Multifamily & Commercial Real Estate: What Title Agents Should Expect in 2026 | Ep 89

In a world where change is the only constant, Mo Choumil stands at the forefront, guiding title professionals to not just grow their businesses, but to master the art of innovation. With every episode, you're handed the keys to unlock unparalleled growth and stay ahead of the curve. Get ready for a transformative journey. Welcome to another episode of the Title Agents Podcast. I am your host, Mo Choumil, CEO of Alltech National Title.

Today's guest is Mark Jeffries from Northmark, a commercial real estate firm deeply embedded in commercial transactions and capital markets with a strong focus on multifamily. And right now, in a market defined by interest rate shifts, Capital tightening and supply pressures. Understanding this sector isn't optional, but it's strategic for your growth. Welcome to the podcast by asking a question about your background, or tell us your story, where you grew up and family, work, all that fun stuff that makes you so special. Yeah, Mark Jeffries.

I am in Denver, Colorado. I'm from the area originally. I've been in the commercial real estate business basically my entire adult life, mostly in finance, debt and equity finance. I'm married. I've got a 10-year-old son.

He's a 4th grader. And Yep. Like I said, live in the area still. Hard place to leave. I'm a big mountain person, really enjoy snowboarding, hiking in the summer.

So this is a good place for me. And yeah, I've seen a lot of ups and downs and I think getting close to 25 years in the business, 23, 24 years in the business, seeing Seen a few cycles in that time. People that may not be familiar with Northmark, can you tell us a bit more about the company and what your specialty is? Sure. So Northmark has been around a long time, 50-plus years.

I think we're still the largest privately owned debt and equity sales brokerage for multifamily and commercial. company in the US. Most of our big competitors are publicly traded, CBREs, JLLs. We are an agency lender for Fannie and Freddie, very multifamily-focused company in a lot of ways. Most of our sales platform is geared around multifamily.

We do have commercial sales as well, and I do quite a bit of Non-multifamily, retail, industrial, self-storage, some office acquisition, refinance activity. But I would say multifamily is our largest single asset type that we're involved with. Multifamily. How do you describe the current state of the multifamily market? At a national level, I'd say as a whole on a national level, clearly a lot of challenges, a lot of headwinds over the past several years.

As everybody knows, particularly since interest rates went up. But in addition to higher capital costs, 2 kind of big areas that have been really challenging, and one of them has been the really big flood, and it was kind of a trendy thing 5, 6 years ago for the value-add syndicator model that led to people paying higher and higher prices, particularly for very old, most often 1970s, 1980s deals that only a few years before that were very low value properties, $30,000, $40,000, $50,000 a unit kind of things. And it really drove the values up on those properties with the model of let's buy them cheap, put money into 'em, we'll be able to push rents and then they'll be worth even more. Interest rates really kind of put the dagger in that business model. I think there was a lot of inexperienced folks that rushed into that and could not execute necessarily as well as they set out, didn't complete the business plans.

And those were all aided by, you know, very low-cost, high-leverage bridge debt that was available. And so those are the big problem kind of loans these days are one of the areas where there's a lot of distressed lending that's left over from that timeframe. So a lot of lenders are stuck with those saying, you know, we can't get refinanced out. In a lot of cases, you can't sell for above the loan basis. So for the last couple years, there's been a lot of pretending and extending of those.

You know, I think that's still going on to a certain extent. Others have been kind of forced to sell or deed-in-lieu. And it took longer than everybody thought. So that's one kind of big challenging area that has been a challenge for the last couple years in particular. I just want to add a little perspective to our audience.

And the title agents, majority do residential, so there's a good portion that does commercial. So commercial loans, they're not like a typical residential 30-year fixed or 30-year 15-year fixed loan. They're typically short debts, 3, 5, 10 years. And when you buy a property back in 2020 at 3%, when a refinance comes 3, 5 years later at 6, 7%, your payment doubles or triples, kind of kills the deal. Just want to put some perspective to our audience.

