Borrower profile: HGI focuses on multifamily market while watching  

A key driver of activity in the multifamily sector is support from Fannie Mae and Freddie Mac for stabilized and pre-stabilized assets.

Harbor Group International is completing acquisitions and refinancings in the multifamily market but has yet to see opportunities to execute deals in the office sector. 

The difference in transaction activity in the sectors is largely driven by the availability of senior debt capital, Richard Litton, president, told Real Estate Capital USA. 

“On the multifamily side, where about 85 percent of our activity is focused, we have seen a pickup in activity. We are seeing buying opportunities for a profile of property that we like and are acquiring newly built product from developers in what we consider to be very good markets,” Litton said. 

Litton noted that most properties in its pipeline are close to stabilized, with developers choosing to sell for reasons that include wanting to complete a sale prior to construction loan maturities or an equity partner wanting to liquidate. 

“While our transaction activity compared to most years is still muted, we have gotten some deals closed or under contract,” Litton said. “We are hopeful heading into the last half of the year that this will continue to be the case.” 

A key driver of activity in the multifamily sector is support from Fannie Mae and Freddie Mac for stabilized and pre-stabilized assets. The office sector, at this point, does not have that same liquidity. 

“The office sector is as stuck and quiet as it has been, and I’m not sure how it could get worse,” Litton said. “We have looked at a number of opportunities on the debt side on very well-performing, well-located buildings where the owner is willing to put in more capital. But it is so difficult to execute senior debt that these transactions don’t happen.” 

The firm is seeing a dearth of traditional office lenders, including balance sheet lenders, life companies and CMBS conduits. 

“It doesn’t seem like there is any loosening of debt capital at all for office buildings, and even efforts to do a CMBS execution on office properties remains very challenged, particularly if it is a large deal,” he said. “We think there will be over time some attractive investment opportunities in the office sector for the right buildings, but we are not seeing the debt markets cooperate yet.” 

In addition to acquisitions in the multifamily sector, the firm recently refinanced about $440 million of debt on existing properties. 

“In our own portfolio, we have been very focused on transitioning from floating-rate to fixed-rate debt on well-performing assets where it is not the time to sell,” Litton said.  

The firm has also been active in the secondary commercial mortgage-backed securities bond markets. “We continue to see relative value and are buying mainly triple-A bonds. There continue to be opportunities where owners of those fixed income instruments need to sell for whatever reason,” Litton said.  

HGI also sees an opportunity to be active in the new issue market, with Litton highlighting a pending commercial real estate collateralized loan obligation that is slated to come to market. “We continue to play in that space as well,” he said.