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Meridian Capital Scandal Casts a Shadow Over NewPoint
Defining the future of real estate
Franco Faraudo
March 26, 2024
Propmodo Daily
By Franco Faraudo · Mar. 26, 2024
Greetings!
The lending agency Freddie Mac takes fraud very seriously. In November of last year, they suspended one of the largest multifamily lenders in the country, Meridian Capital Group, to investigate allegations of fabricated numbers used to secure loan funding. Freddie has not concluded the investigation or resumed working with Meridian. Today's email examines whether NewPoint Real Estate Capital, created by a partnership between Meridian and Barings Multifamily Capital, is experiencing slower loan volumes due to its relationship with Meridian.
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Now, let's dig in!
Meridian Capital Scandal Casts a Shadow Over NewPoint
Meridian Capital Group has been in the news recently. Once a leading multifamily lender, the firm faced a setback last November when Freddie Mac announced an investigation into possible fraudulent activity. Freddie Mac suspended lending to Meridian until further notice. Now, concerns are rising over Meridian's relationship with the struggling NY Community Bank, with questions surrounding the sustainability of the bank's loan portfolio.
Meridian claims that the fraud was an isolated incident perpetrated by a single agent on one deal. But, the ongoing investigation, now spanning almost six months, suggests Freddie Mac's auditors may not agree. While Meridian has continued to finance deals since the investigation began, none have been funded through Freddie Mac.
NYCB isn't the only organization with a close relationship to Meridian. The lending group NewPoint Real Estate Capital, launched in 2021 as a partnership between Meridian and Barings Multifamily Capital, specializes in agency loans. Their distinction as part of Freddie Mac's "Optigo" partnership network is notable.
Like Meridian, NewPoint has continued to lend since the fraud investigation announcement. But, their deal volume has decreased significantly compared to last year. Recent deals, such as a $41 million loan for a new development in Hollywood, Florida, and a $45 million lease-up bridge loan, do not appear to be funded by Freddie Mac.
Freddie Mac has already tightened its lending requirements in response to the Meridian investigation. A new checklist with guidelines such as consistent cap rate usage, timely sales comparisons, and verifiable market rent assumptions aims to make it harder for fraudulent figures to pass underwriter scrutiny.
With potential liability for negligent lending practices (and their status as a non-government entity), Freddie Mac is likely to exercise greater caution with large multifamily loans. The investigation's outcome remains uncertain, including whether Freddie Mac will resume working with Meridian. This poses challenges for NewPoint, which relies heavily on Meridian for capital and may also face difficulties working with Freddie Mac in the future.
Insider Insights
🫵 Lending order: The Chinese government is pressuring banks to resume lending to developers to help its struggling real estate sector.
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Overheard
One of the most consequential shifts in global markets over the next decade would be a re-pricing of neutral rate expectations.
For nearly 15 years, most investors and central banks have held that neutral in around 2-2.5%, but increasing evidence it may be higher, even 4-5%.
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