How We Are Protecting Our Cash and Lending Relationships
As if inflation and rapidly increasing interest rates were not enough to generate economic uncertainty, March has brought upon us two bank failures, those of Silicon Valley Bank (SVB) and Signature Bank—with fears of additional failures over the coming weeks still looming.
Breneman Capital is Well Positioned and Reassessed
Following those bank failures, we have re-evaluated all of our banking and lending relationships and believe we are well positioned given the current environment. Breneman Capital can provide the following information:
We do not have any deposits or loans with Silicon Valley Bank or Signature Bank.
We have nearly all of our deposits with JPMorgan Chase Bank, the most systemically important bank in the world. As a Global Systemically Important Bank (G-SIBs), JPMorgan Chase is under more strict government oversight. JPMorgan Chase maintains the highest capital buffer (the reserves a bank keeps as a cushion to absorb the blow of a financial crisis) out of all the G-SIBs.
Every Breneman Capital property is owned in a separate LLC and has a separate FDIC-insured checking account for that LLC.
We have operating accounts (i.e., checking accounts) at banks other than JPMorgan Chase, wherever the lender that financed the property required us to maintain the property’s operating account at their bank. None of these accounts carry balances over the $250,000 insurance limit.
How Will Bank Failures Impact Real Estate?
These recent bank failures will likely have two key impacts on the real estate industry:
Less credit availability
Fewer federal reserve rate hikes
With banks playing defense, less credit will be extended, resulting in fewer loans being made and worse terms for borrowers due to decreased competition. This is negative for the real estate market and negative for the broader economy.
At the start of March, peak fed funds was projected to hit 5.62% in September 2023. Now, peak fed funds is projected to be in the high 4%s with the peak being in May/June 2023. Lower rates would benefit the general real estate market and the economy.
Going Forward
Despite the choppy market, Breneman Capital has continued analyzing hundreds of on- and off-market offerings. As stated in our year-end update, we have become more restrictive with our investment criteria, and have shifted focus to deals with minimal execution risk, such as stabilized assets or properties that require minimal vacancy to execute business plans.
The multifamily family industry’s #1 lenders are the government agency lenders: Fannie Mae, Freddie Mac, and HUD. They are designed to provide lending liquidity in the type of market we find ourselves in today, and having these agency lenders in the market is a benefit we all enjoy as multifamily investors they are lending sources that are not available to the other product types like industrial, retail, office, etc. These agency lenders are Breneman Capital’s biggest lenders in our portfolio. They are not meaningfully pulling back new originations in this environment, which will stabilize the multifamily market.
About Breneman Capital
Breneman Capital is a private real estate investment management firm specializing in the multifamily property sector. Breneman Capital employs a deliberate investment approach, leveraging data analytics and proprietary technology to generate superior risk-adjusted returns for investors.
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