower for the occupations studied. However, if we remove Detroit and Milwaukee (both heavily unionized markets in right-to-work states) from the calculation, Davis-Bacon wages are on average, 23.6% lower than the reported market wages.

The twenty-eight states and territories considered right-to-work include:

Alabama
Arizona
Arkansas
Florida
Georgia
Idaho
Indiana

Iowa
Kansas
Kentucky
Louisiana
Michigan
Mississippi
Nebraska

Nevada
North Carolina
North Dakota
Oklahoma
South Carolina
South Dakota
Tennessee

Texas
Utah
Virginia
West Virginia
Wisconsin
Wyoming
Guam 

Based on the data collected, Davis-Bacon wages are no higher than market wages in right-to-work states. Therefore, there would be no adverse effect on project costs for FHA-insured residential construction in these areas.

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About AGM Financial

Founded in 1990, AGM is a leading FHA lender and GNMA seller/servicer. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — AGM gets the deal done. Family-owned with over 30 years of experience, the firm has closed over $9 billion in FHA-insured multifamily project loans nationwide. We underwrite, fund, and service all of our loans. Developers and owners can count on AGM to be accessible, transparent, consistent, and ready to lend. From new construction to substantial rehabilitation to acquisition and refinance — for both market-rate and affordable projects — we can get the deal done. To learn more about AGM, call 800.729.4266 or visit www.agmfinancial.com.

Liquidity & Valuation: How to Combat the One-Two Punch on CRE & Multifamily

Could commercial real estate be the next shoe to drop at regional banks?

That’s the lead-in for a story posted recently on Marketplace.org. It is just one of a raft of stories in the media recently following high-profile bank failures in March. According to the Marketplace story, “banks have $270 billion of commercial real estate loans coming due this year” and “about $80 billion of that is in the office space”. There is a new focus on regional banks’ exposure to commercial real estate (CRE) – and office in particular. Office occupancies are generally down, valuations are uncertain, and many loans are coming due. According to a recent article in American Banker, “problems in the office space are likely to spread to apartments and retail properties”.

Access to capital may be more difficult.

Regional banks are a major source of capital for commercial real estate of all types. Developers often have deep relationships with those banks. As banks pull back, wary of exposure to commercial real estate and focused on liquidity in the wake of high-profile bank failures, developers may face difficulty accessing capital both for new projects and to refinance existing CRE loans. For CRE, liquidity could be a real issue.

Valuation poses another significant challenge. 

The rapid rise in interest rates is already being felt in cap rates.  An article posted on Globest.com suggests that cap rates are likely to rise significantly for apartments and other CRE. Even when debt is available, there will be pressure on loan proceeds as rent growth slows and valuations are in flux.

FHA loans offer stability in any financial landscape.

In the current climate, FHA-insured financing can be a solution to the twin problems of liquidity and valuation. Whether for new construction or refinance, FHA mortgage insurance means capital will always be available, with consistent underwriting across markets and over time. Lower debt service coverage (DSC) requirements and a longer amortization and term mean more loan proceeds. And for new construction, FHA underwriting is based primarily on cost and coverage, with no LTV test.

When you need a steadfast, trustworthy partner, rely on AGM.

As a family-owned FHA lender and GNMA seller/servicer with over 30 years of experience, we know the multifamily CRE lending process inside and out. You’ll enjoy a personalized experience and continuity throughout your deal with a single, knowledgeable point of contact. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — we go to bat for our clients to bring deals to their successful completion. That’s probably why more than 60% of our borrowers are repeat clients. Count on our experienced team to guide you through the FHA financing process and help you get the deal done.

Even amid banking uncertainties, FHA financing remains strong. AGM will partner with you to get an attractive multifamily loan you can count on. Please contact our helpful team today.

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About AGM Financial

Founded in 1990, AGM is a leading FHA lender and GNMA seller/servicer. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — AGM gets the deal done. Family-owned with over 30 years of experience, the firm has closed over $9 billion in FHA-insured multifamily project loans nationwide. We underwrite, fund, and service all of our loans. Developers and owners can count on AGM to be accessible, transparent, consistent, and ready to lend. From new construction to substantial rehabilitation to acquisition and refinance — for both market-rate and affordable projects — we can get the deal done. To learn more about AGM, call 800.729.4266 or visit www.agmfinancial.com.

