Michael Pop, managing director at Basis Investment Group, on how lessons learned from 2020 will impact the capital markets going forward.
The capital markets have consistently adjusted to the shifting economic context, but multifamily lending maintained its steam last year and in the first quarter of 2021.
“We have noticed a large uptick in acquisition activity, as expected,” noted Michael Pop, managing director & co-head of production at Basis Investment Group. “We predict this will continue to pick up throughout the year.”
In the interview below, Pop discusses how COVID-19 has altered underwriting standards and the critical elements lenders are keeping a close eye on when evaluating potential deals.
At this point in the economic cycle, what are some of the dynamics impacting multifamily lending activity?
Pop: The main factor at the top of everyone’s mind is interest rates. We are in the midst of a very volatile time with rising interest rates, which have a direct impact on borrowing ability. As interest rates rise, it affects the underwritten debt service coverage ratio and, thus, has the potential to lower the proceed levels that borrowers can obtain. This decrease in borrowing ability usually means that asset prices must come down, which we are monitoring actively. As of today, cap rates are still very tight, so we have not seen the typical reduction in asset prices as interest rates rise.
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