BLOGS: Multifamily Focus

2009-03-26, 14:35

Rollercoaster week for Card Check Legislation

By: Multifamily Real Estate Industry Team
A couple of weeks ago on this blog, Charlie Edwards updated you on the introduction of H.R. 1409, The Employee Free Choice Act (EFCA), more commonly known as “Card Check.” If you are not familiar with this legislation, please take a moment to read this WCSR client alert:

It has been a rollercoaster week for folks embroiled in the card check debate. The week started with the somewhat surprising announcement on Sunday, March 22, by the newly formed Committee for a Level Playing Field for Union Elections (headlined by Costco, Starbucks, and Whole Foods) that members of the Committee were supporting a “third way” proposal for card check legislation. (Full story here:

Essentially, their plan is to guarantee unions worksite access to employees and timely elections while not allowing the stealthy sign-up and mandatory arbitration provisions supported by EFCA proponents. Thus far, this third way proposal has gained little traction. Opponents of card check legislation currently remain staunchly opposed. And although those in the pro-card check movement are spinning this as a sign that their side is gaining momentum, they are not yet willing to make such policy concessions, nor are their supporters in Congress. Sponsors of EFCA (Rep. Tom Harkin, D-IA, and Rep. George Miller, D-CA) even issued a sharp rebuke:

Just a couple of days later, the momentum suddenly appears to have swung back in the other direction. The reason for this is an announcement by Sen. Arlen Specter (R-PA) in a floor speech on Tuesday, March 24, that he will not cast the deciding vote to block a filibuster on the current legislation given the current state of the economy. While this could stall, if not kill, the legislation in the Senate for now, Specter has left open the possibility of making some concessions through select revisions to the National Labor Relations Act.

Specter’s full remarks and suggested revisions can be found here:

Meanwhile, the Bureau of Labor Statistics issued its annual report on the status of union organizing in the private sector, which highlights why this effort to encourage union victory is so critical to the future of Labor.
In the absence of some massive resuscitation, the union movement may find itself dealing with governmental employers and those in the private sector in heavily pro-Labor industries or localities.

(This entry posted by Fritz Vaughan, a member of Womble Carlyle's Government Relations team.)

2009-03-19, 15:10

Deputy Assistant Secretary for Multifamily Housing Programs at HUD announced

By: Multifamily Real Estate Industry Team
On Tuesday, March 17th, President Obama appointed Carol Galante as Deputy Assistant Secretary for Multifamily Housing Programs at the U.S. Department of Housing and Urban Development (HUD). In this role, Galante will be charged with overseeing a portfolio of more than $58 billion, including financing support for the development and preservation of privately-owned rental housing, as well as the implementation of certain policies aimed at promoted sustainable development.

Currently, Galante serves as President of BRIDGE Housing Corp., a large nonprofit developer of affordable housing based in California. She has been the recipient of numerous accolades, including being recognized as Multifamily Executive magazine's 2008 Executive of the Year.

The full HUD press release can be found here:

(This entry posted by Fritz Vaughan, a member of Womble Carlyle's Government Relations team.)

2009-03-18, 16:19

Renter Protection Legislation

By: Multifamily Real Estate Industry Team
The New York Times is trumpeting the need for broader renter protections and, in doing so, is advocating for a piece of legislation currently awaiting action by the House Committee on Financial Services.

In an Editorial published in print on March 18, 2009, the Times outlines protections that are already in place for renters living in buildings that are foreclosed by Fannie May and Freddie Mac, as well as protections for those living in foreclosed buildings bought by states, localities, and nonprofits under the federal Neighborhood Stabilization Program.

The point of the Times piece, though, is that the vast majority of delinquent mortgages are not owned by the aforementioned entities, but rather banks who are not required to respect the same protections granted in the above scenarios. As a result, in certain circumstances, renters who have not been informed by their landlord that a foreclosure is imminent can be informed that they will be evicted at the last minute.

