The good news is that the multifamily real estate arena—in comparison to other property sectors—continues to be buoyed by debt liquidity from Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) loan programs administered via the U.S. Department of Housing and Urban Development (HUD). The bad news? For borrowers unwilling or unable to secure agency financing, there’s little if any alternatives in the multifamily debt market.
“I don’t think it is any secret that over the last 18 to 24 months, Fannie and Freddie, and, to a lesser extent, the FHA have been the primary suppliers of liquidity to multifamily,” said Oak Grove Capital president Tony Washington, who was joined by Waterton Associates managing member David Schwartz; PNC ARCS president Tim White; and Sanctuary Group president Jeff Adler on a multifamily debt panel moderated by Joshua Tree Consulting president Steve Lefkovitz and held at the 2009 MFE Conference.
While several of the panelists acknowledged market buzz that life insurance companies benefiting from better investment portfolio returns might soon look to return to the multifamily debt market, there was little anticipation that those companies—or any other lenders—would be able to compete with federally subsidized debt dollars. “There’s not a lot of reason for those institutions to set up shop because Fanny and Freddie are around,” Schwartz said. “But there is a question of what happens to Fanny and Freddie in the long term, and then our industry is going to need more entrants into the debt space, and new sources of debt capital.”
Indeed, continued losses by the GSEs currently under government conservancy could create political difficulty in sustaining the agencies in their current form, despite healthy multifamily loan volumes and extremely low default rates that are averaging below 0.5 percent, compared to 3.13 percent for bank-issued multifamily debt. White pointed to a government accounting office (GAO) report indicating that Fannie and Freddie stand to bleed $400 billion by the time the issue of the conservancy is resolved.
“The GAO doesn’t say where that number comes from,” White said. “But that number in and of itself will make it increasingly difficult for elected officials to continue to say that they support Fannie and Freddie in their current state.”