Fidelity Bancorp Funding Q1 2021 Market Report
Loan transactions remained robust in the first quarter of 2021, piggybacking off of the low interest rates, dwindling multifamily supply and enthusiastic buyers that emerged during the COVID-19 pandemic.
INTEREST RATES STILL GARNER INTEREST
This demand doesn’t show any signs of easing up. While interest rates have been inching up from their record lows in late 2020, they are still extremely favorable. Pair this with the popularity of multifamily – particularly in pricey single-family home markets like Los Angeles and Orange County – and you have a recipe for investor success.
As with most lenders, Fidelity Bancorp Funding (FBF) did a significant amount of refinances in the first quarter, totaling 85% of all loan transactions. This is to be expected as owners took advantage of these extremely attractive rates, locking in before the pendulum swings in the other direction.
That doesn’t mean new borrowers were sitting on the sidelines, however. New purchases still accounted for 15% of FBF funded loans – a number that is set to increase as refinance activity levels out and the Los Angeles and Orange County multifamily markets continue to attract attention.
FUNDAMENTALS FAVOR RENTING
The average price of a home is nearly $735,000 in Los Angeles County and more than $841,000 in Orange County. These figures are barriers to entry for many would-be homeowners who still live, work and play in these areas. Though lower housing costs can be achieved in the Inland Empire, Southern California’s infamous freeway congestion and the quality of life that can be achieved closer to the coast means demand rarely wanes for Los Angeles and Orange County housing.
This leaves renting as the only viable option for many people. With this in mind, multifamily property transactions were FBF’s most active sector. Locking in interest rates as low as 2.75% didn’t hurt, either. The majority of FBF’s loan activity occurred in the Los Angeles area, with Long Beach emerging as a particular hotspot.
PRODUCTS PRODUCING SUCCESS
Not only did transaction volumes increase across the board, but FBF’s interest-only and bridge loans experienced a particularly large surge. FBF is the only lender in Southern California to offer both bridge and permanent financing. Bridge loans give buyers a competitive advantage by allowing them to present themselves as an all-cash buyer and closing within days.
JOB GROWTH SPARKS GROWING DEMAND
Unemployment was a primary concern across the nation just one year ago. Since then, both Southern California markets have recovered nicely. The County of Los Angeles added 34,200 new jobs between February 2021 and March 2021, while Orange County added 17,800 jobs in that same timeframe. This job creation is bolstering apartment demand, which is bolstering investor appetite for existing, value-add and ground-up development opportunities.
RENTS SET TO RECOVER
Though the average rent for an apartment in Los Angeles County dropped 4% year-over-year to $2,368 per month (Orange County experienced a 2% drop, settling in at $2,140 a month), current market fundamentals show this trend will reverse. Higher rents may also be achieved once the eviction moratorium expires and landlords are able to relist units at current market rates.
INVESTOR OPTIMISTM ABOUNDS
An end to the moratorium may also signal an increase in supply, lightening the burden on the currently ultra-competitive multifamily investment market. With the pandemic progressing into our rearview mirror, strong job growth and investors with liquidity ready to spend, FBF anticipates lending and sales transaction volumes will remain high through at least the end of the year.
Contact us today to discuss any of our multifamily investment solutions, including interest-only loans, refinances and bridge loans.
