"We continue to see attractive lending opportunities for high-quality suburban apartment projects," says Matt Mitchell. (pictured: The Millennium at Citrus Ridge in Kissimmee, FL)
DALLAS–HALL Structured Finance is doubling down on its multifamily focus. Long known for its hotel funding, the lender last year staked its claim in rental housing with a $37.7-million loan for a 326-unit luxury apartment complex in the Orlando suburb of Kissimmee.
In many respects, the deal set the pattern for more opportunities, even though, according to SVP Matt Mitchell, it was also a unique play. "Everyone's a little more selective in the deals they're doing this late in the cycle," Mitchell explains. "There have been a lot of luxury apartments added in recent years, and not everyone can pay luxury prices."
So, he says, while the HALL pipeline will focus on high-quality assets, "we generally favor projects with broadly more attainable rent levels." Mitchell notes that attractive multifamily opportunities like Kissimmee are driven by such considerations as "positive demographic trends, diverse and growing economic drivers and reasonable levels of competitive new supply coming online." He adds that the deals HSF seeks are more likely to be outside of the core markets, where most developers and funding sources tend to flock.
"Our strategy is not to avoid core markets," he explains, "but we're increasingly cautious and selective when it comes to submarket and product type. For example, we have concerns with the volume of high-density luxury apartments coming online in certain urban submarkets, but within some of the same markets we continue to see attractive development opportunities for high-quality suburban apartment projects." To make that determination, Mitchell says, it's necessary to "drill down to the street corner."
Mitchell says that for a hotel construction opportunity, the firm might be going up against two or three other lenders, but easily many more than that in a core market with an experienced developer. Less competition means more opportunity, and HSF isn't skittish about going where other lenders might not–or working with less seasoned borrowers.
For instance, one recent deal was with a developer "without a lengthy track record," Mitchell explains. "He was growing a new development business. It was a trigger for us to help get involved because his options for bank financing are limited."
The new-found focus on rental housing is part of a larger plan of diversification, as HSF president Mike Jaynes told GlobeSt.com earlier this year. Mitchell puts numbers to the strategy:
"On a rounded basis, in 2017 we did about $300 million. Our goal for 2018 was to hit $400 million, and we're trending in that direction and feel good with where we are. For 2019, we anticipate lending close to $500 million if we find the opportunities."
Numbers aside, he adds, "Our goal is to continue to be an aggressive lender in 2019."
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John Salustri
John Salustri has covered the commercial real estate industry for nearly 25 years. He was the founding editor of GlobeSt.com, and is a four-time recipient of the Excellence in Journalism award from the National Association of Real Estate Editors.
