Jason Stewart: Well, I am looking at €“ for color on the underlying resident movement. So, who is going from Class A to B to C? Does that improve occupancy, physical, etcetera?
James Flynn: Yes. I think €“ I mean look, you obviously have to be €“ you have to look at each market and micro market. In general historically, we found that there is less volatility in occupancy at the €“ what we have largely described as workforce housing, which B, C and even if you flip into the affordable space, there is €“ the primary reason for that is the supply-demand demographics or balance is far out of whack. And so I don’t know that we are there yet to fully identify a trend, but typically in a time of distress, whether it’s recessionary or just kind of economic downturn that you are more likely to see more people looking for more affordable housing than where they currently live than going the other way.
So, I do €“ I would continue to expect. And you also have €“ we do have new builds coming online in certain markets, and they are going to be newer and nicer. And so they will probably or, in many cases, will lease up, but that maybe to the detriment of the comp set in the area. But in general, the occupancy levels at the mid and lower-level apartments, which is obviously the majority of where we operate is generally improves or remains more stable is probably a better word in times of distress.
Jason Stewart: Yes. I would expect that, too. Okay. That’s helpful. And then how would you characterize the takeout financing for transitional projects right now? I mean any it does for any case seems to be a little bit illiquid. How would you characterize the ability to get out of a project?
James Flynn: I think that €“ what you just said is true of the agencies. They certainly are €“ we have certainly seen an uptick of a lot of folks looking at more deals. And I think €“ and there is also, again very recent history, past couple of months, more interest expectation on borrower sides coming in with cash to put long-term financing on. The banking crisis, that’s ongoing. And the impact on community banks and regionals, I think is only going to further exacerbate that problem that you described around takeout financing. I think from our standpoint and what we have seen, in general, you look at the trends in the space, you look at the long-term prognosis for multifamily and it’s still, from our perspective, a long-term attractive asset and I think owners feel the same way.
Certainly a naturally optimistic group that there is a bit more acceptance of trying to perhaps accepting that they may need to give up some of their equity or potential equity gains in order to get lock in reasonable and attractive long-term financing. And that can be in the form of cash in if they are well capitalized or able to raise capital fairly easy. It can also be in the meeting at the common level. I think we have seen a significant uptick in the interest for preferred equity and/or mezz throughout the industry. We have seen deals getting done, but I know that there is just a lot more borrowers that are looking to bring in a new partner, execute the business plan and hold the asset, maybe longer than they originally planned, but with new equity and longer term debt.
I do think we are going to need to see a lot of that for most bridge loans. An 80 or 85 €“ even an 80 LTV bridge loan is not going to get an 80 LTV 10-year loan. And so there is value protection there, but they are going to need cash infusion in either the form of common or some other subordinate capital. The good news is, from a borrower standpoint is there is a lot of that capital that’s either out there being raised or lenders and others expressing interest to do so.
