FEATURE ARTICLE, MAY 2006

CARVING A NICHE IN THE LENDING GAME
Greystone expands its business through oft-neglected niche markets.
Kevin Jeselnik and Dan Marcec

A perennial top 10 Fannie Mae DUS (delegated underwriting services) lender throughout the past few years, Greystone has been seeking to expand its business operations of late. The Greystone DUS platform — 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 serve the multifamily and senior housing industries better through its multiple services, from lending and third-party financial services to acquisition and redevelopment. Northeast 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 Northeast 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. In addition, we have the 3MaxExpress platform, for which we formed a specialty group to handle so that small loans would get the attention they deserved. 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 metropolitan statistical areas. “We are a top 5 3Max lender,” Posey says. “It’s a really innovative program; Fannie Mae has made some recent changes that have made it very attractive to borrowers where due diligence requirements are less.”

Greystone also launched an interim loan division in early 2005; Germano joined the company 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, good operators, and they could be stabilized in a relatively short period of time.”

“What we were seeing in the market-place 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 was missing for a privately held company like ours. In just part of a year in 2005, we closed approximately $75 million, 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 that 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. “We’re trying to bridge the gap between the Fannie Mae products and the banks that want to offer them,” Posey adds. “With the current yield curve, it’s actually cheaper to get a 10-year fixed-rate loan with a 30-year amortization, than it is to get a 2- or 3-year short-term loan, which is all the banks typically have offered; they don’t want to go out 10 years. So we step up and are partnering with the banks for their fixed-rate executions.” This strategy has greatly increased Greystone’s stake in the DUS industry.

In the Northeast market, specifically New England, Greystone is seeing a steady flow of product in Boston, Vermont and Maine. Traverse Fournier, director for Fannie Mae DUS™ products with Greystone, covers this sector and is very active in Boston, currently has two or three deals in Vermont and even more than that in Maine.

“We like to pursue deals in Boston, and the Fannie Mae platform works well there,” says Mosley. “The Boston market is incredibly competitive and tight, not only from a real estate acquisitions standpoint, but also from a lending standpoint. It is covered with capital markets lenders and banks, and any type of capital you want to pursue is available.”

In addition, the Portland, Maine, market has been particularly active for 5 or 6 years. The metropolitan area includes more than 250,000 people, and while the city benefits from activity in Boston, it is self-contained. The market tightens when there is strong job creation because there is not a lot of additional housing supply coming online.

“Our 3Max product, our small loan product, plays really well in this region because borrowers have been used to going to banks for small properties,” says Mosley. “When they find out they can receive a long-term rate at sub-6 percent interest levels, they’re very excited.”

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 is carving out a niche of its own in the lending industry as a creative company doing big business. 

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