161: “We’re Going to See a LOT of Deals” in 2024, Says Top Multifamily Lender w/Alison Williams
Nov 20, 2023
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Alison Williams, SVP & Chief Production Officer at Walker & Dunlop, discusses how high interest rates have led to a drop in multifamily and commercial real estate purchases. She predicts a surge in deals in the coming years as inexperienced operators are forced to give up properties. Williams shares advice on securing funding and highlights the opportunity for new investors to pick up properties at discounted prices. With limited availability of funds from banks, immediate action is crucial in the Midwest real estate market.
Multifamily and commercial real estate purchases have dropped by over 50% due to high interest rates, presenting a potential opportunity for new investors.
First-time investors should focus on properties with solid cash flow, irreplaceable locations, and strong bones in the Midwest region.
Deep dives
Navigating the Tricky Real Estate Market: Insights on Small Balance Lending
In this podcast episode, Alison Williams, the senior vice president of small balance lending at Walker and Dunlop, shares valuable insights on lending in the smaller multifamily space. She emphasizes the importance of not waiting to take action with loan maturities coming up, as interest rates are not expected to decrease significantly. Williams advises investors to focus on properties with solid in-place cash flow and to realistically assess their ability to transact based on current market conditions. While she predicts an increase in default rates, she assures that commercial asset values have not significantly declined and advises investors to look for deals with irreplaceable locations and strong bones. Williams also discusses the lending criteria for first-time investors and asserts that the Midwest offers more favorable opportunities, while cautioning against investing in unfamiliar markets without expert local management.
Understanding the Impact of Interest Rates and Default Rates
Williams acknowledges that interest rates have significantly increased, affecting borrower cash flow and loan refinancing. She cites upcoming loan maturities and rising interest rates as potential triggers for distress in the market. However, Williams also highlights that default rates in the non-recourse space for small balance lending remain historically low, below 0.5%. While the overall multifamily acquisition market is down, the agencies, such as Freddie Mac and Fannie Mae, are still providing capital and have seen a smaller decrease in lending activity compared to other capital providers. Williams advises investors to focus on opportunities in the central region and to be realistic about the market value of properties, avoiding overleveraging and reassessing the returns they can expect.
Factors to Consider for Strong Deal Analysis
Williams recommends analysing deals based on current market conditions, cautioning against assumptions of rent growth and substantial expense reductions. She advises investors to consider properties with good replacement costs and solid income, rather than relying on projections of future market trends. Williams advises investors to be cautious about deals in high-priced markets like California and Florida, as they require a larger cash investment due to lower leverage opportunities. She also encourages investors to stay within markets they understand, unless they can secure local third-party management with relevant experience.
Advice for Navigating the Tricky Market
Williams stresses the importance of not waiting to take action with loan maturities approaching. She emphasizes that banks face constraints in lending and urges borrowers to explore multiple financing options, considering the advantages of agency financing. Williams adds that banks' capacity to lend has reduced due to reserve requirements and other factors. She advises investors to seek out advisors and lenders who understand the unique challenges of the current market environment. Finally, Williams advises caution, urging investors to balance the desire for immediate returns with the potential risks and long-term viability of their investments.
With interest rates at the highest point in decades, multifamily and commercial real estate purchases have dropped by more than 50%. Cash flow looks almost nonexistent, but good deals could be right around the corner as inexperienced operators are forced to give up their properties or pay MASSIVE amounts of money to the bank. What can you expect as the 2024 housing market rolls around? Stay tuned; we’ll give you all the info!
Alison Williams, SVP & Chief Production Officer at Walker & Dunlop, joins us to discuss “small balance lending” and where MANY multifamily investors get their money. Alison is able to tell you point-blank what a lender needs to see to lend on your deal, how much money you should be prepared to come to the table with, and what could happen as the bridge loan bomb begins to go off.
Alison also believes we’ll see “a LOT of deals” in the coming months/years as operators are forced to refinance, foreclose, or sell. This presents a massive opportunity for new investors who have been starved of deals and are looking to pick up another property without paying 2021 or 2022’s high prices!
In This Episode We Cover
The bridge loan bomb that could blow up many investors’ deals
Why multifamily and commercial real estate purchases have fallen off a cliff
Default rates, foreclosures, and whether Alison expects them to go up
Deals coming down the road and why investors with cash on hand could be in for serious discounts
What a “good” deal looks like in 2023/2024 and what you NEED to get funding
Alison’s biggest pieces of advice for investors and why many could be in for a “shock”
And So Much More!
Click here to listen to the full episode: https://www.biggerpockets.com/blog/on-the-market-161
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