Donald P. King III

Good times are here to stay around for a while in the multifamily sector, says Donald P. King III, Walker & Dunlop‘s chief production officer. The demand in the space has created a good climate for borrowers, and secondary markets are starting to gain more traction. The only unknown right now that could impact this momentum, he contends in a recent conversation with, is the status of Fannie Mae and Freddie Mac. Do you see the multifamily market overheating any time soon?

Donald King: I do not think it’s starting to overheat. The fundamentals behind the multifamily market as a whole continue to be very, very strong. Demand is increasing. There hasn’t been too much new product added. Financing is available in large part thanks to Fannie and Freddie and HUD. There continues to be very high demand by investors and a lot of capital still chasing that product. Do you have any fears of the housing market coming back and derailing the sector?

King: Not in the short term. Clearly it can have an impact in some markets where you have a lot of affordable housing stock. But there is still a challenge to get financing for home purchases. It’s getting better, but it’s not at a point where it is a short-term threat to the multifamily space. Have you seen any changes in the types of buyers out there?

King: The big change occurred after the market meltdown. What you saw then was a lot of institutional money that had previously been focused on a lot of other asset classes coming into multifamily space for two reasons. The fundamentals behind multifamily, the declining home ownership and increasing demand for rentals, and the availability of leverage that was not available for other asset classes drove them to the sector. That was a fundamental change in the makeup of who was interested in traditional multifamily. Investors were interested; we just added more.  After that change occurred, that’s been fairly stable in terms of the people who are interested in multifamily. So I take it there is a lot of competition for class A assets?

King: There is a lot of capital chasing almost all of multifamily right now, but when you get into core assets in core markets, it is an extremely competitive place to be for institutional-quality investors. Secondary markets are getting attention as well?

King: Again, you have good fundamentals even in many of the secondary markets. As the new institutional money came in driving down cap rates and values up in the core areas, it sort of chased some of the more traditional players in that space, either out to tertiary markets or other product niches in the multifamily space. What are the challenges that multifamily borrowers face going forward?

Wood: The challenges facing the borrowers in 2013 at the moment are that great. We’re seeing more competition coming into thespace, that bodes well for borrowers, of course. The biggest risk is if something were to happen in Washington, DC, to impact that market, and more specifically impact Fannie Mae and Freddie Mac. There is clearly room for the competition that is coming in right now, but there will not be enough capital to satisfy the demand for financing without Fannie and Freddie.