Multi-Housing News - October 2008 - (Page 28)

finance Fannie and Freddie Reassure Industry Following the government takeover, GSE financing has held up, though terms are tougher By Keat Foong, Executive Editor of the GSEs, the multifamily financing situation is not expected to change draAs we go to press, a number of huge events have taken place in the world of matically for now. No significant shrinkage in the supply of capital from the two finance. Within just a week or so, the government took over Fannie Mae and GSEs is expected. Indeed, lenders interviewed did not admit to being concerned Freddie Mac, Lehman Brothers collapsed, the government bailed out insurance about the ability of the GSEs to continue participating in the multifamily margiant AIG, and the Treasury announced a $700 billion plan to buy troubled ket going forward. assets from financial institutions. Multifamily financing conditions are not expected to change dramatically as a “The GSEs have found that their multifamily loan products have proven to result of the government takeover of Freddie Mac and Fannie Mae, at least for be profitable and very low-risk,” argues Glenn Housman, senior vice president now. The government’s plan to place the Government Sponsored Enterprises at CBRE Capital Markets. He says that overall, the multifamily business is (GSEs) in conservatorship is reportedly meant to allow for the continued operahealthy and the sponsorship standing behind the GSEs’ multifamily portfolios is tion of the two companies while the rescue is taking place. Indeed, the official good to excellent quality. “Because of that, the GSEs have a great incentive to word from the GSEs and the originators is that it is “busikeep this profitable business line growing, especially with ness as usual.” the expected tide of red ink to come over the next couple of quarters on the single-family side of the fence.” All-in interest rates for GSE financing at press time “Multifamily financing Housman adds, “We expect both GSEs to continue to have stayed generally within a relatively narrow range— conditions are not grow their multifamily portfolios through 2009 and conand affordable—especially for longer term debt. Although tinue to work with us as their lending partners, as they spreads in some cases have widened, the benchmarks, expected to change have for the last few years.” notably the Treasuries, have plunged to make up for the dramatically as a result “If there is a bailout, the impact will be to shareholders. wider spreads. To date, in the midst of all this turmoil, financing from The shareholders will be taken out. Their stocks will be of the government the two agencies has held up admirably, though terms are worthless, but the debt holders and clients will be [protecttakeover of Freddie Mac ed],” agrees Dan Smith, managing director of real estate tougher than they were a year ago. “Fannie Mae and Freddie Mac financing continues to meet the needs of the mulmortgage capital at RBC Capital Markets. and Fannie Mae, tifamily industry,” says David Cardwell, National Multi Tougher terms for multifamily borrowers at least for now.” Housing Council (NMHC) vice president of capital markets and technology, before reports broke about the govWhile the pipeline of capital remains strong, the higher ernment’s plan to take over the agencies. According to capital costs for the financing giants and the troubles in Cardwell, the level of capital supply from the GSEs is not of “immediate contheir single-family portfolios, among other conditions, are contributing to tougher terms for multifamily borrowers. Certain multifamily properties that cern.” The agencies’ “pipelines remain very strong.” could have been financed with a GSE loan a year-and-a-half ago may have more Indeed, the Mortgage Bankers Association (MBA) reported that the dollar difficulty getting the capital. volume of loans for GSEs increased 66 percent in the second quarter of 2008, Some say part of the reason could be that the GSEs have so many products to compared to the same period a year ago. The loan originations volume for the choose from that they are picking off the higher-grade properties first. “You used GSEs in the second quarter is the largest on record for the March through June to be able to get Class B, B- properties through,” says Dan Gorczycki, managing period, says MBA. Nevertheless, the GSE volume remains at about the same level as the first quarter, and is lower than a high point in the MBA multifamily director at Savills Granite LLC, a real estate investment banking firm whose origination volume index hit in the fourth quarter of last year. U.S. operation is based in New York. He says there is a chance the same Class Overall, multifamily financing was down, probably for reasons that are a comB- property may not be able to get the loan today, although lowering the leverbination of lower sales transaction levels and more difficult financing stnadards. age would help. MBA says that multifamily originations fell 42 percent in the second quarter. And some markets remain on the GSEs’ watch lists, such as parts of Florida or areas in the Midwest, including parts of Michigan and Ohio. “This does not The truth is that with the conduits having practically withdrawn from the marmean that the GSEs will not do business in those areas. But they will likely be ket, Fannie Mae and Freddie Mac are providing the bulk of multifamily permamore conservative in how they underwrite some loans in those locations, usualnent, acquisition and rehab financing and probably staving off a serious credit ly by implementing a slightly higher DSC and/or slightly lower maximum crunch in the industry. According to Cardwell, the agencies are accounting for LTVs,” says Housman. as much as 75 to 80 percent of multifamily financing today. Regarding pricing and terms, Housman says that during 2008, Fannie Mae And with the latest development in which the government assumed control 28 October 2008 | Multi-Housing News | Producer of Multi-Housing World

Table of Contents for the Digital Edition of Multi-Housing News - October 2008

Multi-Housing News - October 2008
Contents
From the Editor
MHN TV Premieres
Market Pulse
Special Report: MHN 2008 Design Awards
Development & Design: Mirabella
Market Report: Chicago, Kansas City
Property Management: Tracking Residents’ Tech Wish Lists
Finance: Freddie Mac/Fannie Mae
Tech Report: Marketing Web sites
Products: Appliances

Multi-Housing News - October 2008