John Banas, Senior Vice President, Managing Director, Debt and Equity, Northmarq
In an interview with Invest:, John Banas, senior vice president and managing director of Debt and Equity at Northmarq, said “we are positioned to potentially have one of our best years in the last three years,” as Banas discussed the Philadelphia market’s adaptation to rising interest rates and sustained multifamily demand.
What changes over the past year, in the capital markets environment have most significantly impacted Northmarq’s business in Philadelphia, and how have you responded?
We have been very busy. The changes in interest rates have made for an interesting year. In commercial real estate interest rates are primarily driven by two factors. One, the Federal Reserve rates, which have been changing and are anticipated to come down, and two the treasury rates. Different markets are driven by different interest rates, with treasuries traditionally underpinning fixed-rate financing. In 2025, treasury rates hovered within a similar range but with specific drops at certain times. Our strategy involved closely monitoring the treasury markets. We would sign an opportunity with a spread over the treasuries for the interest rate, and as treasury rates dropped, we would lock in the rate. This timing is something we paid a lot of attention to in 2025. We observed some banks being aggressive with pricing at the beginning of the year. Our business operates in two capacities, where sometimes we are the direct lender, and other times we are brokering the loan. When we are the direct lender, we operate through Fannie Mae, Freddie Mac, HUD, or our own balance sheet. When we are brokering, we work with banks, life insurance companies, Wall Street conduits, and other entities. Currently for us, we are in a good position. Treasury rates have remained relatively stable and are at a relatively low point compared to the rest of the year and for 2024. Additionally, as the Federal Reserve rate decreases, we are observing banks, which are tied more to the Fed rate due to their cost of borrowing, begin to decrease their own interest rates. Consequently, we are positioned to potentially have one of our best years in the last three years.
As someone with twenty years of experience in real estate finance, how would you characterize the current cycle compared to previous downturns or corrections, especially from a capital availability and pricing standpoint?
It is substantially better since very little was accomplished during the downturn from 2007-2010. The current environment is different as there is still financing available, it is just more expensive. We’ve experienced a favorable run for a long time, but interest rates cannot maintain that previous pace indefinitely, and it naturally becomes more expensive. Currently, the rates are not terrible. For instance, we are presently working on financing a $270 million portfolio comprising four multifamily properties in Pennsylvania’s Lehigh Valley. It is currently under application with Fannie Mae with a 5.05% interest rate. While a 5% interest rate in today’s environment is not bad, it is not comparable to when we were executing deals at 3%, but 3% interest rates were not going to last forever. It is a different kind of busy now. 2023 and 2024 were busy, but the process was not as fluid. It was challenging to get opportunities to the finish line and to get transactions closed. There was not as much transactional business occurring. It is interesting to note that the majority of the business we conducted in the last couple of years was either construction financing or the refinancing of existing properties. We are now executing our first few property acquisitions in 2025. The $270 million portfolio we are financing, for example, is an acquisition. We are now reaching a point where we are starting to observe more trades occur on the investment sales side.
Your team recently closed on $39.35 million refinancing for two central Pennsylvania multifamily housing communities. So how has demand for multifamily financing changed over the past year in your region, and what types of transactions are actually getting done today?
It goes back to the previous cycle. For the last two or three years, most of the financing we completed was for construction or the refinancing of existing properties where loans were maturing. We secured a significant volume of financing for properties that were finishing construction, achieving stabilization, reaching occupancy, and were then at a point to secure permanent financing to replace their construction loans. At the beginning of 2025, we completed a lot of financing with a regional bank that had capitalized on that specific niche. They assembled a program where the interest rate and terms were very favorable for properties valued at approximately $15 million and under. For properties over $15 million, we have been heavily reliant on the agencies, Fannie Mae and Freddie Mac, to get them finalized. This year, Fannie Mae and Freddie Mac have been more fluid than the banks have been. The banks, due to their higher cost of capital and the elevated Federal Reserve rate, were not as aggressive with their pricing and interest rates. This dynamic also introduced a constraint. Previously loans were constrained by loan-to-value or loan-to-cost ratios, but the change in interest rates means that almost everything is now constrained by the debt service coverage ratio. The property’s income must be sufficient to support the debt. It becomes a mathematical problem as the lower the interest rate, the more debt service a property can support, and thus the more financing it can secure. It was somewhat challenging for any borrower who secured aggressive construction financing with a higher loan-to-cost ratio, as the property had to be performing exceptionally well to be able to pay off the existing debt. That was our primary focus for the last few years. Now, we are beginning to observe a bit more activity on the acquisition side, where properties are trading, and people are selling assets again.
Philadelphia is traditionally a stable region, but not always necessarily a high-growth market. How has that perception shifted in recent years, and how is Northmarq viewing this opportunity?
