At the NMHC Fall Meeting, the Possibility of a Recession was Top of Mind

At the recent National Multifamily Housing Council (NMHC) Fall meeting in Washington, DC, the question on everyone’s mind was very simple: Are we headed into a recession? 

Mark Zandi of Moody’s Analytics made the argument that we are not there yet. Citing strong job growth, record low layoffs, and massive numbers of unfilled jobs, Zandi thought it likely that recent GDP figures will almost certainly be revised upward. “It’s hard to think we are in a recession,” Zandi explained.

Are we headed that way? 

Zandi noted the tough position in which the Federal Reserve finds itself, having to “thread the needle” between slowing the economy enough to bring down inflation and slowing it so much that unemployment rises, causing widespread economic pain. The Fed has signaled an aggressive posture on rates. Fed Chair Jerome Powell has made clear that taming inflation is the top priority in the immediate term. Other factors such as the energy process, extreme weather events, and the course of the pandemic could all have an effect on the economy, but the likelihood of a recession seems to be increasing.

Multifamily construction deals remain robust.

Despite these well-founded fears of recession, we at AGM have seen a surge in new construction deals from our developer clients. Developers are problem-solvers, and this is what they do. While not across the board, they are seeing key commodity prices – particularly lumber and oil – fall. And there are anecdotal reports of subcontractors looking six or nine months down the road and seeking work, a stark change from the recent past. While major banks are pulling back on CRE lending – some from regulatory pressures and some out of concern for the economy - financing for multifamily projects is still available, albeit at higher rates. AGM and FHA have always been counter-cyclical lenders, making financing available for both market-rate and affordable multifamily deals on favorable – and consistent – terms.  FHA financing’s higher LTC and lower DSC underwriting mean more proceeds when banks are moving to tighten lending across CRE sectors, including multifamily.

When stability and experience matter, 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.

Amid an uncertain economy, FHA financing remains strong. AGM will partner with you to get an attractive multifamily loan that you can count on. Please contact our helpful team today.

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.

Things Look Up for Multifamily Developers

A Return to Normal? As Supply Chain Issues Ease, Things Look Up for Multifamily Developers

Multifamily development firms have faced strong headwinds in the past two years, including supply chain issues, soaring costs, and rising interest rates. Projects have continued to get financed and built in part because rents have risen rapidly over the same period.

Now there are signs that conditions in the industry may be returning to ‘normal’ or something close to it, as noted in this recent Globe St.com article.

1. Supply chains show signs of recovery.

While issues persist for some materials, supply chains are beginning to mend. For example, lumber mills are coming online (or back online). The ramp-up is slow for sure, but it is happening. Manufacturers are adding capacity in sectors such as roofing, insulation, siding, and carpet. Experts believe that by the spring of 2023, supply chain issues, while not completely resolved, will be largely a thing of the past. Prices for certain materials – notably lumber and steel – are coming down, too. They have not yet fallen to pre-pandemic levels, but they are decreasing.

2. Rents are leveling out, too.

The demand remains strong and is expected to remain so as rising interest rates cool the once-hot single-family market. Rent growth is returning to historical averages as owners find that renters are straining to pay more in the face of inflation. While interest rates are expected to rise in the short term, the Fed’s commitment to fighting inflation is good for the economy in the long run.

3. Get started now.

Long cycle times in the multifamily housing industry mean that now is the time to start planning new projects, as supply chain problems are easing and the demand for apartments remains robust. Our experience at AGM Financial is that developers are seeing these trends and finding ways to make new construction deals work. As the economy continues to be turbulent in the near term, more 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 unsettled economic landscape.

AGM delivers unwavering stability.

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 process and help you get the deal done.

As the dust begins to settle, now is the time to take action. 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.

Homeownership Has Become More Expensive than Renting. Find Out Why.

In many areas of the U.S., the cost of purchasing a home has surged well beyond the cost of renting.

Higher home prices, combined with rising interest rates, have made the average mortgage payment $839 higher than the average apartment rent. This difference represents the greatest disparity between the average mortgage payment and the average rent payment in more than twenty years.

Home buyers are hitting the brakes.

Potential home buyers are balking at higher mortgage payments and many are pulling back, further driving demand for apartments. At the same time, interest rates are leveling out, as markets have priced in anticipated rate hikes by the Federal Reserve. Lenders, too, are pointing to rising rates to retrade loan commitments. Many deals for land and existing apartments are falling through. All the while, lumber prices – thought to be a leading indicator for material costs more generally – are falling.

The landscape is right for multifamily developers.

Now is the time to seek out opportunities to build new apartments. While the cost of commodities and labor can be expected to moderate, housing production remains well below the levels necessary to meet the country’s needs. With long cycle times, developers who wait for economic conditions to improve before optioning land and starting development will miss the opportunity.

Reduce risk even as you forge ahead.