How AGM is Leading Affordable Housing Financing in Maryland and Across the Nation

Over the past ten years, Baltimore-based AGM Financial Services has financed nearly 2,700 affordable rental units in twenty-two projects with our developer clients and Maryland's Community Development Administration (CDA), the state's housing finance agency. These projects, serving low-income families and the elderly, provide critically needed affordable housing in Maryland.

AGM's $230 million in long-term FHA-insured financing has leveraged an additional $400 million in LIHTC equity and CDA subordinate debt in projects across the state.  The projects - roughly split between substantial rehabilitation of existing properties and the new construction – have been developed by a range of local and national for-profit and not-for-profit developers.

“Affordable housing has always been very important to us at AGM” according to Myles Perkins, AGM's president. “We finance affordable housing all over the country, but we are particularly pleased to be a part of the solution here at home in Maryland.”

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About AGM Financial

AGM is a privately held company headquartered in Baltimore, MD, and a nationwide licensed FHA Mortgagee (lender) providing financing for both Market Rate and Affordable Housing communities. Founded in 1990, AGM is a leading FHA lender and GNMA seller/servicer. From new construction and substantial rehab to acquisition or refinance — AGM gets the deal done. Family-owned with over 30 years of experience, the firm has closed over $9 billion in FHA-insured multifamily project loans nationwide. We underwrite, fund, and service all of our loans. Developers and owners can count on AGM to be accessible, transparent, consistent, and ready to lend. To learn more about AGM, call 800.729.4266 or visit agmfinancial.com.

Amid Economic Uncertainty, the Long View is the Smart Way to Go

As we come to the end of 2022, interest rates are up and prospects for the economy are uncertain.  For every bit of good economic news, there is some bad news. And somehow, good news can be bad news and bad news can be good. 

Guarded optimism prevails in the current CRE landscape.

The Urban Land Institutes Emerging Trends in Real Estate, just published for 2023, reflects this uncertainty. Cap rates are up, values are down, and underwriting standards are tightening. Still, the ULI report, based on survey responses from 1,450 individuals from across the commercial real estate industry, reflects a “consensus mood…of cautious optimism that we will ride out any near-term slump and be well positioned for another period of sustained growth and strong returns.” If we are headed toward a recession, “most economists, as well as Emerging Trends interviewees, expect any recession to be relatively short and shallow.”

Hindsight is 20/20.

All of this makes sense when you consider that commercial real estate requires a long view. Projects take a long time to develop and build, and the assets that are created themselves have a long life.  Even buying or selling commercial real estate takes longer than for any other financial asset.  You have to take the long view. One Emerging Trends survey respondent said it best, “The recession - if we go into one – will obviously impact some markets worse than others, but it’s just like anything else. We’ll look back in ten years, and the prices that seem astronomical today will seem like a bargain ten years from now.”

Time-tested, proven, and safe lending solutions.

For more than thirty years, we at AGM have taken the long view. Our clients have as well. They have come to us for long-term fixed-rate FHA financing for their multifamily projects because they want to build long-term assets and generational wealth. They count on consistent underwriting across markets and across time, and they count on AGM to get their deal done.  Those same clients – and many new clients – are developing new projects today amid uncertainty because they take the long view.

Whether markets are down or up, you can rely on AGM.

As a family-owned FHA lender and GNMA seller/servicer with over 30 years of experience, we know the process inside and out. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — AGM gets the deal done. We've closed more than $9 billion in FHA-insured multifamily loans nationwide. And we’re proud to say that more than 60% of our borrowers are repeat clients. Count on our experienced team to guide you through the FHA financing process and help you get the deal done.

With time on your side, it’s wise to put the wheels in motion for the inevitable economic upturn. AGM will partner with you to get an attractive multifamily loan you can count on. Please contact our helpful team today.

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About AGM Financial

Founded in 1990, AGM is a leading FHA lender and GNMA seller/servicer. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — AGM gets the deal done. Family-owned with over 30 years of experience, the firm has closed over $9 billion in FHA-insured multifamily project loans nationwide. We underwrite, fund, and service all of our loans. Developers and owners can count on AGM to be accessible, transparent, consistent, and ready to lend.  From new construction to substantial rehabilitation to acquisition and refinance — for both market-rate and affordable projects — we can get the deal done. To learn more about AGM, call 800.729.4266 or visit agmfinancial.com.

