FEATURE ARTICLE, SEPTEMBER 2006

REDEFINING GREY AREA
The financial services company Greystone expands its business through oft-neglected niche markets.
Kevin Jeselnik

A perennial top 10 Fannie Mae DUS (delegated underwriting and servicing) lender throughout the past few years, Greystone has been seeking to expand its business operations of late. The company, which recently relocated its headquarters from Bethesda, Maryland, to Memphis, Tennessee, is diversifying its current operations and introducing new lines of business in order to better serve the multifamily and senior housing industry through its multiple services, from lending and third-party financial services to acquisition and redevelopment. Western Real Estate Business recently sat down with three Greystone executives — William Posey, chief executive officer of the company’s Fannie Mae DUS platform; Joseph Mosley, managing director of the Fannie Mae DUS platform; and Stephen Germano, director of the Greystone bridge loan platform — to discuss the company, its future and the outlook for multifamily financing in the West and beyond.

Greystone Servicing Corporation, the company’s Fannie Mae DUS and FHA lending subsidiary, has grown its business by exploring and establishing dedicated opportunities in the niche markets of Fannie Mae lending. “One thing we have done in our DUS area is provide specialized groups for the niche areas within Fannie Mae,” explains Mosley. “We have standard multifamily product with which all DUS lenders are involved, and then there is seniors product, for which we have a specialized group, and the 3MaxExpress platform, which we also formed a specialty group to handle so that small loans would get the attention they deserve. We also established a dedicated affordable housing group based in Tampa.”

“The multifamily market is extremely competitive; fees are getting compressed and it’s a very tough market for lenders,” Posey says. “We decided a couple of years ago that we really need to look at the niche areas and strike where other DUS lenders are not present so that we can maximize our income and serve underserved borrowers.”

The 3MaxExpress product delivers Fannie Mae financing advantages for loans of $3 million or less, or up to $5 million in certain large MSAs. “We are a top five 3Max lender,” Posey says. “It is a really innovative program; Fannie Mae has made some recent changes that have made it very attractive to borrowers.”

Greystone also launched an interim bridge loan division in early 2005, bringing in Germano in February of that year to lead the efforts. “The reason that bridge lending was so important to us was that we saw so many deals out there that weren’t ready or didn’t qualify for permanent loans with Fannie Mae,” Mosley says. “But, good real estate was involved, and they could be stabilized in a relatively short period of time.”

“What we were seeing in the marketplace with the big DUS platforms in the commercial banks was a fully integrated product line, including interim [financing],” Germano adds. “That was one of the things that, for a privately held company like ours, was missing. In just part of a year in 2005, we closed approximately $75 million worth of product, and our expectation is to close between $100 million and $125 million this year, just in interim product.”

Some of Greystone’s most well established business comes from its unique method of working closely with banks. “One thing that makes us a bit different from other DUS lenders is a strategy we embarked on approximately 3 years ago, which involves working with a correspondent base in the wholesale area,” Posey says. “We started focusing on banks, because so many financial institutions don’t want to offer long-term, fixed-rate financing for multifamily.” Often, banks are willing to finance short-term multifamily deals, but do not want a long-term loan on their balance sheets. Greystone works with large and small banks that do not offer the Fannie Mae platform and provides them with the opportunity to complete Fannie Mae multifamily transactions.

Greystone has gotten a very positive response in the West for its efforts to be the bridge between Fannie Mae products and the banks that want to offer them to customers.

“You’ve got a number of banks in the region that make a lot of small multifamily loans,” says Posey, who estimates that 40 to 45 percent of the company’s product is coming from California currently. “Well, now with the yield curve like it is, it is actually cheaper to get a 10-year fixed-rate loan with a 30-year amortization, then it is to get a 2-year or 3-year short-term loan, which is all the banks have typically offered; they don’t want to go out 10 years. That is where we step in to partner up with the banks as their fixed-rate executions. It is taking off very quickly, and we are doing a lot of volume on the West Coast right now.”

According to Mosley, lack of a capital markets arm and a bank’s geographic limitations — in part due to borrowers going outside of California because of its elevated property values — are additional reasons for the rising popularity of his company’s services. Greystone comes in after the properties are built and stabilized to move the loans off the bank’s books, so that it can then replenish in that same lending area.

The constant, stout multifamily demand in California makes it a great market to lend in. As a result of so much demand, a trend that has emerged is that of multiple rounds of multifamily value-add buys for a given property.

“After the initial repositioning, there’s two or three more bites on the apple with different owners, and they all seem to flip every 2 or 3 years, pushing up rents as they go,” says Germano. “The rents have gone up from say $800 for a 2-bedroom to $1400 since 1997-1998. What you end up with is a two-bedroom apartment that has 4 or 5 people living in it. That’s how people make it more affordable.”

Posey says that Southern California multifamily investors have enjoyed the supplemental feature of Greystone’s permanent loan platform. It allows an owner to take out equity in a property every 2 or 3 years. “Within 12 months, I think, a large developer that we work with out there was able to come back and take substantial dollars out of his portfolio.”

With plans to launch a conduit lending program during the next year, and the establishment and expansion of its new and existing service lines, Greystone has carved out a niche of its own in the lending industry, that of a creative company doing big business.

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