Fannie Mae just took out a potential chunk of private label CMBS supply.
The government-sponsored enterprise said today it's helping fund Blackstone's purchase of Stuyvesant Town.
Fannie is facilitating a $2.7 billion loan from Wells Fargo to the private equity giant, which has partnered with Canada's Ivanhoe Cambridge, to buy the massive housing complex in New York for $5.3 billion.
The purchase of Stuy Town is paying down a $3 billion loan currently bundled into private label commercial mortgage-backed securities.
Since the $2.7 billion loan will eventually make its way into Fannie's multifamily securitization program, we already know a big chunk of Stuy Town's financing won't end up in a private-label CMBS.
Wells is making the loan under Fannie's so-called DUS program. The GSE purchases loans from lenders participating in this program.
As is often the case with DUS financing, the GSE will securitize the loan, said Jeffery Hayward, executive vice president for multifamily, Fannie Mae, on a conference call.
A spokesman for Fannie said it wasn't yet commenting on whether the $2.7 billion loan would be divvied into several multifamily bonds or back a single bond.
The loan funds Blackstone's full investment in Stuy Town, said a person familiar with the situation.
Hayward said the loan will be the biggest ever under the Delegated Underwriting and Servicing program. Helping finance the Stuy Town purchase jibes with Fannie's mandate to finance affordable housing, with 5,000 units in the complex earmarked for moderate-income residents. There are 11,241 units in total.
Hayward said that this financing will not close until recent litigation involving Stuy Town is resolved, which he expected would happen.
Announced in late October, the Stuy Town sale hit a bump on Nov. 12, when a group of hedge funds took legal action against the special servicer of a $3 billion loan secured by the housing complex. As holders of securities backed by that loan, the investors stand to gain handsomely from the sale. But they want more and are arguing that the servicer, CWCapital, plans to pay itself more than it's earned when the sale closes.
In its multifamily securitization program, often Fannie issues a single loan-backed deal, which, in turn, is bundled into another securitization along with other single-loan deals. This securitization of a securitization creates a "diversified loan pool" the spokesman said. This is done under a program known as GeMS.
The DUS platform has a risk-sharing element, and this would apply to the Stuy Town loan. In this instance, Wells Fargo would retain a portion of the credit risk on the loan to Blackstone. A loss on the loan wouldn't immediately hit investors in a bond containing that loan because Fannie guarantees it. Fannie, in turn, wouldn't fully bear the brunt either as Wells would have to cover at least part of the loss under the risk-sharing arrangement.
This is different than risk-sharing bonds issued by Fannie and Freddie, and not only because risk-sharing deals involve residential mortgages. One key difference that in those transactions, the risk is shared between the GSE and the bond investor not the GSE and the lender as they are in the DUS program. Also, risk-sharing bonds are synthetics — they reference the performance of a pool of residential mortgages, typically many multiples of the bond amount and are not issued by a vehicle that contains the mortgages. The multifamily mortgage bonds issued by the GSEs are fully backed by the mortgages.
Fannie guarantees 19% of multifamily mortgage debt outstanding, which reached $1 trillion in the second quarter of 2015. Its share of the market grew a bit faster than the market of the whole in 2Q year-on-year.
Some 84% of those loans are to units with households earning less than the average area median income.
The New York-Newark-Jersey City metropolitan area accounts for 5% of the unpaid principal balance of multifamily mortgages acquired by Fannie in the year through the third quarter.
This year Fannie has already issued $8.5 billion in multifamily GeMS deals this year. The full year total in 2014 was $12 billion.