A strong commercial real estate market means busy times for commercial lenders. Developers, investors and owners are all seeking financing today, whether they want to acquire a building, refinance existing debt or nab a construction loan for a new multifamily tower or industrial building.
Midwest Real Estate News spoke to Ned Huffman, president of Cleveland-based Bellwether Enterprise Real Estate Capital, about the financing activity that is keeping his company busy today. Here is some of what he had to say about the types of financing requests his company is receiving and what lenders are looking for before deciding who qualifies for financing dollars
Midwest Real Estate News: Is Bellwether Enterprise originating a higher number of commercial loans today? Ned Huffman: The volume has continued to increase. There is a lot of activity out there. The commercial real estate industry continues to grow at a very healthy pace, and we have been extremely active in this recovery period. Part of our growth in activity is a result of some growth initiatives we undertook a couple of years ago. We have added a significant number of professionals to our origination staff. But some of that increase in volume is due, too, to the strong real estate market. We expect $3.6 billion this year in volume for us.
We just acquired a group in the southeast that will add about $1 billion in production. So part of that growth is through our company expansion objectives and plans. But a significant portion is coming because we are seeing more volume and more activity in the marketplace.
MREN: What product types are generating the most requests for financing today? Huffman: We have seen growth across all the major property types. Today, multifamily is still popular. We have seen a lot more financing requests in the multifamily sector. Almost half of our business sis on the multifamily side, both for affordable workforce housing and Class-A type refinances. The bulk of our business is in the financing of existing income-producing properties. Multifamily is by the far the biggest percentage of the volume we are doing.
Next is retail, followed by industrial. Office and hospitality right now ranks as our fourth-busiest segment. But from a volume standpoint, it really does start today with multifamily and retail.
MREN: Multifamily has been performing well for a long time. What is behind the continued activity in this sector? Huffman: A lot has to do with the changes that came with the housing bubble in 2008. That is a big part of it. I also think that it has always been in the Midwest markets such a solid investment for real estate investors. You have the strong dynamics of multifamily with those one-year leases. There is a lot of ability to increase rents as market conditions improve. There is a reason why it is the favorite property type. It is because of the dynamics that serve as the foundation of the multifamily business. There is a need out there for good, affordable workforce-type housing. It is in demand right now. The amount of people buying homes has dropped, too. There has been a correction in the housing market. Many of the people who were buying homes in the early 2000s are looking instead to rent today. That dynamic has been in place since 2008. And we believe that it will continue.
MREN: What do borrowers need to show you to increase their odds of qualifying for financing? Huffman: No matter where we are sourcing the business through, the most important things are the same. We need to see a strong consistent property performance and history. The strength of the borrower is critical. The third thing we look for is whether the borrowing entity has a good business plan for the property. Do they understand the dynamics of what they are trying to accomplish, whether they are holding the property or trying to reposition it. Is there a good understanding of what the plan is? Are they looking at things properly to make those plans work? Obviously, the property condition and the characteristics of the market it is located in are extremely important, too.
MREN: What do you see in the near future? Do you expect the commercial financing business to continue to grow? Huffman: The industry continues to be very healthy. There have been a lot of improvements from 2009 through today. We have had continued improvement in market conditions. That speaks highly that volumes will continue to expand. Another big factor is that there is will be a tremendous amount of refinance opportunity on maturing loans over the next three years because of all the 10-year term loans done in 2005, 2006 and 2007. These loans are all coming up as maturities currently. There is a built-in extra volume just because of refi opportunities due to the volume of these loans completed 10 years ago.