The current economic landscape is in flux and commercial real estate lending is too. While banks pull back and tighten underwriting, FHA underwriting is constant: it’s the same in every market, for every apartment project, and over time. FHA underwriting means you won’t have to worry about unpleasant surprises or last-minute retrades. Instead, you’ll enjoy predictable, straightforward financing that you can rely on every single time.

Count on the steadfastness of 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 process and help you get the deal done.

Are you interested in seizing the moment? AGM will partner with you to get an attractive, worry-free 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.

As Lenders Invoke the MAC Clause, Savvy Borrowers Exercise Their Options

Loan commitments issued by commercial real estate lenders often include a ‘Material Adverse Change’ clause, commonly known as a “MAC”.

This clause allows the lender to change the terms of the loan or even withdraw the loan commitment altogether if one or more of the assumptions upon which they first agreed to make the loan changes. Borrowers see the MAC as giving the lender the opportunity to back out of their commitment if there is some significant change in the underwriting or in the financial strength of a guarantor. While MACs are used this way, they are often more broadly interpreted by lenders to include significant changes that may make the loan less profitable for the bank.

Borrowers are left between a rock and a hard place.

As interest rates have risen this year, banks are invoking the MAC clause to insist on changes to the terms of the loan even though they have a commitment signed by both borrower and lender.

As detailed in this recent GlobeSt.com article, lenders are demanding higher rates or spreads at closing or are refusing to rate lock until just before closing. Borrowers are left with a hard choice: accept these new, tougher terms, or walk away and put the entire project – and all their predevelopment cash – at risk.

Avoid the stress with an FHA-insured loan.

Developers want certainty of execution, to know that the deal will close on the agreed upon terms. No one wants to worry that the terms of the loan will change at the closing table. There is an alternative to banks and MAC clauses. FHA-insured financing for multifamily projects is consistent from market to market and over time. Leverage, coverage, and terms are standard from deal to deal. Rates are locked and fixed for the life of the loan about sixty days before closing and they will not change.

With an FHA-insured loan, you will never see a MAC clause or a retrade at closing.

AGM Financial provides long-term FHA-insured loans with rates fixed both during construction and for forty years after construction is complete. A commitment and a rate lock mean that the deal really is the deal.

Count on the steadfastness of 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 process and help you get the deal done.

Avoid MAC clauses. AGM will partner with you to get an attractive multifamily loan that you can count on. Ready to get started? 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.

Soaring Interest Rate Caps & More: Four Things to Know About Adjustable-Rate Loans for Commercial Real Estate

Development costs are climbing sharply and have been for a while.

The high demand for commodities such as lumber, copper, and steel is driving the price of construction materials to unprecedented heights. Combined with labor shortages and strong industry demand, the costs associated with multifamily development are soaring. While rent growth has offset some of these increased costs, rising interest rates have introduced additional challenges. It is becoming increasingly difficult to get deals to “pencil out” – to generate the returns demanded by investors.

Variable rate loans may be attractive, but proceed with caution and get the facts.

When long term fixed interest rates rise, developers sometimes choose lower-cost variable rate loans (also called adjustable-rate loans) as a way to generate better returns. Variable rates are reset monthly or even daily. While lenders are more than happy to make these loans, they want to know that the project will be able to make payments when interest rates rise. As a result, they require borrowers to purchase an interest rate cap, which operates like an insurance policy against rising rates. The borrower pays a fee for the cap at closing. If rates go above the cap, the cap provider, usually a bank or other financial institution, pays the difference between the then-current rate and the cap. When interest rates are steady or falling, the cost of an interest rate cap can be very small. But in a rising interest rate environment such as we have today, the cost of a cap can be substantial. As detailed in a recent Bloomberg article, the cost of interest rate caps has increased tenfold this year and they’re showing no signs of stopping.

Borrowers eyeing variable rate loans should consider these four caveats:

• While the interest cost associated with a variable rate loan today is lower, the cost of an interest rate cap has increased dramatically as rates have gone up.

• The total cost of the variable rate loan may be significantly higher than a fixed rate loan when the cost of the cap is added in.

• Variable rate loans carry risk, too, because interest costs can rise as rates rise until they reach the cap, eroding the initial savings that made the variable rate loan attractive in the first place.

• Variable rate loans typically have shorter terms, leaving the borrower exposed to the very real possibility of much higher rates when the loan matures.

It’s smart to rely on time-tested, proven, and safe lending solutions.

AGM provides long-term FHA-insured loans with rates fixed during the life of the loan, both during construction and for forty years after construction is complete, eliminating entirely the cost of an interest rate cap and the risk of rising rates.

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

Adjustable-rate loans may seem appealing at first, but they carry significant risk. AGM will partner with you to get the right multifamily loan for your project. Ready to get started? 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.

New Construction? Five Things to Know About FHA Financing for Multifamily

FHA-insured loans are packed with value.

