BLOGS: Multifamily Focus

2008-07-31, 10:03

Foreclosure Crisis --- What Effect on Apartment Renters?

By: Multifamily Real Estate Industry Team
Each day we hear more sad stories about people who have lost their homes to foreclosure. The statistics are staggering: for example, just this morning NPR reported that 1 in 25 homes in Stockton, CA are in foreclosure.

Needless to say, property managers have been keenly interested in how many new rental applicants are dispossessed homeowners forced into the apartment sector. Not many, it turns out, according to new research performed for the National Multi-Family Housing Council (NMHC) by Bruce Innes of Innes Works Consulting ( It seems that evicted home owners only account for between two and six percent of apartment applicants, which is surprising given the number of foreclosures occurring every day.

The research, presented in a new NMHC white paper titled "Renter Credit Quality in a Volatile Housing Market", also examined whether the creditworthiness of apartment applicants has declined based on mortgage defaults or inability to pay home loans, and found that mortgage problems appeared to affect only 5.4 percent of rental applicants.

Overall, it appears that the foreclosure crisis is having a positive impact on the apartment sector in at least one way. There has evidently been a huge slowdown in the number of renters moving out to become homeowners, and that fact alone strengthens the financial health of the apartment industry.

To find out more about the research, go to the NMHC's website,

(This entry posted by Karen Estelle Carey, a member of the Real Estate Development group and multi-family housing team)

2008-07-29, 09:37

Housing Rescue Bill – What about the Multifamily Sector?

By: Multifamily Real Estate Industry Team
On Saturday, July 26, 2008, Congress approved legislation that is intended to rescue the failing housing market by setting up a $300-billion fund to help hundreds of thousands of homeowners facing foreclosure.

The bill also grants broad authority to the Treasury Department to offer emergency financing to mortgage giants Fannie Mae and Freddie Mac that could be in the range of tens of billions of dollars. To achieve that result, the bill raises the national debt ceiling to $10.6 trillion. The bill contains a broad new regulatory structure for the mortgage giants, including the establishment of an independent regulator, a new overseeing federal agency whose director will be appointed by the president and confirmed by the Senate.

Given that Fannie Mae and Freddie Mac own or guarantee almost half of the $12 trillion in outstanding U.S. mortgages, this intervention is yet another effort by the President, Congress and the Federal Reserve to endeavor to control the impact of the failing U.S. housing sector on the U.S. economy as well as the global financial system. President Bush is expected to sign the bill early this week.

The impact, if any, of this legislation on the multifamily industry remains unclear. Perhaps by putting a “safety net” under Fannie Mae and Freddie Mac, the confidence of global financial investors will be bolstered and the world will once again become a safer place for multifamily financing and real estate-based lending in general. However, no relief to the liquidity crunch appears to be in sight.

There are continued reports of banks refusing to finance even the most creditworthy transactions ( and the CMBS (commercial mortgaged-back securities) market remains in a comatose if not moribund state (, thereby eliminating the customary sources of debt relied upon by multifamily owners, developers and asset managers.

What is astounding about these circumstances is that the subprime meltdown that triggered the current global crisis and shut down the financing world as we have come to know and rely on it had little if anything to do with the core value of the multifamily and other real estate assets that are now being so dramatically impacted by it.

At this point, the only available course appears to the “wait and see” approach. At some point, rationality should prevail and financing should become available for soundly underwritten multifamily acquisition and development transactions that are predicated upon reasonable assumptions about rents, operating costs, values and other relevant fundamentals.

(This entry posted by Pamela V. Rothenberg, a member of Womble Carlyle's Real Estate Development group)

2008-07-11, 08:54

The Ripple Effect From the Mortgage Housing Crisis

By: Multifamily Real Estate Industry Team
As the ripple effect (or should I say tidal wave?) from the mortgage housing crisis continues to reveal its true depth, we all wake this morning to find that the Bush Administration is now considering a takeover of Fannie Mae and Freddie Mac, the nation’s two largest mortgage finance companies. If implemented, this plan conceives that the two mortgage giants would be placed in a conservatorship, where the shares of the companies would be reduced to zero and losses on the mortgages they own or guarantee would be borne by taxpayers. The hope is that such a rescue step would prevent the financial system from collapsing, since the distress of the two companies has long-ranging impact on the global economy, given the number of oversees companies that hold shares in Fannie Mae and Freddie Mac.

The press about this subject ( largely focuses on the need to keep the housing mortgage market alive. If Fannie Mae and Freddie Mac are unable to borrow due to their declining creditworthiness, they will be unable to purchase residential mortgages from commercial lenders. As a result, home buyers will likely be unable to obtain loans for the purchase of homes and the nation’s housing market will be frozen, since banks will not likely make capital available to home buyers without the comfort that they can “exit” from those mortgages through a purchase of the same by Fannie Mae or Freddie Mac.

Clearly the dismal state of affairs for Fannie Mae and Freddie Mac will materially impact the availability of debt for the multifamily industry, which to date, has been one of the few asset classes within the real estate marketplace that still believed it had a reliable source of mortgage financing from those companies for acquisitions, dispositions and mandatory refinancings (i.e., for mortgages coming due).

Query whether the multifamily market may also come to a standstill (similar to the risks now presented to the housing market) and whether there are any steps that owners and managers should proactively be taking to best position themselves to address the challenges that continue to unfold as a result of the unprecedented meltdown in the capital markets. As one real estate industry player recently remarked, we are nowhere near the bottom of this yet. We are just touching the soft mushy stuff in the pond that deceives us into feeling like it may be the floor, but it’s really just only about halfway down.

