Eager Lenders Are Everywhere

With a wealth of capital looking for investments, 2014 could be the year for borrowers, especially in student housing. (And nobody is better at borrowing money than a student home on a break from school.)

Red Capital Group senior managing director Jim Hensley (who we hear could give John Isner some tips on the court) says the lending environment will be extremely competitive this year. Historically, Fannie and Freddie have been the dominant players, but Jim says CMBS could come in and take some of that market share because of the regulations imposed on the GSEs. That likely means GSEs will move strictly to core properties while opening the door for more lending competition.

Jim says commercial banks will probably take a more aggressive approach to student housing this year. And he anticipates ownership consolidation as well as more development by firms that have demonstrated the ability to execute their business plans. As the Fed tapers its bond-buying program, it's taking an investor out of the marketplace, which indicates that Treasury rates may go up. 

The increase in Treasury rates and more competition may put downward pressure on spreads. With pressure to put dollars to work, Jim says it’s likely going to be a better market for borrowers. As other competitors come in to provide capital, we may see higher LTV at 75% to 80%, some IO, and likely good rates around 5.25% to 5.5%. Areas of interest: the Southeast (especially Georgia), Oregon State, the University of Washington, and the University of Wisconsin (bonus points if you send us a video singing all their school songs). Here’s Jim with his sons, Will and Duncan, at the top of Mount Baldy (12,400 ft) in the Philmont Scout Reservation in Cimarron, New Mexico, last summer.