Fannie Mae’s latest reorganization of its multifamily group could open up opportunities for market-rate developers, especially those with older properties they’re looking to sell.
This winter and spring, the government-sponsored enterprise (GSE) separated the market coverage of several groups that work on multifamily deals. What resulted was a three-way split: the Multifamily Group will be focused on the permanent loans that are the bread and butter of the Delegated Underwriting and Servicing (DUS) program; the Community Lending Group will take over initiatives for small loans (an expected area of strong growth for Fannie Mae in 2006, according to the GSE’s executives); and the Community Investments Group will handle equity investments.
The Multifamily Group announced in April its largest-ever single-asset loan acquisition when ICM Capital originated a $325 million DUS loan to refinance the 140-building, 3,285-unit Fresh Meadows development in Queens, New York.
“What remains in Multifamily is really the core of the multifamily business that we want to give focus to without distracting it [with] these other functions,” said Richard Lawch, interim senior vice president of multifamily. Fannie Mae is searching for a replacement for Lawch in the multifamily post; he will eventually take over the Community Investments Group.
“[The new structure] will make available more different products within Fannie Mae’s capital capacity,” said Howard Smith, president of Green Park Financial. “For example, equity used to be in three different places – if you wanted tax credit equity, it was the affordable housing group underneath the multifamily division, if you wanted the American Community Fund, it was in another place. And if it was market rate, it was in a third place. So they put all [equity work] under one group.”
Smith said Fannie Mae was trying to eliminate redundancies. “I think they’re competing quite well on price and proceeds, and now they’re working on process,” said Smith.
“My focus [at the Community Investments Group] will be on low-income housing tax credits [LIHTCs] and other equity ventures such as historic tax credits and for-sale single-family and multifamily housing,” said Lawch.
The housing funded by his group will be affordable, either at LIHTC levels (where occupancy is limited to households at 50% or 60% of area median income [AMI]) or up to 100% of AMI.
“Ventures we do on the non-LIHTC deals all tend to be just above the LIHTC limits, but very affordable,” Lawch added.
The Community Lending Group’s efforts will include a program of participating construction loans, in which Fannie buys into existing construction loans that are being offloaded by banks, mostly to reduce the banks’ concentration in certain types of loans.
“We’ll purchase participations in those loans,” said Lawch. “We did it in conjunction with the [National Association of] Home Builders and the Department of Housing and Urban Development, and it’s been pretty successful.”
Fannie is also working with a few large apartment companies such as Fairfield Multifamily to invest in 1970s- and 1980s-vintage properties. The properties, often in need of upgrading, will be improved and preserved – generally at rents around LIHTC levels, said Lawch.
He didn’t have a target for the volume of such business Fannie hoped to do this year, but he held it up as “evidence of the company’s commitment to the affordable housing business. Our job is to bring much-needed capital … and this [business arrangement] is really intended to do that,” he said.