Capital Flows to Apartment Sector

The head of Fannie Mae's multifamily division tried to put a good face on his unit's lackluster 2004 performance at last week's Commercial Real Estate Finance/Multi-Family Housing Conference here.

But there was no hiding the fact that in last year's highly competitive apartment arena, the big government-sponsored enterprise didn't do nearly as well as it had in 2003.

In a year when investors were falling all over themselves to finance apartments, leading to record originations, Fannie Mae and its lender and housing partners weren't always the first choice of would-be borrowers.

"Let's face it, there were times last year when we weren't the best execution," Kenneth Bacon, senior vice president of multifamily lending and investment, told an overflow audience at the Mortgage Bankers Association-sponsored conference.

"Investors all over the world decided that they really loved apartments, and that created huge competition and an abundance of capital. It was a great time, a wonderful year, to be a borrower."

"The noise in the marketplace is deafening," added senior vice president Richard Lawch. "It was in 2004, and it will be in 2005."

Still, with $21.2 billion invested in rental housing last year, compared to some $36 billion the previous year, Mr. Bacon was able to cite the company's "strong performance." And he promised to do even better in 2005.

One of the high watermarks for the GSE, which offers debt financing through lenders and investments in Low-Income Housing Tax Credits through syndicators, was that it was able to maintain its position as the largest single investor in tax credit financing.

With a record commitment of $1.7 billion in multifamily equity investments, 2004 "was our biggest year ever in LIHTC equity," Mr. Bacon said. The Fannie Mae executive also reported that 90% of the rental units Fannie Mae backed last year were affordable to families at or below the median income for their communities, thereby enabling the company to meet its federal mandate of supplying affordable housing where it is needed most.

Nearly 55% of the rentals it financed were reserved for low and very low-income borrowers, he said, and 45 of the loans were on properties in underserved markets and areas.

"We met or exceeded all of our goals," Mr. Lawch told the session. "We hit our volume goals, our congressionally mandated goals and our American dream commitment goals."

In addition, the company enjoyed its third-best year ever in its DUS product. Delegated underwriting and servicing lenders delivered $16.2 billion worth of apartment loans last year. During the year, Fannie Mae enhanced several of its products and reorganized its multifamily division, making it more responsive to the needs of the market.

"We are no longer a monolith multifamily channel," Mr. Bacon said. "We're now tailored to meet the needs of our partners, whatever they might be."

For 2005, the company plans to be even more nimble and more innovative. "We will play in a bigger sandbox, going where our competition can't," Mr. Lawch vowed.

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