Harbor Group International (HGI) is expanding its newly established multi-family total credit platform with the conclusion of its first secured commercial real estate loan obligation (CRE CLO). The close reflects the debt’s renewed momentum after hitting a tough spot in 2020.
The CLO has a total of approximately $ 558 million, which consists solely of bridging loans for multi-family assets from the US President of the HGI Richard Litton The move marks the culmination of the company’s aggressive penetration into the multi-family space over the past year, with the expectation that demand for the sector will only continue to grow.
“As long as local fundamentals remain strong, it will generate a lot of capital market activity in terms of sales and refinancing, as well as the types of transactions that result in bridging lending,” said Litton. “We are seeing very good pipeline demand.”
Goldman Sachs was the only structuring agent and co-lead manager for the CLO offering. JPMorgan Chase and Amherst Pierpont served as co-manager.
Of the $ 36 billion CLOs outstanding at the end of April, more than 40 percent are loans backed by apartment buildings CRE Finance Council (CREFC). CLO emissions peaked at $ 19 billion in 2019 before falling to $ 8.7 billion during the COVID-19 pandemic last year, according to CREFC data.
CREFC Executive Director Lisa Pendergast The CLO volume for 2021 should reach the level of 2019 by mid-June. This underscores the favorable market conditions under which borrowers are drawn to the flexibility of short-term floating rate loans. Pendergast noted that many apartment building owners prefer floating rate vehicles as an option to deal with lost revenue caused by pandemics and can later switch to long term fixed rate financing.
“It gives you so much opportunity to repay this loan and take out a fixed rate loan,” said Pendergast, “that is generally backed by what we consider stabilized assets.”
Pendergast found that leverage on CRE-CLOs remains relatively low and that bond spreads are “more attractive” than fixed income commercial mortgage-backed securities (CMBS) backed by more stable credit. She noted that CLOs have gotten a boost this year, largely due to investor appetite for higher spreads on lower-rated debt in a low-yielding environment, coupled with increasing levels of comfort in these securities.
According to Litton, HGI’s multi-family loans became “much more stable” in the run-up to the CLO due to occupancy due to occupancy rates Fannie Mae and Freddie Mac Volume capacity reduction this year due to lower regulated credit limits. If Fannie and Freddie’s volume stays at current levels in the short term, Litton sees growth potential in bridge financing as developers see it as an alternative strategy to obtaining home finance for multi-family properties.
HGI closed $ 245 million Equity increase for the January Multi-Family Loan Program, backed by a $ 110 million commitment from the Canada Pension Plan Investment Board (CPPIB). The Norfolk, Virginia-based company, which manages roughly $ 2.3 billion in real estate debt investments, had an early trend that multi-family investment in suburban markets was a prudent sector to focus on.
“We firmly believed that the sector would continue to do well and that the bridge lending business was another way to add capital to the housing sector,” said Litton. “We intend to continue to leverage our extensive multi-family expertise to become CLO managers and bridge lenders in the long term. “
Value partner A CLO was also launched that month with an initial total balance of $ 929 million. The company’s fourth CLO consists of 23 adjustable rate mortgages backed by 29 commercial properties in the multi-family and hospitality sectors.
“We are at the beginning of a CRE CapEx cycle and believe that the US housing market at nearly $ 4 trillion is a tremendous opportunity with favorable supply and demand dynamics.” Jim Dunbar, Senior Managing Director at Värde, said in a statement. “COVID has accelerated a number of trends that are causing tenants to rethink their use of space and landlords to see how they can improve their properties to attract tenants.”