Capital One Origination Experts Weigh In On The Future Of Multifamily Lending

​​While 2021 was a tough year for retail, hospitality and office assets that were hit hard by the pandemic, multifamily soared. U.S. multifamily investment volume totaled $78.7B in Q3 2021, putting the year on track to break the previous multifamily investment record of $179B set in 2019. 

All of this interest has also generated increased competition from higher-leverage capital sources for multifamily deals. Despite all this movement, the question remains: What lies ahead in the new year? Will these booming numbers continue, or is the market headed for a course correction?  

To answer these questions, Bisnow spoke with Jonathan Pratt, Rossana Bouchaya and Maggie Burke, senior vice presidents in the Commercial Real Estate Agency Finance group at Capital One who have more than 30 years of experience among them.

Pratt and Bouchaya met in 2014 when they were both working for Capital One on the agency underwriting team. Pratt made the switch to production first, eventually making the decision to move to Berkadia in 2017, with Bouchaya partnering with Pratt at his new firm in 2019. There they met Burke and formed a team that has done nearly $3B in loan production since 2017 and was among the top 10 mortgage bankers at Berkadia in 2020 — the youngest team to break the top 10.

While they specialize in multifamily, the team works with all asset classes and execution types, including office, retail, self-storage, agency, HUD, targeted-affordable, CMBS, debt fund, life company and bank balance sheets. In July 2021, after a long recruiting process where they evaluated many of the largest agency lenders in the industry, the team made the decision to rejoin Capital One. According to Pratt, they were driven, in part, by the company’s innovative culture, leadership team and vision for the platform.  

Bisnow spoke with them about this decision, as well as the current state of multifamily lending and their predictions for 2022. 

Bisnow: What was the multifamily lending landscape in 2021? 

Pratt: This was a really tricky year. With the way cap rates compressed, we really needed to get more creative. Fannie and Freddie usually consist of about 50% of the market, and that's typically pretty balanced between acquisitions and refinances. However, last year they financed far fewer acquisitions. We've seen more new equity flow into the multifamily space than ever before, which drives cap rates down and makes it increasingly difficult to do permanent lending right upfront. 

I think the name of the game this past year was really bridge lending, whether it be through bank balance sheet or debt fund execution, which was one of the reasons why we decided to join Capital One. We saw the lending landscape becoming more challenging and knew that we needed to reposition ourselves in the market for the future. We need to have a thriving and dynamic balance sheet to complement our agency business. We value Capital One’s agility when it comes to its balance sheet and its willingness to allow us to refer opportunities to other capital sources, giving us the unique ability to service all our clients’ financing needs. 

Bouchaya: ​​We offer all execution types, which really helped us out this year when the debt landscape changed and we had to be more diverse instead of solely relying on the agencies. It's really helped us better serve our clients to lean into bridge financing, whether it's through our own balance sheet or external capital sources. It’s all about getting creative to keep leverage high for our clients when needed while delivering the most competitive terms in this dynamic market.  

Bisnow: What led to your decision to rejoin Capital One in 2021? 

Pratt: We believe Capital One has more growth opportunities for young bankers than any other lender in the industry. It is one of the most innovative platforms in the market and a technology company first and foremost. Our leadership team is visionary and dead set on changing the CRE landscape — we’re working on a number of initiatives with data and customer experience that are truly revolutionary. 

Bouchaya: Capital One also offers a nimble balance sheet bridge product that allows our clients to be more competitive on their acquisitions. On one transaction in particular, we were able to execute an 83% loan-to-cost bridge-to-FHA loan as well as a 70% loan-to-cost value-add deal, both at highly competitive interest rates.

Bisnow: Last month, Bisnow described the multifamily market as “red-hot.” Do you agree with that assessment? 

Burke: That is spot on. Through the pandemic, multifamily showed that it is the most resilient and resistant asset type. It held its value, thanks to the fact that many renters were able to make payments through rental assistance or other measures, so there were few multifamily defaults. Whether it be on the ownership or the lender side, everybody's chasing the multifamily market. It's definitely the darling of asset types. 

Bisnow: What are your predictions for multifamily lending in 2022? 

Burke: I believe that with the low cap rates and rising interest rate environment, the agencies are going to continue to struggle when it comes to leverage, which will lead to more bridge lending opportunities in 2022.

Bouchaya: Agencies will continue expanding their focus on workforce and affordable housing properties and will likely gain market share with opportunities to maintain and preserve affordability. But anything that's value-add or relying on future underwriting, we're going to definitely see bridge financing dominate that space.

This article was produced in collaboration between Captial One and Studio B. Bisnow news staff was not involved in the production of this content.

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