SAN DIEGO—Summer has been a strong season for Fannie Mae and Freddie Mac, at least from Gerson Law Firm APC‘s perspective. During the month of July, the firm closed loans on lender engagements that included 18 Fannie Mae and Freddie Mac multifamily loans for more than $62 million, as well as several CMBS, SBA credit union and bank loans, loan assumptions and modifications for a volume of transactions that exceeded $85 million. GlobeSt.com spoke with Gerson to discuss what let up to the GSEs’ summer surge and where he sees this trend heading in the future.
GlobeSt.com: To what do you credit Fannie Mae and Freddie Mac’s lending surge this summer?
Gerson: There are a few points to make about this. First,Fannie Mae and Freddie Mac started the year slow. Their first quarter was significantly down from 2013 and their second quarter also lagged 2013.
Also, in any market, for any type of lender, everything comes down to rates, and given the amount of capital in the market today from CMBS lenders to life-insurance companies and particularly banks, Fannie Mae and Freddie Mac were not being competitive. Ultimately it came down to pricing.
Fannie Mae and Freddie Mac came out in May and June with some very competitive rates and have gained significant market share. They want to win deals, and they don’t want to be on the sidelines. They know they have a place in this cycle.
Lastly, the market keeps getting bigger, and while their market share may be less percentagewise (which is how it should be in a robust economy), on the other hand, the market is so big that there’s room to do a lot of business.
GlobeSt.com: Do you see this as a trend, or do you see it flattening out?
Gerson: It very definitely is a trend. Most CRE lenders, including Fannie Mae and Freddie Mac, are looking at 2015 as being slightly larger than 2014, and 2016 and 2017 look to be very strong years, too. Commercial real estate loans are, for the most part, 10-year fixed-term loans, so you have 10-year cycles. In every decade, you have certain years where lending goes up and peaks and other years where it declines. If you look back, the 24 months before the meltdown in 2008 were some of the most robust times in commercial real estate lending, including multifamily lending, and the 2006 and 2007 loans will hit their maturity dates in 2016 and 2017. There will be a large refinance period during that time.
I also don’t see it flattening out because you have current projections of there being a need for at least 440,000 multifamily units coming online annually. So, on top of refinancing, we will have plenty of new financing for new apartment products. And I don’t think that 440,000 fully encapsulates the demographic trends we have toward apartment living as opposed to homeownership.
Stay tuned for an update to this story in which Gerson speaks about the multifamily trends he’s noticing, both in design and financing.