Public policy questions are clouding the otherwise bright prospects for this market. As a veteran of the Department of Housing and Urban Development—who worked for current HUD Secretary Shaun Donovan when he was in the private sector—Warren has insights and relationships critical for multifamily lenders right now.
Credit for single-family homes remains tight. That—coupled with current building supply-demand conditions, and demographic trends that are creating renter household growth—means there is likely to be continued demand in the rental sector. This demand has primarily been met to date by government-supported financing of multifamily properties, including those financed thorough affordable housing programs that fill gaps unmet by the private market. Those programs are crucial for multifamily but their budgets are being squeezed, which is why an executive working in the space needs to have a strong sense of how they operate.
"Every day there are government budget challenges which translate to constraints in the subsidy environment [for multifamily]," says Warren. "Multifamily affordable housing gets built by a lot of layered subsidies at the national, regional and local level; and as budgets are constrained subsidy availability has been constrained and in question."
Warren, the president and chief executive of Prudential Huntoon Paige Associates Ltd., thinks the Federal Housing Administration, Fannie Mae and Freddie Mac will still have a significant degree of sustained and improved involvement in the sector. However, she thinks both may have smaller footprints in the future due to increased competition and increased interest rates.
"The FHA product proved to be really countercyclical over this last cycle. Its footprint increased dramatically as balance sheet capital and the commercial mortgage-backed securities business had difficulties, but now that capital is back…we fully expect that the FHA footprint will decline," Warren says.
Still, "The level of change that has occurred at FHA in the last…four or five years, people will say it’s as much as what we’ve seen in the last 40 years at FHA. There is a lot going on in terms of looking at processes and credit practices and risk management that I think are great and will serve that source of capital very well long-term."
There is some question of how Mel Watt, the new head of the government-sponsored enterprises' regulator, will handle the multifamily goals that his predecessor Ed DeMarco scaled back, in line with plans to shift some taxpayer risk back to the private sector.
But as a former deputy in charge of a government real-estate finance program that transitioned under the terms of bipartisan legislation into a public-private partnership during the late 1990s, Warren believes she has enough of a sense of how efforts like government-sponsored enterprise reform are likely to go to know GSE involvement in this space will continue.
"There seems to be a lot of alignment, and more alignment than I’ve seen in the last few years, focused on really moving forward the GSE reform agenda. There is some real support for the government’s continued role in housing, and specifically in multifamily housing," she says.
Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., as the authors of GSE reform legislation that has strong bipartisan support, have expressed some interest in preserving the agencies' multifamily activity.
Another pending Senate reform bill should be more explicit about how big the GSEs' role in multifamily will be in order to avoid creating uncertainty in the market, says Mortgage Bankers Association president and CEO Dave Stevens.
Warren, based on her previous experience serving as a HUD deputy charged with implementing a program mandated by the bipartisan Multifamily Assisted Housing Reform and Affordability Act of 1997, believes GSE reform will take a long time.
"The amount of time for something to go from legislation to regulation to policy, to a living and breathing organization, is substantial. I remind myself of that every time I think about the GSE reform calendar," she says.
At HUD, Warren worked on a mark-to-market program that arose from MAHRA. Under Section 8 contracts, the government guaranteed to make up the difference between a subsidized tenant’s contribution to the rent and a higher contracted rate. When the contracts expired, the program made sure that rents were marked to market, so the government wouldn't overspend on subsidies, and restructured FHA-insured debt so the monthly payments could be supported by reduced rental levels.
"If you determined that the rents weren't market [without the subsidies], the rents got…marked down. If…the current mortgage was not supportable, that structure was looked at. The debt was not forgiven but resized to something that would be supportable at a defined debt-coverage [ratio]. Some did not require that," says Warren. The process took about six years, wrapping up in 2003.
Warren joined Prudential that year, brought on by Donovan, who worked for the company between 2002 and 2004 as a managing director.
Prudential's multifamily company is rife with executives who have strong government mortgage backgrounds like Warren's, including a former national head of sales and production at Freddie Mac, Michael McRoberts, who has led the insurance company's agency multifamily business since 2011. Marie Head, who was HUD's deputy assistant secretary for multifamily housing program, returned to Prudential last month as principal for its FHA lending business.
Warren credits the willingness of those around her to give her opportunities to move up the corporate ladder for her ability to ascend to a CEO post at Prudential, something she says she sometimes lacked as a woman in the workplace early in her career.
"It's hard to grow, and all of us have gotten where we are because someone gave us an opportunity," she says.
"When I think of advice I'd give a younger self, I'd say first and foremost, it's important to find a place where culture and values are aligned with you own. I did not always have this in my career. As women, we tend to take these mismatches personally, as something we can 'fix.'
"If you're not in an environment where your manager values your unique skills and abilities and believes in you, recognize it for what it is. You may be able to pick up important skills, but without such a 'sponsor,' you're unlikely to thrive and advance in that organization long-term."