Yeah. It's not like your home loan where you can ride this out and you feel really good if you have a 2020 mortgage. I have one of those on my house. It feels great. But in the commercial world, the commercial world, it's very rare to see a long maturity, a long balloon like that, particularly if it's a transit loan on a transitional property.

They tend to be 2 or 3 years in term, and those are a lot of what I'm talking about. And yeah, that's one big area of challenge these days. And then what I was going to say is the other area of challenge is just new construction, overbuilding in a lot of parts of the country, particularly out west here in our market, Denver, I think Phoenix. I mean, I think a lot of people have heard about Austin. Austin.

Yeah. But Dallas, a lot of these traditional Vegas, western US kind of growth markets saw massive multifamily expansion. It got kind of superheated during COVID with a lot of people moving to these towns, and now the migration has really slowed. And so, and you've still got apartment buildings delivering and there's high vacancies, you know, rents are coming down, and these cost quite a bit to build. And so similarly, they're kind of overleveraged in a lot of cases.

It's It's tough to see your way to refinance some of the maturing debt out. It's very difficult to sell properties in this environment, particularly when we had a market for over a decade that was based on very, very low rates. Those low rates enable values and price. People can pay much, much higher prices. Can't do that anymore.

So nobody wants to sell unless they have to. But particularly in Colorado, last 3 or 4 years, we've seen vastly reduced number of sale transactions for everything, but particularly multifamily properties. Seems like we're kind of, you know, we've hit the bottom of this cycle. Feels like this year is going to be better in terms of Financing volume transactions, sale transactions. A lot of that will depend if interest rates do trend down.

You know, they had been trending down, you know, the last month or so. The Iran conflict seems to have pushed them up a little bit slightly, or at least kept them from continuing to trend downward. But Still a challenging market and, you know, it takes a lot of creativity to try to solve some of these issues for property owners. And that's what a lot of our time is spent on these days, you know, structured capital stacks, you know, finding ways to bring in equity to, you know, retire existing debt. But, you know, most of the time there are ways through if you've got a You know, borrower, property owner that is a good operator and on top of leasing and managing and operating, usually there's a way through.

But it's kind of an insight into the age-old adage, which is, you know, it's tempting to borrow every last dollar that you can, But when the cycle turns, you're going to wish that you had been more conservative. And that's definitely playing out these days. So how are interest rates impacting underwriting and deal volume today? You know, they're still pretty high. I mean, it feels like we've been kind of locked in this, you know, 4% 10-year Treasury.

I mean, we're a little bit higher than that now, and we've definitely been quite a bit higher at times. But we've been plus or minus a 4% 10-year Treasury for quite a number of years now, it seems like. Yeah. The market's getting used to it, it seems like, you know, values of properties that can trade have more or less adjusted to this environment. And I think that's, you know, that was just a matter of time before the market would We get used to it and deal with it, but they're still having an impact on volume, on transaction volume.

For example, if we saw a 1% reduction in the Treasury yield before the summertime, this summer would be gangbusters with refinances and also acquisitions and trades. We're still kind of at a high enough interest rate level where it's still dampening How have deal structures changed compared to 2021 and '22? Well, back then it was a lot easier to just buy a property and borrow a very high percentage of the purchase price or total costs. You know, you could borrow 80, 85% of your total cost budget on a value-add apartment Very difficult to do that today. Reduced size on the senior debt compared, you know, today compared to say 5 years ago.

More equity has to come in. Just like the debt was a lot more readily available back then, equity was a lot more readily available. You had a lot of folks, you know, ready to invest in some of these LP syndicator models. And it's much more difficult today. I think for one thing, a lot of those folks have lost money on deals that they did 5 years ago, so they're a little gun-shy.

And we're just in that down cycle where there's a lot of fear. Everybody across the board from debt all the way through the equity stack is a lot more cautious. And yeah, it's just kind of that time where you think you'll look back in 5 years and you'll say, well, that was the bottom of the market. That's when we should have moved and bought things. And I think that will end up being the case.

