I just got off the phone with Andrew Jubelt, Principal at Avant Capital partners. I wanted to speak with Andy because I was interested in learning more about the multifamily housing sector and Avant Capital Partners has expertise in this area. I wanted to hear Andy’s thoughts on what we can expect to see happening in this market over the next 18 months, both in the tri-state area and nationwide and what options are available to multifamily borrowers and investors.

Andy shared that–overall–multifamily property is an investment category of choice up and down the entire east coast, although they do have their share of financial distress. Categorically, multifamily properties have see a 30%-40% decline in value and not, as one might think, because rents have gone down but rather because currently, there are only two kinds of properties that are being sold: The first type is Class A properties (new construction/excellent location in an excellent market.) These properties are attractive because they trade with much less risk. The second type of property actively selling consists of a hodgepodge of distressed assets including bank foreclosures selling on the open market. It is this second category of distressed assets where today’s painfully slow creep of properties making their way to the market can be accelerated, and I asked Andy what are some available options to borrowers that could jump-start this market.

Andy mentioned that bridge loans are a useful tool when financing and holding multifamily purchases. He explained that, currently, a good bit of transaction volume is of the bank REO sale type. Banks are mainly selling distressed assets which cannot qualify for permanent financing. Fannie Mae does not loan on properties that are in transition or have less than 85% occupancy. Bridge loans can be used to reposition, re-tenant and redevelop distressed properties, literally bridging the gap between the purchase of a property in distress and the exit strategy for loan repayment. Bridge financing is key to carrying the property until operations are stabilized.

As you may be aware, the features and issues surrounding multifamily investments vary greatly from one region of the country to another. For example, Texas and Florida have very different rental markets than New York. In Texas and Florida, there is no rent control, lots of inventory, renting is cheaper than owning and both markets are improving. At the same time, there is not a lot of new construction in either state. In Texas and Florida bridge loans could be used for making improvements to landscapes, parking lots and general building upgrades. Conversely, in New York, there is very high occupancy rate with less available inventory and rent control protections. In this region bridge loans can be utilized for directing management costs towards keeping properties secure and clean, rental collections and careful tenant screenings.

After speaking with Andy, it is my impression that utilizing bridge loans can work well, and be useful, anywhere and everywhere, all you need to do is buy at the proper level in the first place.