ACRE sees rising liquidity premium on scaled-back GSE lending

The New York-based real estate private equity fund manager has had an active fourth quarter, completing more than $1.2bn of loans across 31 deals.

Asia Capital Real Estate is seeing a liquidity premium emerge for debt funds and other alternative lenders that are filling the void for multifamily sponsors, while Fannie Mae, Freddie Mac and the other government-sponsored agencies reduce their lending targets.

This phenomenon has meant the New York-based real estate private equity fund manager has had a very active fourth quarter, Daniel Jacobs, managing partner, told affiliate title Real Estate Capital USA. The firm has completed a little more than $1.2 billion of loans across 31 deals and is prepared to originate additional loans before year-end as multifamily volumes rise.

Dan Jacobs
Dan Jacobs

“Fannie Mae, Freddie Mac and the other GSEs which have supported multifamily for decades have had longer turnaround times [than alternative lenders] and their production target of $70 billion this year is less than the $80 billion target in 2020. Anytime the agencies reduce their production, that creates market share opportunities for companies like ACRE,” Jacobs says.

And while the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, in October announced each of the agencies will have a $78 billion cap in 2022, most earmarked for mission-driven affordable housing, Jacobs says.

“When you think about how investment sales volumes have been rising for multifamily this year, I think cap increase will actually turn out to be a net decrease and will create a strong market opportunity for bridge lenders,” Jacobs says. “Rents are growing, and properties are performing well. We believe the fundamentals are strong. For the time being, LIBOR is close to zero and coupons are widening, which means all-in rates for the borrower are increasing. In my view, there is a premium on liquidity because the bridge lenders are at capacity.”

According to an October report from Real Capital Analytics, there were more than $450 billion of investment sales in the first three quarters of 2021, a 75 percent year-over-year increase. The multifamily sector saw volume of $78.7 billion during that time, which is a 115 percent increase over 2020.

Investment strategy

The company has been active in core and secondary markets, working with strong multifamily sponsors. “More of our business has been financing new acquisitions rather than refinancing. Multifamily is seen as a natural hedge against inflation and as you see rents grow, volume will grow as well,” Jacobs says. “Coming out of covid, we are doing more on the refinancing side because investment volumes were down.”

In October, the firm closed its first debt fund at more than $325 million, surpassing its $300 million target for the multifamily-focused ACRE Credit I.

The fund – which originates first mortgage bridge loans, mezzanine loans and preferred equity on high-quality properties across the US – is the firm’s first discretionary debt vehicle and complements ACRE’s three existing equity funds, according to managing partner Michael Van Der Poel.

Through the fund, ACRE can originate loans across any property in the single-family or multifamily space, targeting opportunities of $15 million to $20 million on the lower end and $100 million or more on the higher.

Jacobs anticipates demand will remain strong throughout 2022. “Inflation is something we are going to be living with at a minimum of 18 to 24 months,” Jacobs says. “We are going to continue to do what we’re going to do, we will continue to issue bridge loans to good sponsors in good markets and we will be making a move into both conventional and single-family build-to-rent.”

This article first appeared in affiliate publication Real Estate Capital USA