SPECIAl FOCUS: AFT'S TOP 50 MULTIFAMILY LENDERS
APARTMENT FINANCE TODAY • FEBRUARY 2008
Deutsche Bank Diversifies
Second half surge of GSE financing likely to continue
through most of the year.
By Jerry Ascierto
Deutsche Bank
Commercial Real
Estate is living
proof of the need for multifamily
lenders to offer a full
spectrum of products.
In the first half of 2007, the company
had great success through the commercial
mortgage-backed securities
(CMBS) market, which accounted for
about 20 percent of its volume for the
year.
But when the CMBS market dried
up mid-year, Deutsche Bank began processing
government-sponsored enterprise
(GSE) loans hand over fist. By the
end of July, the company had originated
as much Fannie Mae volume as it had
for the entire year before. And
Deutsche Bank’s third and fourth quarter
production of Fannie Mae and
Freddie Mac loans was double its volume
from the same period a year earlier,
the company said.
“As the securitization market
retreated, we saw Fannie Mae and
Freddie Mac come back into the picture
as the more dominant multifamily
lenders,” said Jeff Day, managing director
and co-head of Deutsche Bank
Berkshire Mortgage, the company’s
GSE and Federal Housing
Administration (FHA) division.
The same goes for the company’s
FHA program. Market-rate developers
began flocking back to the FHA mid-year
as both CMBS providers and traditional
construction loan providers like
small regional banks began to pull back
from the market.
“Our FHA pipeline going into 2008
is bigger than it’s been in four or five
years,” said Day. “With the dearth of
available construction financing from
traditional sources, a lot of borrowers
are finding both the leverage and non-recourse nature of the FHA construction
[program] very attractive.”
To ease the pain of the FHA’s
painfully long closing process,
Deutsche Bank typically provides interim
financing in the form of a bridge
loan for pre-construction while the
FHA approval and closing process
occurs.
2007 highlights
The company’s proprietary
Multifamily Plus product was rolled
out at the end of 2006 but saw its first
use in 2007.
Multifamily Plus is a hybrid product,
a securitized loan that has characteristics
of a GSE loan. The product allows
for supplemental financing through the
life of the loan, a feature typical of
Fannie Mae but unusual for a conduit
loan. Deutsche Bank also services the
loan like it would with a GSE loan,
another unusual feature for a securitized
product.
But when the CMBS market disappeared
mid-year, taking the
Multifamily Plus product with it, the
company’s breadth of products and
structuring capabilities picked up the
slack.
The company points to a $465 million
financing package it put together
in June for Hollywood and Vine, a 375-unit mixed-use development in
Hollywood, Calif., as representative of
its capabilities. The financing package
consisted of $180 million in Fannie Mae
credit enhancement of tax-exempt
bonds, $135 million in construction
financing, and $150 million in equity.
2008 outlook
Day expects the 10-year
Treasury, a key benchmark that
lenders use to set permanent
loan rates, to hover between 4
percent and 4.5 percent
through most of 2008. And he
doesn’t expect credit conditions
to get too much worse than
they were entering 2008. “My
gut is telling me that we’re
probably about where we’re
going to be for 2008,” Day said.
The company expects the
surge of Fannie Mae, Freddie
Mac, and FHA deals to continue
through the first half, if not
for all of 2008. As of early
January, the GSEs were quoting
interest rates in the 5.7 percent to
6.2 percent range for standard new
construction loans. By contrast, CMBS
loans were being quoted at around 6.5
percent to 7 percent.
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