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Real Estate Forum panelists: Lenders, investors hungry for deals on residential rentals in Miss., elsewhere

Mississippi Chapter of CCIM panelists included Stephen Hirn, partner with Haddox Reid Eubanks Pettis PLLC; Leland Speed, EastGroup Properties chairman; Gaines Sturdivant, president of MMI Hotel Group; Richard “Rick” Wood III, an executive VP at Financial Federal Bank, Memphis.

Mississippi Chapter of CCIM panelists included Stephen Hirn, partner with Haddox Reid Eubanks Pettis PLLC; Leland Speed, EastGroup Properties chairman; Gaines Sturdivant, president of MMI Hotel Group; Richard “Rick” Wood III, an executive VP at Financial Federal Bank, Memphis.

By TED CARTER

Such Mississippi cities as Ridgeland and Pearl are fed up with multi-family residential complexes to the point they want to retroactively zone them out of existence.

But the market for such developments across Mississippi and the rest of the South is white hot and likely to grow even hotter, said commercial real estate brokers and financial professionals who gathered April 2 at the Butler Snow building in Ridgeland for a commercial real estate forum.

The assessments from panelists on hand for the Mississippi Chapter of Certified Commercial Investment Members, or CCIM, were significantly more upbeat across all categories of commercial real estate than Mississippi CCIM forums in previous years. CCIM is a designation for commercial real estate professionals that requires extensive study and testing to obtain.

Some of the new and sustained demand for rental apartments is coming from former homeowners burned by recession-era value drops in the homes they once owned. Demand is coming as well from people unable to meet new mortgage qualifying standards, commercial brokers say.

For commercial developers and the brokers and finance experts with whom they work, financing for multi-family has rarely been easier, said Richard “Rick” Wood III, a forum panelist and executive vice president at Financial Federal Bank in Memphis.

“It is easier to get financing for commercial or multi-family housing than to qualify to buy a single-family home,” Wood said.

The turnabout in multi-family financing followed what Wood called the “world ending” period from 2007 through 2010 – a stretch of years in which institutional lenders and bankers stayed “under the blanket” waiting for a recovery.

They are back and looking for deals, Wood added.  “Life insurance companies are desperate for better yields. They’re not getting them from bonds. So they are having to look at real estate.”

Banks are likewise hungry for deals and the earnings they bring, according to Wood. They “want to put loans on the books and hold them for as long as they can,” he said.

In the meantime, commercial-loan-backed securities have returned “full throttle” after reemerging on 2011 and 2012, the Memphis bank executive noted.

Fannie Mae and Freddie Mac, a pair of government-sponsored enterprises, have also made big splashes with post-recession comebacks, Wood said. Each of the financial corporations did $30 billion in multi-family lending last year and are showing delinquency rates of only one-tenth of 1 percent, he added.

Overall, “There is some selectivity but the money is out there, and the quality seems to be out there as well,” Wood said.

“The floodgates are open as we sit here in 2015,” he added. “Interest rates are in the high threes or low fours” – a range affordable for all but the weakest players.

CBRE executive Steve DuPlantis noted “loan-to-value” is critical for drawing a crowd of lenders, which means an attempt to borrow on “B” and “C” level multi-family properties could require some searching. “There are lenders who understand” the lower level properties, he said. “They tend to charge a little more but there is money available.”

DuPlantis said loans on “B” and “C” properties are getting made as both recourse and non-recourse, the former of which allows the lender to seek repayment beyond the loan’s collateral.

The size of the community in which the property is situated is a factor, though a subjective one,  according to DuPlantis, senior managing director of  the South-Central region of CBRE’s Valuation & Advisory Services Group. “One lender may like a 25,000 [population] and another may like 50,000.”

Beyond population, lenders want to increase the odds they will get paid on time, DuPlantis said. “The size of the loan and the likelihood of the property continuing to be rented drive that.”

Forum audience member Chad Hirn, a Jackson CCIM, said his experience has been that multi-family tends to get the lowest interest rate spread, the longest amortization and the highest loan-to-value. “All of the lenders are enamored with that product right now, especially since no one can afford to qualify to buy a home” Hirn said.

The increased willingness of lenders to make loans on multi-family comes as Central Mississippi cities such as Ridgeland and Pearl enact stringent multi-family density and zoning rules, many to be applied retroactively, on apartment and condominium rentals.

Some of the older apartment complexes in Ridgeland are facing forced demolition; owners of newer complexes fear they may be forced to tear down units to meet retroactively applied density limits.

Ridgeland officials say the new rules will enhance the quality of housing in the city and save taxpayers from having to fund the infrastructure and public safety services that multi-family housing requires.

Pearl, meanwhile, is taking equally dramatic steps to rid the city of manufactured homes and to downsize existing apartment complexes.

October 2014 brought requirements that manufactured home parks and rental complexes build community storm shelters able to accommodate all residents and withstand the force of a F-2 tornado. In addition, the City mandated apartment complexes be retrofitted with interior fire sprinklers.

A more far-reaching ordinance under consideration would erase all “non-conforming” uses from Pearl’s property rolls. Manufactured homes and apartment complexes are specific targets, officials for the city and lawyers for the multi-family complexes say.

Pearl Mayor Brad Rogers says the measures offer a way to upgrade the city’s residential inventory and to create safer housing.  “We don’t want these non-conformities to be expanded or to continue forever,” he said in an interview late last year.

Some commercial brokers interviewed after the forum said they are unsure where new multi-family rental complexes will go if Ridgeland and Pearl succeed in running them out of their towns. The City of Madison does not allow multi-family and “Jackson doesn’t have room for them,” said Walter Becker Jr., a longtime Jackson CCIM.

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