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. http://www.reuters.com/article/ousiv/idUSN2141192720080728.

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 (http://www.nytimes.com/2008/07/28/business/economy/28credit.html) and the CMBS (commercial mortgaged-back securities) market remains in a comatose if not moribund state (http://knowledge.wharton.upenn.edu/article.cfm?articleid=2022), 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)

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