For two years Washington, DC was the de facto capital-markets center for commercial real estate. Sure, we got the title by default - the recession and liquidity freeze of the last few years all but shut Wall Street and its securitization markets down. Meanwhile, we had Fannie Mae and Freddie Mac, cranking out multifamily loans that kept this asset class more than afloat. (We also had a Democratic-led Congress that was willing to take a chance on Obama’s stimulus plan but that story line is over).

Back to multifamily: it's safe to say the GSEs’ support is one reason why the sector is so hot now - along with the changing (by that I mean declining) nature of home ownership and gradually improving economic circumstances (by that I mean more jobs, albeit not nearly as much as anybody would like).

The Ignominy of It All

That was then. The Obama Administration and Congress are preparing to remake Fannie and Freddie into entirely unrecognizable entities. Certainly that will be good for the residential markets in the long run, which, it can be argued, crashed partly because of the limitless support provided by GSE backing. But what about the multifamily market and, more selfishly, Washington’s preeminent role as multifamily finance provider?

The writing is on the wall for the latter. Ironically, the Wall Street Journal reported recently that Wall Street banks are lobbying for a piece of any action that will come from a disbanded and/or privatized Fannie and Freddie.

Rents Rise, Valuations Drop

As for multifamily market players, they are looking at events with a mix of resignation or outright glee depending on whether they are developers, buyers or sellers. Developers are going to find themselves going to the private sector for financing, an ignominious turn of events for companies used to the GSEs’ open pockets.

In contrast, buyers and current owners of properties are excited about their prospects down the road: Buyers will likely find better pricing when the dust finally settles around whatever form the GSEs will take, Paul Daneshrad, founder and CEO of StarPoint Properties in Beverly Hills tells me. “Fannie and Freddie provide attractive levels of debt and affordable financing - so depending on the market and property type their exit from the scene will lower the value of assets.” Or, he says, depending on the market, landlords will be able to raise rents as supply constrains.

Depending on the market is the key phrase of course. Which brings us back to DC. Maybe we’re losing Fannie and Freddie and maybe the government footprint here will scale back significantly to address the debt crisis. But even taking that into account, we can still count on solid fundamentals for multifamily properties. Even if New York does start calling the financing shots.