When the COVID-19 pandemic hit in spring 2020, private real estate lender HALL Structured Finance (HSF) made the decision to pause new loan originations and focus on its existing portfolio. While 2021 started with some uncertainty, HSF's multifamily and hospitality portfolio performed well, and the company began actively lending again on promising new developments. Fast forward to today, and the company's pipeline is "very robust going into 2022." That's according to Brad Ferguson, VP of originations at HALL Structured Finance, who discussed what the lessons from this year mean for the company's 2022 outlook.
"We're now lending up to 80 percent loan to cost on multifamily and hotel construction loans," Ferguson said. He notes the company has a pipeline of about $600 million in deals going into 2022, focused predominantly on multifamily/hotel construction lending and hotel bridge lending. "We're one of very few select lenders in the hotel or multifamily space willing to lend at that leverage point."
Moving into 2022, HSF will be allowing PACE loans (Property Assessed Clean Energy) into its capital stack. The lender discovered a lot of demand for the program that finances energy efficiency and renewable energy improvements, with the overall CRE segment experiencing a 150 percent year-over-year increase in early 2020.
Speaking of energy, the Sunbelt states should continue to enjoy the strongest growth in 2022. Ferguson puts the spotlight on Florida and its "hotbed of construction activity for the past year or longer for both multifamily and hotels." He cites the state's lack of income tax, attractive climate, and both seasonal and retirement migration as big advantages for its CRE industry. Multifamily has been "extremely active" in 2021 with the private, balance sheet real estate lender seeing a lot of new loan requests from coast to coast.
"The three primary drivers of the multifamily industry have been low interest rates, low cap rates and a lot of liquidity in the market," Ferguson said. "It's created a really robust demand in construction for that market."
HSF has an optimistic view about 2022, and the new hotel construction opportunities to come as the market continues to strengthen. But he notes there is one area of concern to keep an eye on.
"The work-from-home trend has been unique and the question is how long will it continue," said Ferguson. "I think ultimately that might have an impact on hotels, which really rely on the face-to-face interaction of business travelers and groups. More work from home would mean less business travel and thus reduced hotel occupancies. However, we are confident that in-person business travel is poised to largely return to close-to-normal levels in the future, as there is no replacement for face-to-face networking and relationships."
HSF's strengths are key to maximizing CRE momentum and its experience is critical when dealing with adversity. Bring up inflation and Ferguson will tell you that construction lenders know all about price increases. As seen with the new leverage point and loan initiative, the private lender continually adjusts its loan program in response to various points in economic and real estate cycles to meet the needs of borrowers.
"We're very excited and hopeful for the new year," Ferguson said. "We believe in the market and hope to do as many new well-conceived projects as possible in 2022."
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Brian Lee
Brian Lee is an Albany-based litigation reporter for the New York Law Journal. He has worked at daily newspapers in Massachusetts, New York and New Jersey. He can be reached at [email protected]. Twitter: @bleereporter
