ST. PAUL—In the past month, US interest rates have finally increased after an extended period in a trough. And the rise has already altered the world of mortgage refinance.

“There's been a lot of activity on the refinance front,” says Ken Dayton, managing director at St. Paul-based Oak Grove Capital. “When interest rates move 100 to 125 bps it sets off kind of a shockwave.”

Oak Grove, for example, recently originated $80.3 million in financing for six affordable and market-rate multifamily housing developments in Minnesota. They closed on all of the deals between June 13 and July 1, 2013.

Oak Grove used Fannie Mae loans to refinance several of the properties, and these were not impacted by the rise in rates. But three, all market rate multifamily properties, were refinanced with HUD loans, and Dayton says the rise gave “a sense of urgency definitely; there was a need to get them done as soon as possible.” All of the deals began in the winter and were finished in five months, Dayton adds.

The properties refinanced with help from Fannie Mae were the following:

  • Arbor Glen Apartments is a 62-unit affordable housing community located in Baxter, Minn. A $3.6 million Fannie Mae MBS loan was used to refinance the property.
  • Two conventional deals were also financed by Fannie Mae MBS loans. Plymouth Ponds, a 200-unit multifamily community in Plymouth, Minn., received $16.5 million, while $4.5 million was secured for Lake Hazeltine Woods, a 42-unit multifamily complex in Chaska, Minn.

The market rate properties refinanced with HUD GNMA 223 (f) loans were the following:

  • $24.9 million was secured for Mears Park Place, a 298-unit community in St. Paul.
  • $17.6 million went to Eden Commons in Eden Prairie, Minn.
  • The remaining $13 million was secured for Mallard Creek in Golden Valley, Minn.

“I don't see interest rates coming back down to where they were three months ago,” Dayton adds. Still, “from a historical standpoint, rates are still very low.” Therefore, once everyone in the multifamily industry gets over that first shock, the changes caused by the change in interest rates will likely be modest.

“The volume of acquisitions might not be affected, but there could be a little compression in value.”

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Brian J. Rogal

Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.

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