For the purpose of protecting renters from sudden homelessness, Rep. Keith Ellison (D-MN) was joined by Reps. Maxine Waters (D-CA), Michael Capuano (D-MA), and Carolyn McCarthy (D-NY), have introduced HR 1247, or the Protecting Tenants at Foreclosure Act of 2009. This legislation would create a uniform federal standard requiring 90-day notice before the eviction of a bona fide tenant and would permit renters to remain in their residences through the terms of their leases, except when the new owner plans to occupy the property as a primary residence.

The full New York Times Editorial can be found here:

The full text of HR 1247, which is a relatively short piece of legislation, can be found here:

(This entry posted by Fritz Vaughan, a member of Womble Carlyle's Government Relations team)

2009-03-17, 16:24

Upcoming Maturing Mortgage Crisis

By: Multifamily Real Estate Industry Team
There are so many negative things swirling around in light of our current deplorable market conditions, sometimes it is hard for me to settle upon the particular piece of bad news to focus on as I start each day. Today, I am feeling the (now customary) pit in my stomach about the upcoming volumes of mortgage loans secured by multifamily assets that will be maturing in the next 24 months.

The Mortgage Bankers Association recently reported that $171 billion of multifamily and commercial mortgages (i.e., one-tenth of the outstanding balance) that are held by non-bank lenders and investors will mature in 2009. In particular, large volumes of multifamily loans are expected to mature after 2009 and 2010. “There will be about $29 billion coming due in 2009 and $26 billion in 2010. The volumes of maturing multifamily loans will increase as five- and 10-year loans become due in 2011 and 2012, and in 2015 and 2016…”

NMHC reports that in the next two years, an estimated $80-$100 billion in multifamily mortgages will mature and need to be refinanced. “With credit markets virtually collapsed, however, owners who are meeting their financial obligations but who—by sheer timing—are in the unlucky position of having their mortgages mature in 2009 and 2010 may be forced into foreclosure.” NMHC believes that the multifamily industry is “facing a serious risk of waves of defaults and bankruptcies of otherwise performing apartment properties unless the Federal Reserve and the Treasury Department take action."

How should multifamily owners and investors anticipate and plan for the maturity of their mortgage loans in the absence of any foreseeable capital markets activity enabling them to refinance? Here are a few things to consider:

1. To state the obvious, start by analyzing whether to hold on to, bail out of or attempt to reorganize your community in light of the upcoming maturity of its financing. If a workout approach may make sense, evaluate what is in it for both the borrower and the lender. In today’s market, many lenders have the incentive to work with borrowers because they do not want to take properties back. Assess what is needed from the borrower’s perspective to try to make property work. What type of modifications to the economic terms of the loan would allow the property to get back on track? What upside will flow to the lender to support a work out approach from the lender’s perspective? What does the borrower need (for example retention of management fees) to stay engaged in working through the property’s issues and not just handing the keys back to the lender?

2. Another critical factor to consider is the financial condition of the lender. If the lender is, itself, facing financial difficulties, it may be productive to consider a loan workout approach, even if your project’s circumstances appear particularly bleak. We are seeing a number of circumstances where troubled lenders will agree to extend the maturity date of a loan and otherwise modify the loan’s economic terms (including leaving the loan as interest only rather than amortizing) to avoid the loan going into default. We have also seen circumstances where lenders will agree to a borrowers purchase of both performing and non-performing loans at significant discounts in order to permit the lender to raise desperately needed cash.

3. Carefully review your loan documents before taking any action, in particular any voluntary bankruptcy filing, as a strategy to reorganize your community’s debts. Many of the loan documents that were signed in recent years contain “full” springing recourse provisions triggering material liability under a wide variety of circumstances. Typically, upon a voluntary bankruptcy filing, guarantors of the loan become personally liable for the repayment of the entire outstanding balance of the loan (including interest, fees and collection costs). Please a more detailed analysis of the risk of full springing recourse in loan workout transactions prepared by my colleague, Jeff Tarkenton.