When the Capital Stack is an Asset, FHA-Insured Debt is Especially Attractive

With the sharp rise in interest rates over the past several months and the resulting pressure on pricing, developers and owners who locked in lower rates before the run-up have found a new source of value – their capital stack.

When rates were low, as they had been for so long, many developers saw the value in long- term fixed-rate debt. Low rates meant higher leverage and greater cash-on-cash returns. A “fix it and forget it” approach also offered peace of mind. Today, those same developers are finding a new source of value in a capital stack that includes long term low-rate assumable debt. 

Everyone stands to benefit.

In high interest environments, buyers seek deals with attractive debt and sellers find value the capital structure of their assets. For buyers looking to acquire multifamily assets today, extreme volatility in interest rates can turn proformas upside-down between contract and closing. Some buyers are responding by seeking properties with lower fixed-rate assumable debt. By assuming an in-place loan, they can mitigate interest rate risk and underwrite potentially greater leverage than would be available with a new loan at current rates. And for sellers, their capital stack represents value added. An assumable loan with a lower-than-market interest rate can enhance the marketability of the property.

The longer term of FHA-insured debt can itself be an asset. 

Buyers looking to hold are attracted to thirty-five and forty-year amortization and longer remaining terms and can underwrite to a marginally lower cap rate. Assumption of an FHA-insured loan is a relatively inexpensive and straightforward process, though it may add a little time to the transaction. Sellers and brokers should talk with their FHA lender prior to listing to understand both the process and the full value of the property’s capital stack.

Whether markets are down or up, you can rely on AGM.

As a family-owned FHA lender and GNMA seller/servicer with over 30 years of experience, we know the process inside and out. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — AGM gets the deal done. We've closed more than $9 billion in FHA-insured multifamily loans nationwide. And we’re proud to say that more than 60% of our borrowers are repeat clients. Count on our experienced team to guide you through the FHA financing process and help you get the deal done.

Across a range of economic conditions, FHA financing is the smart choice. AGM will partner with you to get an attractive multifamily loan that you can count on. Please contact our helpful team today.

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About AGM Financial

Founded in 1990, AGM is a leading FHA lender and GNMA seller/servicer. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — AGM gets the deal done. Family-owned with over 30 years of experience, the firm has closed over $9 billion in FHA-insured multifamily project loans nationwide. We underwrite, fund, and service all of our loans. Developers and owners can count on AGM to be accessible, transparent, consistent, and ready to lend.  From new construction to substantial rehabilitation to acquisition and refinance — for both market-rate and affordable projects — we can get the deal done. To learn more about AGM, call 800.729.4266 or visit agmfinancial.com.

Congratulations to Margaret Allen of AGM Financial Services

Margaret Allen of AGM Financial receives the Tom Marshall Lifetime Achievement Award, presented by MBIA board member Steve Rubin and Tom’s daughter Kathleen Hebert at the Maryland Building Industry Association 2022 Multifamily Trends Conference.

On November 1, 2022, Margaret Allen, founder and CEO of AGM Financial Services, was honored by the Maryland Building Industry Association with the Tom Marshall Lifetime Achievement Award at the association’s 2022 Multifamily Trends Conference held in Hanover, MD. Ms. Allen founded AGM with her husband in 1990. While competing with some of the largest financial institutions in the country, she patiently built the firm on her knowledge of the industry, deeply held ethical standards, and responsiveness to her clients. AGM now has 26 full-time staff and over $500 million in annual transaction volume. The firm has closed $9.4 billion in FHA-insured loans financing 627 projects and more than 100,000 multifamily units. Since 2010, AGM has financed 149 transactions involving Low Income Housing Tax Credits for new construction, recapitalization, and refinancing of over 20,000 affordable units. The firm originates, funds and services all of its loans and currently has a loan portfolio totaling $2.1 billion.

Margaret Allen is known for her great kindness, care and personal humility along with a lifetime of achievement. She does take pride in her staff, including five members of her team who have worked with her for 20 years or more. All of us at AGM are immensely proud of Margaret and proud to be part of the AGM team.

For MBIA’s Press Release, follow this link.

