Richardson: Orange County's multifamily market has been a very good inflation hedge over the years. It's had good, strong, quality rental growth—3% over last number of years—very low vacancy rates and strong employment here. There's a diverse employment base that touches on government, healthcare, and education, and they like to live in multifamily units. Also, the high median home price, of $645,000 for makes it prohibitive for people to buy, so the alternative to that is a rental property.

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GlobeSt.com: How are lenders viewing this market for financing?

Richardson: For many of the same reasons, lenders continue to see Orange County as a stable apartment market with solid long-term growth. Values remain high as properties continue to trade at historically low cap rates. This translates to lower leverage levels—in the 60% to 65% range due to underwritten cash-flow constraints. Despite the low cap rate environment, lenders remain comfortable with significant equity in front of their debt. We continue to see aggressive loan terms from Fannie Mae and Freddie Mac as well as life companies and banks.

GlobeSt.com: What are lenders' concerns, if any, about the Orange County market?

Richardson: If credit standards for home mortgages continue to soften, this could have an adverse effect on the multifamily market as potential renters would now qualify to buy a home. The vacancy rate for apartments in Orange County is less than 3%, so even a modest increase would still leave owners with strong fundamentals and the ability to push rents. Apartments remain the preeminent asset class in Orange County. High barriers to entry, the county's economic diversity, quality schools and climate will ensure this continues in the foreseeable future.

GlobeSt.com: What else should our readers know about this portfolio transaction?

Richardson: These are long-term, multigenerational assets. Warmington has done an exceptional job of renovating the units and keeping their properties positioned at the top of the market. Additionally, Warmington is looking to grow its brand and increase its presence in the multifamily sector. This recent portfolio financing will significantly help in executing on that objective.

GlobeSt.com: How are lenders viewing this market for financing?

Richardson: For many of the same reasons, lenders see this as a good, stable product type. You have good economics, it's obviously very expensive and most properties are trading at pretty low cap rates. Orange County is one of the top 10 most-expensive MSAs for multifamily. You're not getting as much leverage—maybe 60% to 65% on refinancings—just because of the cap rates. It has good historical economics, and there are good, safe loans coming from Fannie Mae and Freddie Mac, life companies and banks.

GlobeSt.com: What are lenders' concerns, if any, about the Orange County market?

Richardson: There's still a lot of discipline in the lending criteria; buyers are not getting as much leverage on acquisition financing or refinancing. If there were some softening or thawing in underwriting for home purchases and if we ever got back to the day where it's a lot easier to buy a home, that would change. But right now, it's very restrictive—if people could buy homes, they would, but it's hard to qualify for a home mortgage. For most of the nice apartments in Orange County, the vacancy is less than 3%. It's got a little bit of room to lose some tenancy and still have great economics and the ability to push rents. It's still a strong asset class; people want to be here because of the jobs, schools and economic diversity. There's no threat of overbuilding, at least at this point. I can't think of anything that would have a significantly hurtful impact on multifamily in this county.

GlobeSt.com: What else should our readers know about this portfolio transaction?

Richardson: These were long-term assets. Warmington has done a very good job of renovating and keeping them relevant in the market and pushing rents. These are great assets; they took pride in them, and they performed above the norm in terms of their ownership. Warmington also does a very good job with branding; it spends a lot of money keeping its older assets up to date and relevant, and it shows in the rents it's achieving. It's a multigenerational owner, and it has no plans to change that.

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ORANGE COUNTY, CA—A strong, stable economy, diversified employment base and limited development keep both investors and lenders interested in Orange County's multifamily sector, Walker & Dunlop Inc. SVP Gregory Richardson tells GlobeSt.com. The firm recently structured six refinance loans totaling $190,177,000 with Freddie Mac and Fannie Mae for a 1,240-unit portfolio consisting of class-A and -B multifamily developments located in California and Nevada. Richardson and Scott Watson led the firm's team in placing the debt for repeat sponsor Warmington Properties Inc.

The portfolio contains five Freddie Mac loans and one Fannie Mae loan, all of which were structured with 10-year terms and 30-year amortization schedules. The non-recourse, fixed rate executions were arranged with a cash-out component. Beginning in 2014, Warmington implemented a portfolio-wide value enhancement program, which included the complete renovation of common area amenities, building exteriors, and a full upgrade to unit interiors.

Since many of the projects in this portfolio are in the Orange County market, we spoke with Richardson about what draws multifamily investors to this market and if there are any lender concerns about it.

GlobeSt.com: What is attractive about multifamily properties in the Orange County market?

Richardson: Orange County's multifamily market has been a very good inflation hedge over the years. It's had good, strong, quality rental growth—3% over last number of years—very low vacancy rates and strong employment here. There's a diverse employment base that touches on government, healthcare, and education, and they like to live in multifamily units. Also, the high median home price, of $645,000 for makes it prohibitive for people to buy, so the alternative to that is a rental property.