More Than 1,400 at Apartments 2011
LOS ANGELES-All the trends are heading in the right direction for multifamily. That was the consensus of panelists at RealShare Apartments 2011, where more than 1,400 top executives gathered to look at every facet of the multifamily market. Phyllis Klein, director of strategic customer relationships at Fannie Mae, and speaker during the first panel of the day, said that she is very bullish and has seen vacancy levels drop this year; she expects rents to increase 2% to 3% and better in some of the more robust markets going forward.
Michael Desiato, vice president and group publisher of ALM/Real Estate Media Group, began the day-long event by pointing out that the apartment industry is truly outperforming the rest of every commercial property sector. “If we actually had an economy that was working right now, we would really be in good shape,” Desiato said.
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Desiato’s comments set the tone for panels throughout the day, where nearly all speakers agreed that the multifamily market in the near-term and long-term is expected to perform well. The RealShare Conference Series is produced by ALM's Real Estate Media Group, which also publishes Real Estate Forum and GlobeSt.com.
“We are extremely busy and continue to work very hard on deals throughout the marketplace,” said Klein. “We are on track to meet our yearly production goals. Fannie is providing $1 out of every $5 in the multifamily market today.”
Klein joined moderator Lew Feldman, partner of Goodwin Procter LLP, and Paul Angle, western managing regional director of Freddie Mac in the event’s first panel. Angle too, discussed how busy Freddie Mac has been lately. “We are active in refinances and acquisitions and despite the fact that we are at record pace, we still have great capacity.”
Marty Stolzoff introduces
moderator Tom Bannon
There is a tremendous cap rate compression in the coastal markets, said Klein. “We are seeing good opportunities in places like Minneapolis and North County San Diego for example. What we see on the coastal markets is extremely strong.”
Angle pointed out that he enjoys any market where there is job growth and rising rents. The markets where he sees that in include Denver, Seattle, and the Silicon Valley, which has taken off tremendously in recent months, he said. In the long term, he points to places like Orange County, L.A. and San Diego. “We are also making loans in Phoenix and Las Vegas selectively in stable neighborhoods,” he said.
Klein noted that underwriting standards haven’t changed over the past year at all. “We are extremely focused on property condition and the ongoing maintenance of those properties through the loan term. We are not looking to underwrite on a future repositioning, but instead, on current values,” he said. “Our LTV’s go as high as 80%, but obviously that changes depending on the product type.”
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Habibi spoke of the huge
demand for rental housing
Angle added that Freddie Mac has “always had a high underwriting standard.” He noted that “we have been more aggressive in places where we see market condition growth in the future,” adding that “We really adapt to the conditions in the market.”
In terms of the characteristics they are looking for in a borrower, Angle says Freddie Mac looks closely at the borrower’s track record and investigates each situation (foreclosure for example) to see how the borrower has behaved. Klein also looks at how a borrower has performed and managed through each situation. “We don’t like borrowers that don’t pay us back or pay others back,” Klein said.
When asked whether they were concerned in the long run with the low interest rates of today, Klein said that “Our lenders run a complex variety of exit scenarios,” adding that “Certainly given the huge maturing portfolio that we face in 2012 in particular, it’s a great concern.” Angle pointed out that it is more of a concern on the five-year loans versus the 10-year loans.
Fannie and Freddie give a
warm welcome to competition
Next up was a panel titled: “Outside Influences: Where Things are Going,” moderated by Tom Bannon, CEO of California Apartment Association. Richard Hollowell, managing director of the Reznick Group, pointed out that single-family residential is troubled and is fueling multifamily. This year, Hollowell said, banks alone will foreclose 800,000 single-family homes. "Each one of those folks gets dumped in the rental community,” he said.
Paul Habibi of UCLA also agreed that there is a huge demand for rental housing. “We have very little job formation,” he said. “In most gateway cities, the cost to rent is still significantly less than the cost to own.”
“If you look at the Gen Y coming through this cycle, there is a reason to be pretty bullish on multifamily,” said Jeffrey Meyers, principal of Meyers LLC. “I think you can really get behind multifamily and it will have a strong run. Capital is now more focused on multifamily versus residential.”
Meyers continued to point out that there were lots of funds created that were focused on distressed and single-family properties, but he has seen a decline lately in that focus. “The returns an investor needs on single-family are higher than in the multifamily arena.”
Sharon Dworkin Bell, senior staff vice president of National Association of Home Builders, said that it is also a great time to be building apartments. “The last quarter, we saw a bit of a plateau, but we expect it to rise. We see a lot of progress and increase in production, but we have a long way to go in terms of meeting the market equilibrium.”
When asked how useful low income housing tax credits are in this economy, Hollowell said that with construction costs lower than they have been in a long time, “people should be sharpening their pencils and see how this vehicle will work.” But she added that “it is not for the faint of heart.”
Underwater multifamily projects are still a problem, Bell said. “There is damage out there, but lenders are probably being more cooperative with borrowers these days given the interest rates. The lenders are moving out the thresholds on some of these loans.”
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
