But that doesn't mean the multifamily business is stagnant. On the contrary, there are investors eager to do deals, if they arise. Some developers are even embarking on the early stages of construction. Everyone, it seems, is optimistic about doing business again, once that light on the horizon starts to shine a little brighter.

Douglas M. Bibby, president of the National Multi Housing Council, recently spoke with GlobeSt.com about the trends he's seeing in the market, as well as the organization's agenda and priorities for 2010.

GlobeSt.com: Where does the multifamily market stand? Are we in a good place, or will things get worse from here?

Bibby:We are in a better place today than we were in 2009, which was a dreadful year for everyone. Having said that, we still have a very weak jobs market and that dominates everything in our lives. Until we begin to see some uptick in employment, we're going to see pressure on occupancies and rent growth throughout this year. But we're beginning to see some hopeful signs. The mood at our annual meeting was dramatically different this year than it was last year; there was very much an undercurrent of optimism this time around.

GlobeSt.com: Debt and equity capital has not been available for a lot of deals. But Fannie Mae and Freddie Mac have done a good job at keeping the multifamily market active. Will that continue?

Bibby: The guidance that went out toward the end of the year from the Treasury Department indicated that Fannie Mae and Freddie Mac would be allowed to remain active in the secondary market probably for the remainder of the Obama administration's term. So while equity capital has been on the sidelines, the agencies have provided debt capital to the tune of about 90% of the needs of our industry over the past 18 to 24 months. That's extremely important to us.

GlobeSt.com: It seems like the discussions over GSE reform are becoming more serious? Are you concerned over the potential changes?

Bibby: The difficulty is that it's a very complicated subject. The two companies have about $5 trillion both on and off balance sheets, and you just can't wave a magic wand over all of those assets and liabilities and make them go away. It's an enormously complicated process and it's going to take years to effect a genuine change in the marketplace. And frankly, opinions are divided out there. There are some folks that would very much like to see Fannie and Freddie involved in the future of the secondary market, albeit to a smaller extent and capitalized and regulated differently. Then there's another school of thought that would like to start all over again.

GlobeSt.com: What are you hearing from NMHC investor members?

Bibby: Over the past couple of years at least, I've noticed that a lot of the owner/operators have been net sellers. One could argue that they're still pessimistic about the prospects for the sector. But I'm beginning to hear that some of our leading-edge companies are beginning to look for land and are beginning the entitlement process—that is, not just looking to buy multifamily assets, but also begin the development process. That's very different from what we saw from the second half of 2008 all the way through 2009. The people buying land and starting the entitlement process today are the ones who are going to be ready when the market turns. Particularly if you're dealing with a high barrier-to-entry market, the entitlement process could take as much as four years, and those projects won't get completed until 2013 or 2014.

We hit a post-WWII low for development in 2009, and we're probably going to hit another low in 2010. So you have the issue of shortage there, but you also have a feeling that we're turning the corner on jobs and we're going to see some positive movement in the second half of this year among the optimists. People see an improving job situation and a looming supply shortage, and some of the leading-edge firms are beginning to prepare themselves.

GlobeSt.com: There haven't been too many investment opportunities out there. It seems that people are holding onto properties because they don't want to sell into a bad market. Will that loosen up?

Bibby: I keep saying it will, but I keep being proved wrong. Where we're seeing the stress level come in on the multifamily mortgages that were put into CMBS structures by Wall Street firms; those were typically loans that were not eligible for purchase by Fannie and Freddie because they did not meet their guidelines. We're likely to see more stress there than the portfolios of Fannie and Freddie, as an example.

While I expect to see an uptick in distressed assets coming into the marketplace, a lot of owners are also holding on because they were able to refinance in the middle part of the last decade. Though their property valuations have come down 20% to 30%, they're still optimists because their cash is flowing and they're not in a position to have to sell. So essentially, when a class A apartment in a good market comes on the market, a bidding frenzy emerges—50, 60, 70 bids on a really quality asset. That just shows the appetite out there to acquire is extremely high, but there just aren't that many people willing to sell right now.

GlobeSt.com: Multifamily saw some of its best years ever during the market's peak, but the fall was just as severe. What lessons has the industry learned?

Bibby: While most of the problems were in the single-family sector and we are collateral damage from that meltdown, we have to remember there's nothing that beats a return to sound underwriting. There needs to be skin in the game. That means a return to more normal equity infusions into deals.

GlobeSt.com: What are some of the major issues on NMHC's agenda?

Bibby: Because Fannie Mae and Freddie Mac have been so important to our industry as a source of liquidity, we want to make sure we're very much a part of the debate in the determination of any changes that take place in the secondary market. The access to capital is extremely important. We're also working on making the case for foreign investors to invest in our sector—it's always been underrepresented in foreign investors' portfolios. We want to make sure we're as appealing as we can be to foreign investment.

Other issues are on the tax front, whether it's carried interest or estate tax reform or capital gains treatment—there are lots of tax issues on the horizon and we want to make sure we're part of that debate and that those reforms do not penalize real estate and multifamily in particular.

GlobeSt.com: What's the one point you'd want multifamily professionals to take away from this conversation?

Bibby: This is a marathon, not a sprint. With all the demographic changes taking place—the continuing strong pace of immigration, changes in household formation, limited supply—people have to keep in mind that over the long haul, this is a very attractive sector to be in. Just keep your eye focused on the longer-term picture and don't let the current dislocation and difficulties cloud your thinking.

Instant Insights /

National Multi Housing Council's Bibby

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