All Forum Posts by: Chris Davis

@Taylor L. I’d love to hear more about this, shoot me a message if you get a chance. I do about half of my business down in RVA/Tidewater and would like to get linked up with some people.

I live in Washington DC and have more or less my entire life, and have been working in commercial real estate in some capacity or other since roundabout 2004.  I worked in private equity doing primarily multifamily and office acquisitions, asset management, and development for about 7 years until the 2008 financial crisis, when I transitioned to the debt side working at Freddie Mac Multifamily as a producer in the Southeast Region.  From there I went to go work for a client as an originator and then moved over to my current originations role at another firm in 2015, where I have happily been since.  Right now I focus primarily on multifamily Fannie/Freddie loans in the $1-20 million range, particularly in the $1-7.5mm range, i.e. those for the "Small Balance" lending programs at both agencies.  

My background has given me pretty good depth/breadth in larger commercial deals but I've still never really run a transaction from start to finish, and I don't know how to run a company.  I've also got gaping holes in my understandings about smaller deals, particularly those that fall under the size threshold for being considered commercial.  I know hardly anything about single family real estate sales or operations or financing, and ditto on 2-4 unit properties.  

Looking to start up my own personal account and want to fill in my knowledge gaps on how to size up smaller properties, and acquire and manage them without the benefit of a whole parent company that can handle the legal/admin/etc tasks like I'm used to in my day job.  

Very interested in getting to know anyone local, regardless of what sector of the business you are in.  Happy to answer questions on multifamily loan programs also, but I joined BP for my own edification and not for prospecting purposes.

Just had credit decline a deal at 51% LTV and 1.48x DSCR because collections are still falling, albeit not steeply. Seems they just want to be on the fence until there's a bottom, which is frustrating at that leverage.

@Bjorn Ahlblad Couldn’t agree more, especially in a market where eviction is difficult. Much rather have vacancy than have a bunch of entrenched bad tenants, especially when there is a militant Tenants Association with a history of landlords that have thrown up their hands.

This is my day job, and it's been both horrifying and interesting watching our healthy capital markets gradually deteriorate into a Michael Lewis financial disaster book.  Thought it might be interesting to share war stories, from whatever perspective anyone happens to have (i.e. lender/sponsor/attorney/vendor etc).

In terms of actual  market impact, here's what I've seen:

- New debt service reserve requirements at closing (killer for a lot of acquisitions that need max leverage)

- Apprehensive lenders, due to loss sharing and/or buyback requirements.  Haircutting transactions above and beyond whatever restrictions are put in place by the GSE's.

- Decreasing appetite for cash out refinances, high leverage, interest-only, and peculiar deals (scattered site, low liquidity, nonlocal sponsors)

- Mixed-use deals having their retail income underwritten at $0 unless big national credit tenants.

- Falling collections at properties playing hell with deals in process.  If your collections drop the month before closing, usually the Agencies are going to want to go even farther to "catch the falling knife" and you get whacked on debt service coverage ratio.

- Subsidized deals are king right now, nothing like having tenants that don't have jobs to lose, so HAP contracts or Section 8 voucher transactions or anything like that are largely immune to the current sturm und drang.

In terms of actual horror stories:

- Big sponsor with lots of workforce housing that included many undocumented immigrants who can't collect unemployment, most of whom work retail or domestic services and none of whom are working now. Reported something like 8% collections in April (i.e. 92% collections loss). On a CMBS loan so no forbearance, nightmare scenario.

- Fannie/Freddie announced loan forbearance for existing borrowers but the process is a bit clumsy, which has led to some downright irate exchanges between sponsors and servicing folks.

- People being eaten alive by hard money shops turned loan-to-own operations when their GSE takeout financing falls apart and they run up against hard maturities.

What's everyone else seeing out there?

Being able to build your own model to spot check something that you get from a broker or other source is a priceless skill.  I was in institutional private equity for years but the best modeling instruction I ever got was from a 3-day class led by a guy named Josh Kahr.  I'm not sure if he's still doing seminars or if he has materials, but he can teach you how to build efficient models that you will know your way around.  Nothing worse than having to take some broker BS at face value because you don't have the modeling background to understand what they're doing with their numbers.  Granted on a simple 2-4 unit deal this is probably less of a concern.

In theory Fannie and Freddie are still doing 80% LTV acquisition financing, albeit with high debt service reserve requirements. Build 12-18 months worth of debt service being escrowed, so net that out of your expected proceeds when modeling the equity requirements for a deal. Further, a lot of lenders in that space are further constraining the credit box because of worries due to loss sharing/buyback requirements, so even if Freddie would go to 80% your Seller/Servicer might not be willing to internally approve more than 70-75%. Deals with hair on them are a lot harder to do now. Underwrite your retail rent component (if any) to zero, nonlocal sponsors are hard, and "weird" deals are hard (ground leases, scattered site deals, etc).

They *will* underwrite to whatever the current low point in collections is, so even if your T12 collections number is $500k, if your annualized T1 collections are $415k, expect them to use that smaller number for the NOI that will be used to size your loan proceeds via debt service coverage ratio.

Wild world out there right now

Lots of smaller markets proximate to DC where $50k can get you into a multifamily deal if you syndicate out some equity. I have sponsors who have less than that in small ~$1m deals, wasn't that hard to find takers at least a few months ago. Obviously things are sort of in upheaval now. Look at Richmond, Baltimore, Staunton, Harrisonburg, Norfolk, etc.  If you're gunning for Fannie/Freddie Small Balance financing you'll want to live within 100 miles of the subject property and make sure your ownership group satisfies net worth and liquidity requirements, etc.