Money Matters Are Top Of Mind for Multifamily Pros
MIAMI—Capital—the availability of it, the amount of it and where it’s being placed in the market—was a recurring topic of conversation at the RealShare Apartments East conference on Tuesday. In fact, the first and last panels of the event, which drew some 400 people to the Hyatt Regency Downtown here, focused on debt and equity financing.
The day kicked off with Prudential Mortgage Capital Co. managing director Michael McRoberts chatting with Freddie Mac’s John Cannon and Fannie Mae's Manuel Menendez. In the “GSE Report: 2012 in Review and the Outlook for 2014,” the execs both related that business and activity is up tremendously for the GSEs’ multifamily arms.
Menendez, senior vice president and head of multifamily customer engagement, said that both loan activity and sizes are up for Fannie for all apartment products across the board, except for seniors housing. In fact, the mortgage giant saw its third largest production year in 2012; yet whereas the prior record years of 2006 and 2007 were driven by large pools, last year’s activity was comprised of mostly one-off, bread-and-butter-type deals. The company also broke the $200-billion mark in its aggregate book of business in the third quarter of last year, with delinquency levels at a mere 28 basis points
Meanwhile, Cannon, Freddie’s senior vice president of multifamily production and sales, related that the company saw $29 billion in production in 2012, up 45% from 2011 and a 110% increase over 2010 volume. About $2.7 billion of that total was in student housing, while the rest was largely traditional multifamily product, which Cannon said was quite “profitable. We like to joke our credit losses were less than our telephone bill.”
The three speakers noted that with investment activity on the rise, fundamentals for lenders continue to be positive. “The market looks ripe to be a great year for debt players,” said McRoberts.
Added Menendez, “From where we are today, 2013 should be a very strong year in terms of production volume.” This year is also a special one for Fannie, he stated, since it marks the 25-year anniversary of its DUS program, the leading provider of capital to the multifamily sector.
The firm’s pipelines and commitments are up from last year, as is competition. “We welcome that competition,” said Menendez. “It’s a good thing to have all the providers of capital back in the market. We expect another good year.”
CMBS in particular is “on track to do more business,” Cannon pointed out. Meanwhile, life companies are looking to do more whole loans. While he said Freddie also welcomes more lenders into the market, “I don’t expect that this year we’ll hold onto the market share we had in 2012, but that’s a good thing. I expect higher volume altogether this year.”
Still, the firms have taken measures to guard against potential pitfalls in the market. Fannie Mae last year cut back on interest-only loans, and it’s currently undertaking a multi-year effort to streamline its platform and processes. “We don’t foresee any changes to come this year; we’ll continue to be conservative,” he said.
Cannon related, “Everything in 2013 is going to be about process and product improvement. It’s going to be about speed, speed, speed, and making it easier for our customers to do business.”
And what did the execs say about the issue of GSE reform, which has been at the forefront of many industry conversations for the past several years? Well, not much, though the general consensus was that nothing material is going to happen, decision-wise, for at least another two or three years.
The GSE representatives may have been relatively mum on the topic of finance reform, but the multifamily icons on the Industry Leaders panel didn’t hold back their opinions.
Despite pressure from the new politicians in office and the Treasury, it’s not likely that anything from a legislative perspective will occur in the next couple of years, shared Grace Huebscher, president and CEO of Beech Street Capital. “There’s going to be a lot of bills and discussions, but our worry is that the tone of that will impact the market,” she said. At the end of the day, “I think the guarantee will survive. The idea of a multifamily spinoff is essentially dead, which is a good thing because multifamily has been strong for the agencies. But the guarantee has to survive in order for the GSEs to aid the single-family market.”
Jeff Day, CEO of Berkeley Point Capital, maintained that when looking at the GSEs, one must separate the single-family and multifamily businesses. He concurred with Huebscher on the necessity of a guarantee: “There’s no way to keep the single-family component without some kind of guarantee or intervention by the government. There’s just not enough liquidity in the market to sustain that.” Yet while it’ll likely survive, Day feels the government guarantee “will be insulated in some ways from losses.”
The multifamily side, he noted, “is really more a function of the GSEs being a little bit of a blunt instrument in terms of policy right now. We have all types of capital available for any type of project. Any politician you talk to will agree that the guarantee has to be focused and targeted to those who can least afford to rent.”
Heubscher countered, however, saying that could be dangerous because it could hinder the efforts to attract more private capital to the agency space. “If you restrict affordability, that capital may not be attracted to the agencies anymore.”
The problem, asserted Alliance Residential’s chief operating officer, Brad Cribbins, “is that the politicians and decision-makers don’t really know the difference between the two segments, and that the fundamentals and the delinquency rate in multifamily is much different than their single-family segments. That’s why, I would argue for a separate solution.”
The industry leaders shared much more insight during this “View From the Top” panel, which was moderated by Doug Bibby, president of the National Multi Housing Council. To find out what else they discussed—from development and investment trends to their observations and activity in the capital markets—come back to GlobeSt this afternoon for the rest of the conversation.
Make your arrangements now to attend RealShare APARTMENTS in Los Angeles on October 21-22.
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