It's just like in 2009 or '10, it's hard to kind of see through that in the moment. It feels like it still could be a falling knife. It feels like you may not be at the bottom of the cycle yet. You just don't know. But I have a feeling that we are, especially with some, how low some of these prices have gotten.

You know, in a lot of these Colorado markets, prices are, for some asset classes, are back to what they were nearly 10 years ago. So it does feel like the bottom, but what comes with the bottom is a lot of fear and a lot of pessimism. And folks, you have to pick up the phone a lot more to raise the capital, debt or equity for any deal. What are lenders most cautious about in today's environment? Compared to 5 years ago, they're not willing to just look at your rent growth expectations.

your NOI growth and just kind of take it at face value. They really dig down. Let's say you've got a property that was built in the last couple years but has not been filled up with tenants quite yet, and maybe you have debt that's due right now. And so you've got to do some sort of a second phase of traditional financing just to give yourself enough time to get fully leased or stabilized. You know, they'll want you to present things on an untrended basis where you say, okay, if we don't assume we're going to get any higher rents over the next year or 2 or 3, we just assume we're going to fill the property up kind of stagnant, the same rents that people are paying today.

We're going to assume that we don't get any growth on that. You know, they call it untrended. So they'll want to see things in a very conservative fashion. They'll really drill down on your operating expenses. And say, you know, we've got to really understand where taxes could get reassessed to.

Let's get some real insurance bids. Let's see some expense comps for things like utilities. And they'll try to err on the side of being cautious and really stress an underwriting projection that goes out 2, 3 years, you know, compared to in 2021, it was just like, Even when it was clear, right? And then residential, right? Right.

Yeah. And those, the psychology goes in cycles. These markets go in cycles. But even at the end of 2021, early part of 2022, when it was clear interest rates were going much higher, which leads you to believe that cap rates The rate of return that an investor has to pay for a property, those rates would go higher, which would bring values down. Yeah.

We would see pro formas in early 2022 that would still project the same cap rate that you maybe you could sell something for today, out 2 or 3 years in the future. And you kind of stress it and say, well, what happens if you throw a 6 cap on there? And the second you do that, the whole thing goes to zero. All the returns go to zero, but nobody wanted to, you know, well, the hope, the opium is hope. Yeah.

The opium and everybody wanting to just get the deal done now. You know, you see deals, I think most people have heard about the disaster that office buildings have become across the country, you know, with remote work and folks not wanting to be in downtown areas for various reasons. You've seen office buildings break ground and get developed during this time, and it's like, how did they let that happen? How did they not pull the plug? And it's like, well, even though I think the people in charge probably knew that this was going to be very difficult to get leased, you've already gotten approvals, you're ready to pull permits, and most importantly, you've probably already raised the capital.

And you spent all this time and the only way to get paid on it is your developer fee. So the project goes forward, gets built, and now they're trying to figure out how to deal with it. So with the multifamily, it seems like the rent growth has slowed down or is going to be stagnant, which is a good thing for inflation. Because it's rent factors in about a third, if not more, of the inflation data. So I mean, in the future, I mean, it's a good positive for interest rates, but again, it's bad for multifamily operators and real estate.

Yeah. And I think it's region by region, even in certain markets, it's kind of submarket by submarket. Whether rents are flat or declining, or in some cases still going up. But I think mostly across the country, rents have come down and probably will continue to come down somewhat. And it's a supply and demand function.

But as the supply dries up, you'll see that inverse. And I think in the next couple years you'll see rents start to go up again. I mean, it doesn't change the fact that, you know, across the country in general, we do have a shortage of housing still, and that's probably not going anywhere. So what are the most common reasons deals fall apart right now? I think on the purchase side, a seller will go to market with a property with certain expectations, and their brokers will kind of have to lead them in the right direction.