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About AGM Financial

Founded in 1990, AGM is a leading FHA lender and GNMA seller/servicer. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — AGM gets the deal done. Family-owned with over 30 years of experience, the firm has closed over $9 billion in FHA-insured multifamily project loans nationwide. We underwrite, fund, and service all of our loans. Developers and owners can count on AGM to be accessible, transparent, consistent, and ready to lend.  From new construction to substantial rehabilitation to acquisition and refinance — for both market-rate and affordable projects — we can get the deal done. To learn more about AGM, call 800.729.4266 or visit agmfinancial.com.

Three Times is a Trend? Developers Get Poised for An Economic Recovery

In just the past two weeks or so, I’ve come across the same idea three times: a response to the current economic uncertainty. In every case, developers are seizing opportunities to lay the groundwork so they can ride the inevitable recovery. It is beginning to look like a trend.

Expectancy is the order of the day.

The first time I encountered this concept was in a conversation with a long-time client. His deal – a solid multifamily project to be built in the mid-Atlantic – is on the bubble. Rising rates have reduced the available leverage while costs have come down on only a few line items. The expected returns have suffered as a result. He has kept the deal moving forward, counting on rates moderating and costs coming down more broadly. The project will do well if and when he can get it out of the ground.

Hit the ground running.

The second time this idea came up was with a new client. We’ve been working through scenarios on a project to be built in the Northeast, a planned long-term hold. He’s seen just enough cycles to know that what goes down must eventually come up. That deal will move forward with local approvals, design, and financing because the developer wants to be ready when the economy improves.

Fill that pipeline.

And then there was a recent article in Bisnow, an account of a roundtable with Washington, DC developers and their approach to what may be a coming recession. Like our new client, these folks have seen a cycle or two (or three). They are looking to acquire assets – land and existing product – as those markets cool. The goal is to be ready – and even under construction – when markets eventually turn up.

They say that by the time you read it in the papers, it’s old news. Maybe it is a trend?

Whether markets are down or up, you can rely on AGM.

As a family-owned FHA lender and GNMA seller/servicer with over 30 years of experience, we know the process inside and out. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — AGM gets the deal done. We've closed more than $9 billion in FHA-insured multifamily loans nationwide. And we’re proud to say that more than 60% of our borrowers are repeat clients. Count on our experienced team to guide you through the FHA financing process and help you get the deal done.

It's the ideal time to prepare for the inevitable economic upturn. AGM will partner with you to get an attractive multifamily loan that you can count on. Please contact our helpful team today.

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About AGM Financial

Founded in 1990, AGM is a leading FHA lender and GNMA seller/servicer. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — AGM gets the deal done. Family-owned with over 30 years of experience, the firm has closed over $9 billion in FHA-insured multifamily project loans nationwide. We underwrite, fund, and service all of our loans. Developers and owners can count on AGM to be accessible, transparent, consistent, and ready to lend.  From new construction to substantial rehabilitation to acquisition and refinance — for both market-rate and affordable projects — we can get the deal done. To learn more about AGM, call 800.729.4266 or visit agmfinancial.com.

AGM Financial Delivers Valuable FHA Financing Guidance to UMD Graduate Students

AGM Senior Vice President Steve Rudow recently met with graduate students from the University of Maryland’s Colvin Institute of Real Estate Development (known as “UMD RDEV”) program at the UM School of Architecture, to provide a primer on the firm’s area of expertise, FHA-insured multifamily loans. The group was comprised of four young professionals who were interested in exploring FHA financing for use in preparing their capstone projects. They represented a variety of mixed-use redevelopment projects in the Baltimore area. The conversation included an overview of the various FHA loan programs, underwriting criteria, interest rates, and commercial space limits. 

“It was interesting to hear about the four diverse capstone projects and I was pleased to help these students learn how to use the FHA MAP loan programs with their developments,” Rudow said. “Our discussion reflected on the nuances of these programs for prospective borrowers and answered their questions about a wide variety of issues.”

As interest rates rise and the economy remains unsettled, developers are returning to the certainty of FHA underwriting. It remains a constant: high leverage, fixed rates, and non-recourse, the same in every market in the country, now and over time. It’s a smart solution that offers predictable, straightforward financing even amid an uncertain economic landscape. Combined with AGM’s steadfastness and transparency, clients enjoy the peace of mind that comes with unwavering stability.

To learn more about AGM’s community involvement or our attractive FHA-insured multifamily loans, please contact our helpful team.