(This entry posted by Pamela V. Rothenberg, a member of the Real Estate Development group)

2008-07-10, 09:01

"Employee Free Choice Act"

By: Multifamily Real Estate Industry Team
As the attached article demonstrates, the Service Employees International Union, a labor organization which has been active in attempts to achieve representation of building maintenance workers employed by large contractors, is now turning its sights to smaller - and, presumably, less-well-defended - employers. This development highlights the significance of the a bill currently pending before Congress, the euphemistically-termed "Employee Free Choice Act." If that legislation passes, "free choice" as represented in a secret-ballot election conducted by the National Labor Relations Board would become a thing of the past, with employers being required to recognize unions if a majority of employees sign authorization cards. There would be no informational opportunity through which employers could present views regarding the lack of need for union representation. And even if the proposed statutory language is altered to take away this "shotgun wedding" aspect, another significant feature would require employers to arbitrate over contract terms if initial talks didn't produce a collective bargaining agreement.

Employers with concerns over this new challenge are welcomed to share their questions and comments with us over the coming months. No matter how the November elections turn out, this issue will certainly be front and center in 2009.

The article mentioned above is available at:

(This entry posted by Charlie Edwards, a member of Womble Carlyle's Labor and Employment Practice.)

2008-07-09, 12:38

EPA's New Lead-Based Paint Renovation Rule Impacts Multifamily Housing

By: Multifamily Real Estate Industry Team
On March 31, 2008, EPA issued a rule requiring the use of lead-safe practices and other actions aimed at preventing lead exposure during multifamily housing renovation, repair, and painting projects that disturb lead-based paint in pre-1978 housing.

The rule does not apply to minor maintenance or repair activities where less than six square feet of lead-based paint is disturbed in a room or where less then 20 square feet of lead-based paint is disturbed on the exterior. (Window replacement is not minor maintenance or repair and is always subject to the rule.) The rule also does not apply to renovations where it is determined by a certified inspector or risk assessor, or by a certified renovator, using an EPA recognized test kit, that the renovation will not involve lead-based paint.

The rule’s new requirements will be phased in over the next two years.

1. Effective June 23, 2008, Use Renovate Right or Protect Your Family Pamphlets
Beginning June 23, 2008, EPA requires that anyone performing renovation, repair, and painting projects that disturb lead-based paint in pre-1978 housing provide either the new EPA pamphlet, Renovate Right: Important Lead Hazard Information for Families, Child Care Providers, and Schools, or the EPA pamphlet that is now being used, Protect Your Family from Lead During Renovation, Repair & Painting, to comply with the existing requirement to provide a lead hazard information pamphlet to the occupants of pre-1978 housing before beginning renovations.
EPA also recommends that anyone performing renovation, repair, and painting projects that disturb lead-based paint in pre-1978 housing (1) read about lead hazard information for renovation, repair and painting activities in the new EPA pamphlet, Renovate Right: Important Lead Hazard Information for Families, Child Care Providers, and Schools; (2) read about lead-safe work practices for contractors in the EPA pamphlet, Contractors - Lead Safety During Renovation; and (3) follow those lead-safe work practices, specifically containing the work area, minimizing the dust and cleaning up thoroughly.
2. Effective December 22, 2008, Use Renovate Right Pamphlet and Disclosure Form.
Beginning December 22, 2008, before starting a renovation in multifamily housing built before 1978, the multifamily property owner (or their contractors) must have tenants sign the new EPA Pre-Renovation Disclosure Form, and must provide tenants the EPA pamphlet, Renovate Right: Important Lead Hazard Information for Families, Child Care Providers, and Schools.
3. Effective April 22, 2010, Use Certified Renovators and Lead-Safe Work Practices.
Beginning April 22, 2010, all multifamily property owners must use only certified Renovation Firms or individual Certified Renovators to perform renovation, repair, and painting projects that disturb lead-based paint in pre-1978 housing. Renovation Firms (which will include any multifamily property owner or manager performing renovations through its employees) that perform renovation, repairs, and painting jobs in pre-1978 multifamily housing must apply to EPA or a state that has an approved program for certification to perform renovations. Firms will have to apply for re-certification every five years.
Each renovation, repair and painting project subject to the new rule requires certain lead-safe work practices. Renovation Firms must post signs clearly defining the work area and warning occupants and other persons not involved in renovation activities to remain outside of the work area. Before beginning the renovation, the renovation firm must isolate the work area so that no dust or debris leaves the work area while the renovation is being performed. Waste from renovation activities must be contained to prevent releases of dust and debris. After the renovation is complete, the renovation firm must clean the work area and a certified renovator must verify the cleanliness of the work area using a procedure involving disposable cleaning cloths.
Renovation Firms must keep records to demonstrate that it has been certified and its workers have been certified as Renovators or trained on-the-job by Certified Renovators in lead-safe work practices and that it has followed lead-safe work practices on the job. To make recordkeeping easier, Renovation Firms may use the Sample Recordkeeping Checklist that EPA has developed to help contractors comply with the renovation recordkeeping requirements that will take effect in April 2010.
4. Prohibited Practices.
The EPA has prohibited certain work practices for every renovation, repair and painting project in multifamily housing, including minor maintenance or repair jobs otherwise not subject to the requirements of the new rule. Specifically prohibited are: (1) pen flame burning or torching; (2) sanding, grinding, needle gunning, or blasting with power tools and equipment not equipped with a shroud and High Efficiency Particulate Air (HEPA) vacuum attachment; and (3) using a heat gun at temperatures greater than 1100° F.
The EPA publications mentioned above are available in both English and a Spanish translation on the EPA website
(This entry published by John Sweeney, a member of Womble Carlyle's Products Liability Litigation team)
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