Hey, you're worth way less than you were several years ago. In some cases, you know, 50% or less value than these properties had. Imagine. But they'll go on the market and they'll start to collect bids and sometimes those will come in even lighter than what they had projected. And so, you know, maybe below what they can afford to sell.

So that causes things to go stagnant. On the financing side, we've seen a number of deals in the past year or so that were doing okay from an occupancy and rent collection perspective. But as you get into the closing process, things may take a turn for the worse. There's more bad debt, more delinquent tenants. And it gets to a point where the in-place income doesn't support the debt service anymore and you can't do the loan that you were trying to do.

And so that falls apart. Seen that happen a number of times. But yeah, mostly on the finance side, it's deteriorating operations that tend to put the nail in the coffin. Are loan assumptions, extensions, or modifications becoming more common? Yeah, I would say so.

We've seen a number of loans assumed, and I think more than we had in 2021 where interest rates were so low. If you could pay off the existing loan, you would do it. No buyer wanted to assume a 4 or 5% loan from a seller when they could go borrow it in the 3s on a new loan and get more leverage probably. But now that some of those, by today's standards, very low rate mortgages are still out there and they have assumability, that is a way that it can preserve a lot of value of the property. If you can, if somebody has a 3.5% Fannie Mae loan on a deal, an apartment deal, you take it to market to sell, folks may not pay quite what they would've paid back then.

They're going to pay a lot more than they would have if they had to go get new debt at, in the 5s today. You know, just because they, you know, maybe they've got 5 more years at 3.5%. And, you know, so, but yeah, you're seeing a lot of loans get assumed. You are seeing loans get modified. Have seen a number of instances where, you know, we just refinanced one a couple weeks ago here in Denver that was more of a mixed-use Retail.

It used to be kind of more office. It was a historic building kind of near the baseball stadium, 1920s building, and they successfully converted it to more retail uses, more bar-type tenants. But that one had been extended for 3 or 4 years by the existing lender, and they got to a point where they said, we've really got to get out of this. And so we went to market for debt quotes and we were maybe a couple hundred thou— the best one we could come up with was a couple hundred thousand short of the payoff. And it's like, hey guys, well, how bad do you want to get rid of the loan?

You're going to have to give us some help. And they ultimately did. They gave us a little bit of a discount. And you are seeing that. I think a lot in, you know, with particularly office buildings, you know, especially in a town like Denver where we probably have the most office square footage for the size of town that we are.

I think, you know, Denver's like 16th or 17th in the nation population-wise, but I think we have like the 9th largest office market right behind Philadelphia. And so we've just got massive amounts of vacancy and you're seeing these buildings that were worth $100, $200 million back in 2019, you know, are trading for $7 to $10 million now. And so obviously in those cases, somebody's taking a massive loss. You know, the previous ownership group and the lender, you know, really Losing everything that they had into it. So those are some extreme examples.

On the multifamily side, particularly with this high leverage, high octane bridge debt that got done a lot 5 years ago, is still going on today where they're extending. And I think there's a lot of instances where they're taking discounted payoffs just to move on. Well, the short payout, that's called short sale in residential world. So let's move into commercial short sale. Right, right, right.

Sure, sure. Yeah, same principle. And I think you're also seeing, although they're trying, I think there's great efforts to keep this kind of quiet and under wraps, but you're seeing portfolio note sales. Some of these bridge lenders that have a lot of this stuff on their books, they're quietly marketing this to other institutions saying, hey, here's our portfolio of distressed bridge loans on multifamily assets, make us an offer. And so the next group that comes along and buys those, I think they have the goal of getting to the assets.

So that's when the foreclosures start to happen. Which will mean more activity in the market, more deals changing hands, more deals presumably on the market for sale at a lower basis. But I think we'll see more of that the next year or 2. What separates strong title partners from average ones in a commercial transaction? What separates, say that first part again.

What separates strong title partners from the average ones in commercial space from your relationships? Yeah. I'm sure you worked with all kinds of companies in the past. Yeah. Yeah.