Most market-rate developers think of HUD, which administers FHA loans, as a niche lender for affordable projects. You may be surprised to know that nearly two-thirds of FHA-insured mortgages finance traditional market-rate apartments. For multifamily developers like you, FHA loans offer some impressive benefits, particularly as conventional lenders pull back in the face of uncertainty. You may think you know all about your financing options, but when it comes to new construction projects, it pays to get the facts. Here are five things to know about FHA-insured loans for multifamily new construction:

1.  New to FHA? No problem.

As a developer, everyone from investors to residents look to you to create projects that are safe, sound, attractive, and offer both good value and good returns. Your FHA lender is no different.  To qualify for an FHA loan, you will need to demonstrate multifamily experience with projects of a comparable size and scope, but previous experience with FHA loan programs is not a prerequisite. If you are a first-time FHA borrower, you’ll need some FHA experience on your team, such as your general contractor, architect, or property manager, but if you have a solid track record in multifamily, you can access FHA financing. 

2. Most decisions will be driven by the market.

For market-rate projects, FHA does not limit rents, impose design standards, or interfere with operations. Projects are underwritten to prevailing market conditions for design, rents, operating expenses, and the like. You will need a market study and Phase 1 environmental report to get started and you’ll need an appraisal as you move through underwriting.  The market – and not FHA – will drive your project.

3. Projects must comply with certain standards.

While the market will drive the design and the economics of your project, you’ll need to meet Fair Housing Act and Americans with Disabilities Act (ADA) standards and local building code requirements. Both Fair Housing and ADA prohibit discrimination against people with disabilities, but their accessible design and construction requirements differ:

• The ADA prohibits discrimination against persons with disabilities in areas of public life. Newly-constructed buildings must comply with the 2010 ADA Standards for Accessible Design. ADA requirements for dwelling units depend on the product type (garden, elevator, townhouse, etc.) but all common areas such as the rental office, community rooms, and parking lots, must be in compliance.

• The Fair Housing Act established certain design and construction requirements

• multifamily projects built after March, 1991. The Fair Housing Act specifically requires certain features that will make them adaptable for disabled residents. Every ground-floor unit in a building (and all units in buildings with elevators) must be adaptable. These requirements apply to common areas as well.

• In addition, projects are encouraged to conform to green building standards. Projects that receive an FHA-approved green certification enjoy lower mortgage insurance premiums and lower operating costs.

It is important to plan ahead with your design team to address these standards. Making sure your project meets the requirements early in the design process will save tremendous time down the road.

4. Cash requirements and cash flows in FHA-insured projects are similar to those in conventionally financed projects.

There are, however, some nuances to keep in mind. For example, you will need to bring your building permits to the closing table. You’ll include the cost of the permits in the first draw but will need to pay for them up front. The mortgage will get recorded the day before closing. Again, you’ll draw for mortgage recording costs at closing, but you will need to fund them a day or two prior. Once the project is up and running, surplus cash can be distributed every six months.

5. Projects can serve a variety of users.

When it comes to FHA loans for new construction, you have options. Your project can serve families, seniors, or families headed by seniors. Talk with your lender about what you want to accomplish and, together, you can determine how to make it work.

What do you stand to gain with an FHA-insured loan underwritten by AGM?

As a family-owned FHA lender and GNMA seller/servicer with over 30 years of experience, AGM knows the process inside and out. From new construction to acquisition or refinance — for both market-rate and affordable projects — we get the deal done. We've closed over $9 billion in FHA-insured loans nationwide for developers just like you. Sixty-four percent of our borrowers are repeat clients. You can count on our experienced team to guide you through the FHA process and help you get the best loan possible. You’ll get more than a great loan. You’ll gain a seasoned financial partner with record of success and a growing list of satisfied clients.

Across the multifamily sector, there’s an FHA product that’s right for your project. AGM will partner with you to get the multifamily loan you want. Ready to get started? 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 wishes you a Happy Holiday!

We appreciated working with you this past year and look forward to new opportunities next year.

Executive: Margaret Allen and Myles Perkins
Origination: Brian LaChapelle, Frank Grosch, Steve Rudow, Austin King and Donald Moran
Underwriting: Troy Brown, Walid Azzam, Matt Daddio, Carmela Fleri, Jason Harter, Kevin Marshall, 
Nik Meuschke, MikeMinervini, Sayed Popal and Andy Severt
Servicing & Accounting: Carrie Papa, Reneé Carroll-Smith, Kristie Butler, Samantha Crespo,
LaShay McConneaughey, Krista Randolph, Carolyn Sassman and Kimberly Woods

To learn how AGM can make your apartment deal work for you, visit www.agmfinancial.com

Happy Holidays from your friends at AGM!

The joy of the Holidays is saying thank you and wishing you the very best for the New Year. — AGM Financial Services, Inc.

What's on Your Plate? "Order from the HUD Menu", Scotsman Guide Article, August 2020

Read Scotsman Guide - August 2020 article, "Order from the HUD Menu. This Agency provides many options for funding apartment deals" by author and AGM Originator, Steve Rudow. Read Article Here.