FEATURE ARTICLE, APRIL 2006

GREYSTONE IN THE GRAY AREA
The financial services company expands its business through oft-neglected niche markets.
Kevin Jeselnik

A perennial top 5 Fannie Mae DUS (delegated underwriting services) 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 it’s multiple services, from lending and third-party financial services to acquisition and redevelopment. Heartland Real Estate Business recently sat down with three Greystone executives — William Posey, chief financial 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 arm, 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,” Mosley explains. “You have your standard multifamily product, and then there are the seniors, for which we have a specialized group, and the 3MaxExpress platform, which we also formed a specialty group to handle, so that those small loans would get the attention that they deserve.” Lately, much attention has been paid to multifamily product.

“The multifamily market is so extremely competitive; fees are getting compressed and it is just a very tough market for lenders,” Posey says. “We decided a couple of years ago that we really need to look at service areas and really strike where the other DUS lenders are not present so that we could 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 5 3Max lender,” Posey says. “It is a really innovative program; they 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 the 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 they were good real estate, good operators, 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 other banks. “One thing that really makes us a bit different from other DUS lenders is something that we embarked on approximately 3 years ago, which is a strategy of 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 are trying to bridge the gap between the Fannie Mae products and the banks that want to offer them,” Posey adds. “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- or 3-year short-term loan, which is all the banks have typically offered; they don’t want to go out 10 years. This is where we step up and we are partnering up with the banks for their fixed-rate executions.” This strategy has greatly increased Greystone’s stake in the DUS industry.

Greystone has been expanded throughout the country, but, according to Posey, has been more careful about its activity in the Midwest. “We have not been as active in the Midwest as the other markets, and a part of that is that we’ve seen a lot of softness in that market,” he says. “Manufacturing has been soft, especially the auto industry, and I think that has had a big impact on the multifamily.”

The company does own a significant portfolio of multifamily units in the Midwest, primarily in the Indianapolis marketplace. Greystone’s total United States portfolio of multifamily properties measures approximately 4,000 units. The company acquired the Indianapolis-area properties during a downturn, and specializes in redeveloping distressed and mismanaged properties into more attractive assets. “A lot of those Indianapolis properties are empty because they are capital starved — the previous owner doesn’t even have the money available to do the unit turns,” Germano says. “You see a lot of scenarios where they are cannibalizing other units, and all they might need are appliances and some minor cosmetic upgrades. If you have $1,000 to $1,500 per unit to spend, which is a pretty small capital allocation, you can go in and those units will lease up in 30 to 90 days.”

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 small company doing big business.

©2006 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.