I think staying on top of things, like the last thing we want in our position is a week before we're scheduled to close, like, oh gosh, did anybody order a survey? You know, we hadn't really talked to your lender about these endorsements. Now that we've kind of looked at 'em, gosh, we can't insure over that without a survey. And then it's a mad rush to, you know, and then you end up paying $7,000 or $8,000 for a fast turn on a survey. You know, so communication is a good attribute of a solid title partner.

Flexibility on some endorsements. So maybe we can avoid, if possible, some expenses like a new survey. Some of the simple things like staying on top of the borrowers to coordinate notaries and reaching out to everybody involved. Like, are all the things that need to get paid, are they all on this closing statement? I don't see an appraisal on this closing statement.

I'm sure you guys got an appraisal. The last thing that, and I've had to deal with this many times where Something gets left off. Even my fee gets left off and you find out about it 2 days after the closing and it's like, you have to go chase people down. Or a property condition inspector, they get left off the closing statement and then you have to chase the borrower down. Hey, you didn't, these guys didn't get paid.

You got to write 'em a check. Nobody wants to deal with that kind of stuff. So staying on top of that stuff, I think the other kind of value proposition that a lot of title companies have had for us in the past were things like, hey, can you pull some lists of transactions in this size range, in this geography? Can you give us some information? If I tell you, Hey, I'm looking for all the lien holders on 50 to 100 unit apartment buildings in this town.

Can you give me the names of all the lien holders? Things like that are very helpful. A lot of title companies won't spend time doing that. I think a lot of them just kind of assume that people will just keep rolling with them transaction to transaction and they don't really have to do anything to stand out. Just don't screw up too badly.

Mediocrity, basically. Yeah, mediocrity. But yeah, just making the transaction as smooth as possible and overcommunicating and just keeping everything kind of together and getting ahead of things before they become a major issue. And from my perspective, that's what makes our life Awesome. Let's shift to technology and how is technology changing how multifamily deals are sourced, underwritten, and closed?

What do you experience? Well, I think as far as sourced goes, I know some folks are implementing AI to search public records and kind of search publicly available information to try to drill down on what they should be going after and focused on. I don't know a ton about how they're doing that, but I know people are doing it and that's just going to keep going and getting more and more prevalent. From an underwriting perspective, like for example, when I'll just use a basic example of like a shopping center. If somebody comes to us to either buy or refinance a basic neighborhood shopping center, but back in the day what we would do, and we still basically put together maybe a 30 to 40 page PDF document that goes out to all of our lenders to kind of market the transaction, put the borrower, put the property, the neighborhood, All the tenants, present them in the best light that you can.

But that would involve an analyst usually doing some research on the local retail market. How, here's our competitive set of 10 other properties. On average, how occupied are they? What are the trends of businesses moving to the area? What are the employment trends?

What are housing price trends in the neighborhood? What's average household income? So you'd have to do research and then kind of put together a little write-up. Now AI can do that whole write-up for you instantaneously. So that saves a lot of time.

It's freaky, but yeah. Yeah. And you might have, you might want to take a little quick read over it before you just send it out. Yeah. Because it can, they can make some mistakes, but But it does make things way more efficient.

You know, from an underwriting perspective, you know, on the commercial side, the multifamily side, you know, a lot of it's still kind of a gut check. You want to look at, you know, rent assumptions and how they're coming up with the top-line income, especially if it's a projection down the road. You know, I don't think AI's quite gotten to the point where you can totally trust it to think the same way that you do about, you know, the gut check about where things are going. You know, on the expense side, you know, it's like everybody kind of wants to feel like, is that reasonable? You know, you're saying utilities are going to come way down in 2 years, or insurance is going to come way down.

You know, I don't know if AI's quite at the point where it can really make a gut check. On those types of whether you're going to believe something like that or not. But hey, you know, it probably will get there. And I think, yeah, reliance on it is just going to become more and more common. So looking ahead, having navigated multiple cycles, what has this one taught you about risk and leadership, like this recent cycle we're in right now?

