2008-08-19, 09:26

Freddie and Fannie – the Bright Spots

By: Multifamily Real Estate Industry Team
In the face of today’s depressing economic conditions, there are fewer and fewer options for even the most qualified real estate borrowers to finding financing for their deals. At a recent real estate event that I attended in the DC Metropolitan area, I was intrigued (and agitated) to hear a top level executive at one of the preeminent DC-based real estate companies admit that his company (one with an unblemished track record that you would never think would have the slightest difficulty finding debt) had been unable to attract lenders for some transactions they had on their drawing boards. He indicated that he was “taking the summer off.”

To make matters worse, virtually all of the news that we hear about Freddie and Fannie is bleak – their stock prices are dropping like rocks and it seems as though the question of whether they will require a bailout is one of “when” and not “if.” http://seekingalpha.com/article/91472-fannie-freddie-bailout-to-wipe-out-equity-holders

Given that the two mortgage giants are two of the very few number of lenders actively advancing loans to the multifamily sector in today’s gloomy market, I was quite encouraged to read a recent New York Times article entitled “Mortgage Giants Find a Bright Spot in Rental Financing.” http://www.nytimes.com/2008/08/13/business/economy/13fannie.html?_r=1&ref=business&oref=slogin While financing for multifamily housing represents only a small portion of their portfolios, multifamily debt “has been a rare bright spot” for Fannie and Freddie. Currently, according to the Mortgage Bankers Association, they hold about one-third of the outstanding multifamily debt. “As a result, both Fannie Mae and Freddie Mac, though often associated exclusively with single-family housing, are rapidly increasing their multifamily portfolios.”

Multifamily players should take some comfort not only in the fact that Fannie and Freddie are actually advancing loans in today’s investment climate (that continues to evolve on a daily, if not hourly basis), but that the apartment sector is the “bright spot” in Fannie and Freddie’s portfolio. I submit that the multifamily sector will continue to be a focal point for Fannie and Freddie (and one would hope other lenders as well as the markets settle down), given that the apartment industry is benefiting in a perverse way from the subprime melt down and its ripple effects, as fewer renters moving out of apartments to buy homes. http://multifamilyexecutive.com/industry-news.asp?sectionID=565&articleID=752919&refresh=true

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

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