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Steve Rudow

About Steve Rudow:

Steve Rudow joined AGM in 2001 and is part of the loan origination group. During the 2015-16 academic year, he was an Adjunct Professor for the University of Maryland’s Colvin Institute of Real Estate Development, co-teaching both the Market Analysis and Valuation courses. Steve is also an Instructor for the Mortgage Bankers Association’s FHA Multifamily Underwriting Training Program, teaching the Valuation Analysis & Investment Math course in successive years since 2013.

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About AGM Financial

Founded in 1990, AGM is a leading FHA lender and GNMA seller/servicer. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — AGM gets the deal done. Family-owned with over 30 years of experience, the firm has closed over $9 billion in FHA-insured multifamily project loans nationwide. We underwrite, fund, and service all of our loans. Developers and owners can count on AGM to be accessible, transparent, consistent, and ready to lend. From new construction to substantial rehabilitation to acquisition and refinance — for both market-rate and affordable projects — we can get the deal done. To learn more about AGM, call 800.729.4266 or visit agmfinancial.com.

Energy Tax Credits Offer a Smart Way to Close the Gap

With the recent surge in interest rates, many good multifamily development deals are struggling to get to closing. Energy Efficient Home tax credits can help close the gap.

Financing that was limited by value or cost when rates were low is now limited by debt service. Developers are looking for sound ways to close the gap. At the recent Novogradac 2022 Affordable Housing Tax Credit and Bonds Conference in Nashville (September 28-30), there was considerable discussion about how developers can do just that. One resource can be found in the recently enacted Inflation Reduction Act (IRA) and the extension of the Section 45L Energy Efficient Home tax credit.

Energy-efficient building solutions deliver an assortment of benefits.

Prior to the signing of the IRA, the Section 45L credit had expired. The IRA extends the credit for ten years. For multifamily properties acquired or placed in service next year and beyond, the 45L credit ranges from $500 to as much as $2,500 per unit. Units must be ENERGY STAR® certified and meet the ENERGY STAR® Multifamily New Construction National program requirements (or the regional program requirements). The $500 credit is on qualified units built without prevailing wages. The $2,500 credit is available on projects built with prevailing wages.  While projects will need to meet certain certification requirements, the credit is not competitive and as-of-right. And the credits are allocated and earned upfront when the building is placed in service, adding to their attractiveness.

Section 45L tax credits can complement existing development plans and financing. 

• For Low Income Housing Tax Credit (LIHTC) developers looking to close the gap, projects qualifying under Section 45L will generate additional tax credits without reducing the eligible LIHTC basis. While the market hasn’t been tested yet, it’s fair to think that the 45L credits should generate additional equity for qualified projects.

• For AGM clients, the Section 45L credits could be a great fit with their FHA-insured loan. Given the incentives to build green and energy-efficient housing and the prevailing wage requirements that are embedded in the FHA program, developers can get 45L credits for things that are already part of their development plans.

For detailed advice on how to derive the maximum advantage from the Section 45L extension that is part of the Inflation Reduction Act, consult your tax advisor. For more information on FHA financing and Section 45L credits can fit into the capital stack, please contact AGM.

When you need sound financial solutions, rely on AGM.

As a family-owned FHA lender and GNMA seller/servicer with over 30 years of experience, we know the process inside and out. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — AGM gets the deal done. We've closed more than $9 billion in FHA-insured multifamily loans nationwide. And we’re proud to say that more than 60% of our borrowers are repeat clients. Count on our experienced team to guide you through the FHA financing process and help you get the deal done.

With FHA financing in place, you can use 45L credits for things that are already part of your development plans. Partner with AGM to secure an attractive multifamily loan that you can count on. Please contact our helpful team today.

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About AGM Financial: Founded in 1990, AGM is a leading FHA lender and GNMA seller/servicer. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — AGM gets the deal done. Family-owned with over 30 years of experience, the firm has closed over $9 billion in FHA-insured multifamily project loans nationwide. We underwrite, fund, and service all of our loans. Developers and owners can count on AGM to be accessible, transparent, consistent, and ready to lend. From new construction to substantial rehabilitation to acquisition and refinance — for both market-rate and affordable projects — we can get the deal done. To learn more about AGM, call 800.729.4266 or visit https://www.agmfinancial.com/.