It's taught me that, I mean, because I think it was in hindsight, it was very clear that we were at this, the top of the cycle in 2021. In early 2022, you see these properties that were $40,000, $50,000 a unit in 2015 are trading for $100,000, $110,000, $120,000 a unit. in the first half of 2022, interest rates were already going up. You knew that they were going to go a lot higher. We had all this massive money printing during COVID that had to filter into the— Inflation was at 9% or 8%.

Yeah. Right. Inflation was already showing up and you knew it. I knew it in my gut, but I still invested in deals. in 2022 thinking it probably won't be that bad.

And so I think a good takeaway or an important takeaway for me is you learn a lesson from that. You got to trust your gut. There's always going to be cycles. When things are that overheated, the probability of them continuing to go through the roof for another few years is almost zero. And that's kind of the same thinking right now.

My gut is that this is This year, maybe the next 18 months is likely the bottom of this cycle. Granted, there's plenty of existential risks out there that could prolong it, but it feels like this is probably the bottom of the cycle. And yeah, I think it's the lessons are stick to the fundamentals. If you have to borrow 85% to win the bidding to buy a property and you can't stick at 60 or 65% and make it pencil out, then it's probably not the right deal. Learn to live with lower leverage because it pays off in the long run.

Are you following what's going on with private credits right now? Do you understand it or? Not, not so much. Okay. So we're, we're not going to go there.

Just everybody's talking about private credit. Credit's the private equity firms. They borrow money to buy companies and software going down, but we're not, we're not going to shift gears to that. So we're going to stick. Yeah.

I mean, I, I know a little bit, but yeah, I was going to say, as it relates to real estate, I don't know. I think that, that big cycle of too much cash coming in happened already and Now we're kind of picking up the pieces. Yeah. So if you were advising a title agency or like myself, or one operational improvement to better serve commercial clients, what would it be? I think it would be letting everybody know that you have the best hands-on service through a closing process.

And then I would say offer Some services, offer to provide reports and data. You know, what kind of deals are you guys chasing? What are you guys good at? What have you done lately? Let us help you, you know, go query some data, you know, from public records that, you know, not many people have access to other than title.

Let us help you go prospect. Adding value, is it being a true partner versus just a vendor or a taker? Absolutely. Awesome. So, uh, coming to a close of our, uh, podcast episode, and I always end the show with a couple questions, uh, personal ones.

What are your favorite quotes, or if you have one? I mean, I saw one yesterday that I— not really relevant, but what was it? Um, problem with socialism is eventually you run out of other people's money. I thought that was good. Long, but it's to the point and it's funny.

Yeah, because I think right now more than ever, like that's a topic that we're facing. There's a lot of people who are saying maybe that's the solution to all of our problems and it's like, just take a breath. Yeah, I think we were all there when we were teenagers and high school and college, our utopic world, but it doesn't work. Right. How about a favorite book of all time, or one that you read recently that kind of stands out?

You know, it was actually not a long or complicated book, but it really spoke to me and I, you know, kind of sticks with me day to day. But I'm a big Ed Mylett fan. His Power of One More book was really powerful for me. You know, when I'm in the gym, You know, it always gets wrapped up. One more rep.

Do one more, you know, or one more lap around the track or one more— One more slide. One more cold call. Yeah. Yeah. That's awesome.

Well, Mark, thank you so much for your time and also for your valuable insights into the commercial space, specifically the multifamily space. Thank you so much. Thank you, Mo. Appreciate you having me. Well, thank you for listening to this latest episode.

We've got Mark Jeffries on the commercial space, specifically multifamily. If you like the show, please make sure to subscribe to our channels and give us hopefully a 5-star rating. Appreciate you listening, and until next time, take care. In a world where change is the only constant, Mo Choumil stands at the front, guiding title professionals to not just grow their businesses, but to master the art of innovation. With every episode, you're handed the keys to unlock unparalleled growth and stay ahead of the curve.

Get ready for a transformative journey.