Sule Aygoren Carranzais managing editor ofRealEstate Forum.

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[IMGCAP(1)] WASHINGTON, DC-Reflecting tighter lendingconditions, loan volume declined in the fourth quarter. Butoriginations on apartment assets didn't decrease as much as theydid for other property types.

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According to recently released data from the Mortgage BankersAssociation, originations for commercial and multifamily propertiesin the final three months of 2007 were down by 16% compared to thesame period the prior year. Still, apartment loans were down only7% over the prior year, thanks to the availability of debt fromFannie Mae and Freddie Mac.

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"The slowdown comes most directly from disruptions in thecapital markets," says Jamie Woodwell, senior director ofcommercial/multifamily research for MBA. However, "a few remaininglarge portfolio transactions continued to buoy the numbers."

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Although the overall origination volume is on a downswing,Woodwell adds, "the underlying fundamentals of commercial andmultifamily properties, loans and bonds generally remain quitestrong."

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CMBS conduit loans led the decline--a result, says MBA, of thecredit crunch's impact. In fact, the pullback by the CMBS marketdramatically altered conditions in the lending sector. In the firstsix months of 2006, originations were actually 38% higher than thefirst half of 2006. But volume for the balance of the year was 11%less than the same period in 2006.

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When looking solely at CMBS loans, volume in the first half of2007 was 70% more than what was racked up in the first six monthsof 2006. For the second half of the year, 2007 came in 30% lessthan 2006.

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Apartment investors weren't deterred, however, thanks toavailable financing from agencies. Fannie Mae and Freddie Macoriginated 18% more loans in first-half 2007 versus the same periodin 2006, and for the second half, the volume was 49% more. Bydollar volume for the year, GSEs saw an increase in originations of41%.

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Borrowers of multifamily-secured loans were particularly busy inthe final three months of the year, racking up 25% moreoriginations compared with the third quarter of 2007.And thoseactive in the industry believe the financing climate for apartmentscould be stabilizing, reveals the National Multi Housing Council'smost recent Quarterly Survey of Apartment Market Conditions. Theorganization's debt financing index rose to 45% in the fourthquarter versus 17% in Q3, representing sharp improvement. However,the index remains below 50, which indicates that market conditionsare looser.

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Tighter underwriting standards and the inactivity from the CMBSsegment led 40% of survey respondents to report that now is a worsetime to borrow as compared to the prior quarter, and 25% to saythings were unchanged. Nonetheless, that's an improvement than thelast survey, when 76% of those polled said conditions were gettingworse. Nearly a third of observers felt that borrowing conditionswere getting better, up from just 20% in Q3.

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[IMGCAP(2)] All of this is a reflection of improving conditionsfor the industry overall, says NMHC chief economist Mark Obrinsky."The apartment industry is clearly benefiting from the downturn inthe for-sale housing industry," he says. "While the shadow rentalmarket may attract some apartment renters, thus far, the lowesthomeownership rate in five-and-a-half years seems to have increaseddemand for apartment residences. Overall, the apartment industryremains healthy at this point due to continuing strong fundamentalsand the fact that apartment firms did not overbuild in the latesteconomic cycle."

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The tighter lending conditions for home loans has reduced theamount of renters going into the homeownership market, concurred80% of respondents (up from 75% the prior quarter). But in thissurvey, 35% of those polled said there was a "big" decrease in thenumber of households leaving the rental pool, compared to 22% in Q3and 18% at midyear.

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Though debt is more available, it seems that equity providershave not upped their activity--39% reported equity financingconditions had not changed between the third and fourth quarters,and 54% said equity was less available than the prior quarter. At24, the Equity Financing Index was the second-lowest number onrecord.

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That, as well as the uncertainty stemming from the economicslowdown and the ongoing financial market crisis, impacted salesvolume. Though it showed improvement--rising six points to 18 atyear's end--the Sales Volume Index was below 50 for the ninthconsecutive quarter.

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The survey, conducted between Jan. 28 and Feb. 4, polled 102chief executive officers and other senior executives ofapartment-related firms nationwide.

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