4. Communicate early and often with your lender. In particular and if possible, initiate discussions with the lender before the community is in extremis – while the borrower (or its principals or affiliates) still have some cash to feed back into the deal to achieve negotiating leverage with the lender. However, do not invest additional cash or other resources into the community until the lender is prepared to enter into a comprehensive restructuring agreement that puts the community back on track.

These times are certainly among the most challenging and stressful many real estate professionals have seen in their careers. Those that stay focused on the horizon and directly and proactively manage loans that will be maturing in the near term have a better chance to emerge from the darkness with their multifamily portfolios relatively intact.

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

2009-03-16, 15:53

NMHC Four-Point Capital Crisis Plan

By: Chris Iavarone
As we mentioned in a previous blog entry, there is a credit crisis looming that may cause a wave of bankruptcies in the coming years. Roughly $160-400 billion in commercial mortgages will be coming due in the next two years, of which $60-80 billion is multifamily mortgages.

Fannie Mae and Freddie Mac are virtually the only sources of debt financing for multifamily owners, accounting for nearly 90 percent of the funds provided to multifamily borrowers over the past year. With the credit markets still tightly contracted, multifamily borrowers are having trouble securing capital to refinance existing properties, despite the fact that default rates for multifamily mortgages held by the Fannie Mae and Freddie Mac reported at the end of 2008 were 0.21 percent and 0.03 percent, respectively.

To address this crisis, the NMHC is urging the Treasury and the Federal Reserve, under authority granted to that as part of TARP, to take the following actions:
  • Purchase multifamily mortgage-backed securities (MBS) guaranteed by Fannie Mae and Freddie Mac. Federal Reserve/Treasury purchases are important to invigorate the multifamily MBS investor market which has begun to show limited signs of activity.
  • Purchase longer term debt issuances by Fannie Mae and Freddie Mac so that the government sponsored enterprises (GSEs) can support their lenders’ funding needs without having to rely on mismatched short-term debt. This is essential to align the GSEs’ capital needs with longer-term multifamily loan products.
  • The Federal Reserve should purchase highly rated commercial mortgage-backed securities (CMBS). This would restore investor confidence, restart trading in the frozen CMBS market and establish a market-clearing price for a variety of real estate assets, including commercial and multifamily mortgages.
  • In separate action, the Federal Housing Finance Agency should exempt multifamily loans from GSE mortgage portfolio limits through December 31, 2010 or until a new secondary market structure for multifamily loans is operational, whichever comes first. Based on Fannie Mae’s and Freddie Mac’s strong multifamily loan portfolio performance, exempting these loans will have virtually no impact on the overall portfolio risk of the two enterprises.
More information about NMHC's plan can be found at here.

2009-03-13, 15:32

Employee Free Choice Act Reintroduced; Battle Lines Are Already Drawn

By: Chris Iavarone
On Tuesday, March 10, George Miller (D-CA), Chairman of the House Education and Labor Reform Committee, introduced the Employee Free Choice Act (H.R. 1409). Asserting that the bill would “give workers the ability to stand up for themselves” and heralding the effort as a key component of economic recovery, Chairman Miller insisted the EFCA would restore employee rights. Co-sponsor Tom Harkin (D-IA) explained, “just as the National Labor Relations Act, the 40-hour week and the minimum wage helped to pull us out of the Great Depression and into a period of unprecedented prosperity, so too will the Employee Free Choice Act help reinvigorate our economy.”

The bill, essentially the same as one passed by the House but killed in the Senate two years ago, faces a stiff fight. Although President Obama has pledged his support to the legislation, employer organizations have mobilized a well-coordinated campaign to highlight what they perceive as significant weaknesses in the Act, also countering with their own proposal, the Secret Ballot Protection Act. To make matters even more confusing, on March 11 Joe Sestak (D-PA) proffered yet another alternative, the National Labor Relations Moderation Act (H.R. 1355), which Congressman Sestak describes as a “middle ground” compromise to preclude a divisive confrontation. As the rhetoric on either side escalates, examination of the key features of EFCA is essential.

