Q&A: Capital One’s Jeff Lee On The 2019 Multifamily Lending Landscape

The year 2018 is quickly coming to a close, and the commercial real estate industry is looking ahead. Rising interest rates and increased market competition have put pressure on multifamily lenders. Many are eagerly awaiting how the market will play out in 2019. 

Bisnow caught up with Capital One President of Multifamily Finance Jeff Lee to find out what capital markets trends borrowers and lenders should expect to see in 2019. 

Bisnow: As you look back on 2018 and prepare for 2019, what are some of the main takeaways?

Jeff Lee: From a multifamily standpoint, we experienced overall growth in our business in 2018. Debt and loan activity is high despite rising rates, and we are seeing borrowers go in and lock in fixed rates. As far as acquisition activity is concerned, that has not diminished much, maybe marginally, but it has still been pretty robust for most of 2018. I think as long as there is liquidity and equity out there, acquisition activity will remain flat, possibly slightly lower, but there will not be a meaningful drop.

Bisnow: What will be the biggest difference between 2018 and 2019?

Lee: The main difference will be the rising rates, but how much higher they will go is yet to be seen. Besides that, loan purchase limits for agencies will remain the same at $35B, but there might be more going into those caps. You might see higher spreads and higher rates, which will drive a lot of market activity. 

Bisnow: Which geographic areas do you expect will see the most activity?

Lee: We are seeing growth in the northeast U.S., and the West Coast continues to be a source of growth as well. The coastal areas west and east will continue to be strong into 2019, and most of the money is concentrated in these hubs. 

Bisnow: A lot of commercial real estate professionals are talking about how new guidelines around opportunity zones will impact the industry. Will this have an influence on lending as well?

Lee: It will be interesting, and we are still understanding opportunity zones. I know a lot of equity players and funds are looking to capitalize on these areas. I am not sure that a tax deferral incentive necessarily impacts lending. A lot of it instead benefits the borrower. So for us, we are probably going to try to make sure that borrowers don’t overpay for these properties in opportunity zones. I think there is a fear that it could lead to overpaying. There is some incentive to follow borrowers into these areas, because they will be in these deals more long-term. There are definitely pros and cons. 

Bisnow: What are the biggest things commercial real estate professionals should be prepared for as they look to 2019?

Lee: They should know that rent growth has slowed, and mortgage rates continue to rise. It will be interesting to see at what point cap rates start rising in order to hit returns. There will be changes, but we are still confident in the multifamily lending space. 

This feature was produced in collaboration between Bisnow Branded Content and Capital One. Bisnow news staff was not involved in the production of this content.