December 13th, 2024
1.. Fannie Mae has temporarily suspended Eastern Union Funding and Sevenstone Capital from doing business with them as they continue their investigation into possible widespread mortgage fraud. The name Moshe Silber has been front and center after he plead guilty to falsifying financial records on a $74M Fannie Mae loan in Cincinnati, which ended up costing JLL, the seller of the loan, $18M. Brokers at Sevenstone were involved in deals with Silber. Fannie stated in their Q3 filing that that they continue to investigate additional multifamily lending transactions for fraud.
2. Enterprise Bancorp and Independent Bank are merging in a deal valued at $562 million This merger combines Massachusetts-based Enterprise Bancorp with Michigan's Independent Bank, with Enterprise Bank merging into Rockland Trust. The move is yet another example of the trend we have seen among regional banks looking to reduce costs and diversify deposits after the challenges faced by the banking sector last year. As part of the deal, Enterprise Bancorp's shareholders will receive 0.60 shares of Independent Bank plus $2.00 in cash per share. Independent Bank will issue 7.5 million new shares and pay $27.1 million in cash, aiming to boost its earnings per share by 16% by 2026. Independent also plans to raise $250 million through subordinated debt.
3. The odds of a December rate cut sit at 97% but the expectations going into 2025 are incredibly unclear. The 10 yr UST is now sitting at 4.40%, an almost 20bp increase just in the past 48 hours as the PPI release yesterday revealed that Octobers numbers had been revised upwards and a mix of prints reveal in combination with the import/export pricing that price pressure is not going away just yet. Inflation may prove to be stickier than we hope, leaving the possibility of far fewer rate cuts in 2025.
4. The possibility of 25% tariffs on goods from Canada and Mexico, two of the largest trading partners for the United States for lumber and construction equipment may lead to significant stockpiling of materials and equipment in anticipation of rising costs. An obvious concern for contractors is if they bid a project at a fixed cost and tariffs increase their costs significantly, those price changes could materially affect their profits on said project.
5. CoStar reported that roughly $24.5 billion worth of office deals closed in the first nine months of this year. An example of an opportunistic office investment is the sale by Starwood of the Wells Fargo Center tower in Minneapolis that sold to a joint venture at a significant discount to their original purchase price in 2019. "Tenants collectively handed back upwards of 65 million square feet last year, boosting the total to more than 210 million square feet of move-outs since the start of 2020." Even with a vacancy of around 40%, the sharp decline in value on some trophy office assets such as Wells Fargo Center is proving to be too good to pass up for certain investors.
NOTE: HUD has issued draft program changes reducing DSCR to 1.15x and increasing the LTV to 87% for market rate refinances (80% for cash out). With a 35 year fixed-term and a 35 year amortization, HUD is a great tool for multifamily refinances that are proceeds sensitive.
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