Omaha’s healthy multifamily market fundamentals drive increasing agency lending

OMAHA, NEBRASKA (November 9, 2021) - Despite some disruption from COVID-19, Omaha’s multifamily market is resilient. It remains a healthy, stable market boasting sound fundamentals and continues to experience increasing demand for apartments. Multifamily, in general, has outperformed many other real estate sectors during the pandemic.

Omaha’s multifamily occupancy remains strong and rent growth over the past 12 months has shown a positive overall trend. In construction, the market takes a measured approach with roughly 1,500 units per year on average. According to REIS, there are 384 units scheduled to be delivered throughout the remainder of 2021, while absorption is forecast to be more than 400 units, resulting in a 0.1 percent uptick in occupancy.

Solid market fundamentals lead to investment sales
Both Omaha and nearby Lincoln, Nebraska, are seeing strong investment sales activity although limited assets are available. The market is predominantly controlled by local players, many of which build for their portfolios and operate the properties. However, some smaller players and out-of-town investors have found the timing was right to exit out of the market and sell. Out-of-state groups are aggressively entering these markets and paying significant premiums for available assets.

Driving investment sales activity are low interest rates and better returns than these groups can find in major markets where they have been operating during the past several years.

Who is lending? Agency production heats up
On the debt side, government-sponsored agencies Freddie Mac and Fannie Mae are extremely active and the go-to lenders in providing liquidity. Life insurance companies are also actively financing apartment deals, however, their ability to match leverage and rates offered by the agencies has created somewhat of a gap in overall production.

This gap has become very noticeable when comparing NorthMarq Omaha’s 2020 production stats to those of 2021. In 2020, NorthMarq originated over 30 apartment loans, of which 65 percent were concentrated in the agency lending space. The other 35 percent were life company loans. This year looks to be roughly the same number of loans, however, agency lending has ramped up significantly; it is expected to be an 85/15 split between agencies and life companies.

One of the silver linings with Freddie and Fannie this year is that their interest rates have been extremely competitive, especially when compared to life companies. Also noteworthy is that Freddie and Fannie no longer require COVID-related debt service reserves, a notable drawback to agency loans in 2020.

HUD is also active
Over the last 18 months, Federal Housing Administration (FHA) rates have been at historical lows, resulting in very high production. That prompted the FHA field offices to implement a queue for loans. Low-income tax credit deals and workforce housing as well as projects in Opportunity Zones are prioritized to top of the queue. FHA loans historically are a six- to 10-month process, but with these queues, processing is 12 to 18 months or longer. However, the result is a very compelling loan.

Outlook
Strong production activity is forecast to continue in Omaha. Several newly constructed properties are in stabilization and will look to the permanent market, which will likely be a Freddie or Fannie loan.

NorthMarq also has an existing portfolio of refinances that it will cultivate and roll back into a Freddie or Fannie loan. Omaha will continue to see more construction takeout financing, standard portfolio refinances, and investment sales acquisition financing – and the agencies are expected to remain very active.