To read about the key features of EFCA, continue here.

(This entry was published by Charlie Edwards, a member of the firm's employment law practice group.)

2009-03-11, 08:43

Evacuation from Building in 1993 Supports Lawsuit for Emotional Distress a Decade Later

By: Multifamily Real Estate Industry Team
Plaintiffs who purchased a former manufacturing facility in Hoboken, New Jersey, for conversion to loft apartments brought emotional distress claims against prior owners after it was discovered that their newly remodeled 16-loft building contained puddles of mercury under the floor which caused detectable levels of mercury vapors in the air.

The building was purchased by the Plaintiffs in 1993 and was converted into 16 loft condominium living/working spaces. During renovation in 1995, Plaintiffs discovered puddles of mercury between layers of flooring and in crawl spaces. They subsequently learned that the building was used from 1910 to 1964 to manufacture mercury vapor lamps. (See report about Hoboken, New Jersey site by Purdue University,

In January 1996, the building was evacuated by local health authorities, and was subsequently named by the United States Environmental Protection Agency (EPA) as a Superfund site in 1997. The site underwent an extensive 10-year cleanup which cost an estimated $14 million and resulted in the building being demolished. (

In 1996 Plaintiffs filed suit against the former owners in Federal Court for property damage and personal injury claims. The case was consolidated with the claims brought by the EPA and the matter was ultimately settled and dismissed. (Parker v. General Electric, 96-CV-3774) In 2007, Plaintiffs filed suit in New Jersey State Court claiming physical injury and emotional distress under the theory of strict liability based on the abnormally dangerous activity doctrine. (Schley v. General Electric, L-251-07)

In the Schley case, Plaintiffs’ expert opined that most of the Plaintiffs had signs of significant psychological distress, and three Plaintiffs actually showed symptoms of post-traumatic stress disorder. Plaintiffs’ claims of emotional distress stemmed from being forced to evacuate their homes and undergo medical screenings.

The New Jersey court denied the Defendants’ motion to dismiss the claim, rejecting Defendants’ arguments that Plaintiffs’ expert evidence of emotional distress consisted solely of inadmissible net opinions. Judge Sarkisian found that the expert reports were not merely net opinions because the reports stated facts and provided scientific methodology on which their conclusions were based and were thus valid. Judge Sarkisian also agreed with the Plaintiffs that New Jersey law did not have a “bright-line rule” requiring expert testimony prove emotional distress claims. Judge Sarkisian found that Plaintiffs’ claims of distress were not frivolous and were distinguishable from aggravation, embarrassment, headaches, and loss of sleep, which have all been deemed insufficient in other cases. (

(This entry posted by John Sweeney, Sky Woodward, Erin Miller and Jim Mitchell, all members of Womble Carlyle's Products Liability Litigation team)

2009-03-03, 17:33

Silence is Not Golden: SEC No Action Letter Indicates that Certain Tenant In Common Interests are Securities

By: Chris Iavarone
A No Action Letter issued by the SEC (the “Letter”) to Omni Brokerage, Inc., Argus Realty Investors, L.P., and PASSCO Companies, LLC (the “Issuers”) on January 14, 2009 indicates that the sale of certain undivided tenant in common interests (“TIC Interests”) evidencing joint ownership of real property likely constitutes a sale of securities, and therefore would be subject to the registration and anti-fraud provisions of the Securities Act of 1933 (the “Act”). The SEC had previously been silent as to whether it would treat the sale of TIC Interests as the sale of securities (rather than simply the sale of real estate). The Letter is the first guidance that the SEC has issued directly on the subject.

For more information, please click here.
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