Newmark Exec Discusses Multifamily Finance Strategies Amid Uncertainty and Rate Changes

In a period of uncertainty, CRE multifamily landlords are reevaluating their finance options.

Mitchell Clarfield, executive vice chairman of Newmark’s Multifamily Capital Markets Debt & Structured Finance group, said that players in the industry are making the switch from high variable loans that are over-levered, to shorter-term debt. They are mostly five-year executions now, according to Clarfield, who will be a speaker at GlobeSt.’s multifamily conference in mid-October. Plus, preferred equity, and joint venture structures, are also being deployed.

The goal is to lower costs. And those who are paying high rates right now might look to refinance, which is where Newmark is seeing a lot of activity, particularly.

“You can refinance into debt that’s in the five to five-and-a-half range, depending on the characteristics of the property and the borrower, and even lower,” Clarfield told GlobeSt.

Also, Newmark is seeing a boost in acquisition activity because now on “a consistent basis, finance rates at 65% leverage are lower than cap rates,” said Clarfied.

While Clarfield is based in Santa Monica, he, like the company has clients that operate across the U.S. In his case, the clients are mostly located in the Western markets.

Specifically, Clarfield highlighted the overlooked multifamily market in Las Vegas.

“Las Vegas is kind of a little secret thing. Las Vegas is a market where nothing’s getting built. There is no land, really that’s available at a discount because land is restricted in Las Vegas,” he said, adding that he expects rents to continue to rise long-term.

“The job growth in Las Vegas, just as an example, is pretty strong. So absorption should remain strong.”

Also, strong demand remains in Nashville, Austin, Charlotte, Orlando, and South Florida too, according to Clarfield.

A big topic of discussion in CRE in general is the Federal Reserve starting their rate cuts, which is anticipated for September. While Clarfield thinks that could help multifamily demand, he does not think it will change the “dynamic” of the industry.

But still, Clarfield argued that now is a good time to lock in rates.

“I’m not so sure that a year from now you’re going to see a lot better opportunity fixing longer-term debt, and that’s what drives most of the multifamily industry now on the margin,” he said.

As far as Clarfield’s short-term outlook goes, he provided a mixed outlook on multifamily, noting that it will depend on the type of property. Overall, he thinks the industry is starting to “stabilize.”

“That’s going to be good for the newer product in the better markets.”

However, for lower-quality assets like Class B and below, he forecasts that they will continue to “suffer.”

“We’ve been advising our clients that own B quality assets that had gains on their books and had floating rate debt to sell those assets, not now, but a year and a half or a year ago,” he warned.

“Very few took that advice because they thought rates were going to come down and things are going to get better.”

Those who failed to exit earlier will need to either obtain preferred equity or “recapitalize that debt by bringing in more equity,” according to Clarfield.

Clarfield projects there is only a 30 percent chance long-term and short-term interest rates fall 200 basis points, which would solve most of the problems for B-class multifamily operators. So that’s why he advises clients to sell while they still can with less than favorable odds.

Going forward, Clarfield, who has originated more than $22 billion worth of multifamily loans in his career, said he is focused on working with the new investment sales team members that the company added on the West Coast. Particularly he spoke highly of recent hire, Dean Zander.

“He is one of, if not the preeminent broker in the Los Angeles area. And we were happy to get him.”

“I’ve known Dean for 30 years and I targeted him as somebody we should try and get, and then circumstances led to us being able to get him.”