The perception has not shifted dramatically. What is beneficial about Philadelphia is that we do not experience very high highs, but we also do not experience very low lows. When you examine the United States, the regions often called the “smile states,” forming a smile from the south through Texas and up through California, have traditionally been locations with higher highs but also lower lows. Florida, for example, is currently one of the most challenging states in the country regarding resale value in the for-sale housing market. This is a valuation issue, not a matter of no transactions occurring. It was such an overheated market where everyone wanted to live in Florida, a trend accelerated by the COVID-19 pandemic as people assumed prolonged remote work opportunities and relocated. This created a supply and demand imbalance in Florida that has now corrected as more people return to offices and preferences change. The areas that are impacted most severely are those with high highs and low lows. Philadelphia generally remains the same. There were specific areas within the city that were performing exceptionally well for a period. We observed a huge increase in development activity driven by the ten-year tax abatement program. However, with the change from a pure ten-year tax abatement to a step-down tax abatement in Philadelphia, we saw a slowdown. Concurrently, the cost of materials has changed, interest rates have changed, and demand has shifted. I still believe there is a significant shortage in Philadelphia, in certain regions, for multifamily housing. There is also going to be a shortage of for-sale housing. However, because Philadelphia does not experience the high highs, it avoids the corresponding low lows. Therefore, while there have been some challenging specific opportunities, in general, the market is performing well.
To follow up, which asset classes in the Philadelphia market are currently seeing the most lender interest? Which ones are facing greater capital constraints?
Multifamily is always the preferred property type for lenders, based on the fundamental need for housing. We are observing significantly more activity within the affordable housing sector. Additionally, we are seeing more opportunities with market-rate and workforce housing. The multifamily market is good. At this moment, if I were to rank property types, I would list multifamily first, followed by industrial, which is still performing very well. Retail is next, though its viability depends on the specific retail type. Office space, however, remains the asset class that is still struggling, and I do not foresee that changing soon. The patterns of returning to the office or not returning have been established for long enough that a significant shift appears unlikely.
What are the biggest economic or regulatory headwinds that you are watching closely, whether it’s local policy, housing affordability mandates, or broader fiscal risks?
The primary challenges in multifamily development, and in most development types, are costs. Currently, material cost represents the single biggest challenge. Labor availability is less of an issue as there is sufficient supply as it is fundamentally a supply and demand situation. The tariffs remain an uncertainty as well. I do not believe anyone has a definitive understanding of where the tariff situation is headed. We observed many parties pre-buying materials earlier in the year to get ahead of potential tariffs, yet a clear resolution remains elusive. Until we receive a definitive direction on that front, it will continue to be a challenge. On a more positive note, we are moving in a favorable direction regarding interest rates. Construction loans are typically on a floating-rate basis, which is more closely tied to the Federal Reserve rate. I believe that as the Fed rate continues to decline, we will see more developers and investors taking advantage of that lower cost of capital.
As you look ahead to the next 3 to 5 years, what are the key strategic priorities for Northmarq’s Philadelphia office?
We believe it will continue to be a good market. We think the decline is complete and that we have hit the market bottom. I do not anticipate a rapid rise as the market is continuing along a more stable, perhaps flat, trajectory. The strategy is to remain opportunistic, pay close attention to market movements, and stay on top of our responsibilities. The current period appears somewhat flat, especially when compared to the past ten years of very low interest rates that were suddenly followed by a sharp spike. The subsequent decline has not mirrored the rapidity of that spike. Even the Federal Reserve has taken a measured approach to lowering rates. There will always be opportunities. However this is a real estate market, and it is fundamentally different from the 2007-2010 downturn when virtually no business was being done. The current environment involves less business volume. A significant factor for a more robust recovery is the need for larger banks, including big regionals and nationals, to re-enter the market in a more substantial way. We are not seeing that yet because their cost of capital is too expensive to make lending feasible. A notable trend we are observing is that many banks now require deposits representing 5% to 10% of the loan amount, as a condition for financing. This presents a challenge for many borrowers as it decreases their liquidity and limits their capacity for other transactions. Banks, in turn, can impose these requirements now due to a lack of competition whereas in the past, with many banks actively lending, they did not need to ask for deposits to compete. Currently, there are not enough active lenders, or they are only working with select clients. For the banking industry to fully recover, assets need to start moving off their books, and the market needs to become more fluid.
Given that cautious outlook, what gives you the most optimism today about the direction of the market and the long-term trajectory of real estate investment and finance in this region?
The decrease in the Federal Reserve rate is certainly a positive development that is helping. The continued execution of business deals is another good sign. Furthermore, we have reached a point where the initial shock of the significant interest rate increase has subsided. Many developers and investors were previously waiting for rates to return to previous lows. However, if your business is real estate, you must eventually adapt and operate within the current environment. There is a growing understanding that this may be the new normal. It is important to note that a 5% interest rate, historically speaking, is not a bad rate. I believe the market is beginning to understand that these conditions may persist for the next few years, and we are starting to observe a lot more transactional business as a result. The initial shock of the interest rate spike a couple of years ago simply took a considerable amount of time for the industry to process and adapt to.
