BALTIMORE—A year ago, the folks who work in Freddie Mac’s multifamily section were sitting around waiting for the phones to ring. Now they can’t keep up.
“It’s remarkable how quickly things changed,” the GSE’s Kimball Griffith said. “We’re now the 'P’ in the P&L at Freddie Mac.”
Patrick Fitzgerald, an Orlando, Fla.-based vice president at BankUnited, is seeing the same kind of activity. “Multifamily is in a full-fledged healing mode,” he said at the American Bankers Association’s annual Real Estate Lending Conference here last week.
Griffith, who is vice president of affordable sales and investments at Freddie Mac, pointed out that both vacancy rates and rental rates have improved markedly over the last 12 months. Vacancies are running at 6.6% national, down from 8.1% this time last year, and rents in last year’s fourth quarter are up for the third quarter in a row.
But even better is that the long-term outlook for the apartment market, both from a demographic as well as a public policy point of view, is extremely good, the Freddie Mac executive told a conference session. “The trends favor lending and owning multifamily.”
Noting that “a segment of the population was pushed into homeownership when they just weren’t ready,” he said that there is now a “broad realization” that ownership isn’t for everyone. Moreover, he added, multifamily is important to urban revitalization.
The demographics also favor apartments, Griffith said. Forget the fact that echo boomers and immigrants who are entering the housing market for the first time tend to choose renting over owning.
Just the decline in ownership—from 69% at the peak of the housing boom to 65% now and perhaps 62% by the time all is said and done—could produce nearly 8 million more renters.
Griffith didn’t mention his company’s apartment loan volume for 2010, but Fannie Mae’s Hilary Provinse mentioned hers. And apparently, the phones were ringing as loudly in upper northwest Washington where Fannie Mae is based.
Fannie did fewer multifamily loans in 2010 than in the previous year—2,299 vs. 2,473—and the total volume was less—$16.8 billion vs. $19.6 billion. But Provinse pointed out that whereas Freddie had just a 47% share of the GSE apartment market, Fannie owned the other 53%.
In addition, the vice president of Fannie Mae’s multifamily mortgage business noted with some satisfaction that in the small loan sector where her company is most active, total volume was up from $2.3 billion in 2009 to $2.4 billion in 2010.
By Fannie’s definition, small loans are those on properties with from five to 50 units. And according to Provinse, the GSE has some 32,000 of them in its multifamily portfolio.
On the same panel with the GSE representatives, Clay Sublett, a senior vice president and national production manager at KeyBank Real Estate Capital in Kansas City, Mo., declared that the CMBS market is back as well. Just “not in a pertinent way,” at least not yet.
Noting that 80% of the loans wrapped up into the five commercial mortgage-backed securities deals issued so far this year are institutional players—”largely” real estate investment trusts—Sublett said the CMBS market still hasn’t returned to relevancy for small to midsize borrowers. As a result, he added, the market “doesn’t look like it did in the old days.”
However, at least “middle-market bankers are beginning to talk” about commercial bonds, said Sublett, who is spearheading his own company’s return to the CMBS market.
The KeyBank executive also reported that life insurance companies are once again being “very, very aggressive in the pursuit of multifamily financing.” But, he added, they tend to look for large, high-quality properties.
“They can’t compete with the GSEs,” Sublett said. “But they can take rifle shots at the sponsors, the properties and they places they like.”
