by Dan Rafter
Midwest Real Estate News recently spoke with Chris Blechschmidt, general manager in the Chicago office of Berkadia, about the strength of the Midwest apartment market and the strengths that borrowers have to display when seeking financing for multifamily deals. Here’s some of what he had to say.
Midwest Real Estate News: When officials with Berkadia are considering apartment-financing requests, what do they look for from borrowers?
Chris Blechschmidt: We look at several things. First and foremost, we look at the experience of the sponsor, the specific market and the location within that submarket. Our main focal point, though, is the experience of the borrower. We really want to look at the sponsor’s track record in executing a similar plan at a similar scope and size. Hopefully, we will have seen them successfully execute on this type of plan before.
MREN: It sounds like you really take a long look at the personal side of the request.
Blechschmidt: We do. We look at the sponsor’s experience and familiarity with the project type and the sponsor’s knowledge within that specific market. Has the sponsor owned other properties in that market? Has the sponsor executed a project like this before? We do so much long-term debt that we tend to have a longer-term perspective. We like to see it demonstrate time and time again that they have a commitment to manage and maintain their assets for the long haul.
MREN: How do you see Berkadia’s role in the commercial-finance transaction?
Blechschmidt: We are the checks and balances in a way. We have to really see and believe in the opportunity and the story behind it. If we do that, we’ll have the best chance of marrying the right opportunity to the right capital source. The real success comes from understanding and customizing every deal for the needs of the sponsor to reach the best chances of success.
MREN: How strong is the multifamily market today?
Blechschmidt: It is very busy. We are a mortgage-banking firm and a multifamily sales investment platform. Multifamily as a sector remains the property type of choice today. It really is seen as a favorable inflation hedge. It generates steady, consistent cash flow. Our mortgage bankers are really busy in that space. The velocity is up. From that perspective, we expect to have another record year in multifamily finance. It has been quite good.
MREN: Are you worried at all that some markets are receiving too many new apartment units?
Blechschmidt: There is a fair amount of supply in the pipelines in Midwest cities like Chicago, Milwaukee and Minneapolis. But at least for today, we are not too concerned about it. We think that way because of the combination of two things: job growth and what we think is going to be a decline in future supply. The banks are pulling back because of new regulations. So we think the supply of new apartments will slow in the future. We are not concerned about oversupply right now in any market in the Midwest. We do expect absorption to slow down a little bit. Owners might want to decrease their rent expectations a little bit. But right now it is not a huge concern. Things can change, of course. But we are keeping a watch on this market, and we are not overly concerned.
MREN: Are there any Midwest markets that are performing particularly well when it comes to multifamily?
Blechschmidt: Most of the markets in the Midwest are quite strong when it comes to the apartment market. They have stable occupancies and they have demonstrated year-over-year rent growth. There are very few Midwest markets where there is any reason for pause. The Midwest as a whole has obviously not only benefitted from low interest rates but also from the yields that investors can get. The yields that investors can obtain here are a little higher than they are on the coasts. There is a lot of investor appetite for assets in the Midwest.
MREN: What do you see in the apartment market in the coming months? Do you think it will remain as strong?
Blechschmidt: There might be a short-term decline in absorption, but outside of that, we think that in the long-run, the multifamily market will continue to be quite strong. It will be strong in investor appetites as well as strong in terms of capital looking to place debt.