FEATURE ARTICLE, MAY 2006

GREYSTONE IN THE GREY AREA
The financial services company 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. Texas 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 Midwest 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. “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 is 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. This is where we step up and partner up with the banks for their fixed-rate executions.” This strategy has greatly increased Greystone’s stake in the DUS industry.

In Texas, hurricanes Katrina and Rita — and their impact on vacancy factors across the state — continue to affect how Greystone looks at the market. “Certainly, right after the storm, it was very much a ‘wait and see’ attitude,” Mosley says. “Now, we talk to the residents and there appear to be many people who plan on staying in Texas permanently and not return to New Orleans.”

Overall, the hurricanes appear to have bumped up the occupancy in Dallas and Houston, creating stable markets, according to Posey. “Houston certainly looks strong at this point in time,” Mosley says. “Dallas is getting better.”

In Austin, however, Greystone is seeing a little too much vacancy. “Most of the deals I’ve seen in Austin are still underperforming,” Mosley says. “I don’t know what the genesis of that is, but just about every property you look at that comes out of Austin has an economic vacancy of 15 percent. It just seems very difficult for them to reach what we view as stabilization, which is between 85 percent and 90 percent economic occupancy.”

Germano cites the market’s abundance of product as a possible reason for the high vacancies. “I think Austin, from the construction standpoint, has had so much product come on, especially as a percentage of its inventory,” Germano says. “It’s a relatively small market.”

In general, Texas is a very active market, and national lenders such as Greystone are giving it a second look. “I’m starting to see good job growth again there, and I’m starting to see pockets of deals that are 20 to 30 years old and have come back through,” Germano says. “We’re a little more bullish even in San Antonio, looking at that as a little bit more off the radar screen. We’ve been able to do a couple smaller deals there, up in the Medical Center area where there seems to be a lot of job growth and where it seems to be very stable.”

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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