This weekend’s action by the Treasury Department to assume management of these agencies should, in the long run, have a positive impact on the multifamily sector. According to Doug Bibby, President of the National Multi Housing Council  (NMHC)….

“Fannie Mae and Freddie Mac have played a critically important role in the apartment industry, and we do not expect that to change with the recent actions taken by the Treasury Department.  It is important to note that neither company faces an immediate crisis.  Rather, these actions were taken largely to restore investor confidence and keep the markets working. ”

As further referenced in the article by NMHC, this weekends move was geared primarily towards supporting the companies’ residential loan portfolio.  The Multifamily sector is on solid footing and should remain viable for years to come. As such, we believe that the agencies will continue to provide liquidity to this sector as apartment loans currently and historically are profitable and contribute greatly to supplementing reserves.

That all said, it is anticipated that changes in management will occur and potentially impact how Fannie and Freddie process, structure and administer loans. In the end, we believe the governments role will have a positive impact on all sectors and be the impetus that creates positive momentum that has been needed to end this real estate debacle and reverse the trend.

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This real estate market is seeing a recovery, however small, in the apartment investment sector. The mid west is seeing real traction in the apartment investor segment. High occupancy, high rents, dropping inventory, is this the beginnings of a broader real estate turn around. Only time will tell, but good news is hard to find these days, and we’ll take it.

Today Finance and Commerce published an article on apartment funding and finance.

“There are apartment operators today that are telling us they’re starting to lose some renters to the for-sale market because clearly, there are some bargains out there. But at the same time, there does not appear to be a decline in demand for apartments. There are just as many renters, people coming out of foreclosures,”

said Brent Wittenberg, vice president with GVA Marquette Advisors.

Although, Mr. Wittenberg is referencing the St. Paul, MN apartment market, this trend can be consistently seen throughout many other areas in the U.S.

For instance, the quote below in the Associated Press implies that the current foreclosure environment is fueling an uptick in apartment rental rates as the demand from previous homeowners seeking apartment life to replace their housing needs is outpacing supply.  

The inventory of U.S. houses for sale has soared to the highest levels since 1999 and prices have fallen for the first time in 11 years.

“Late Payments, Foreclosures Hit All-Time High in First Quarter” causing apartment rental increases.”

Associated Press, Thursday, June 14, 2007

Although these “shadow markets” , those where an abundance of foreclosed condos and homes compete with multifamily/apartment properties, have not yet taken hold, we must be cautious of this risk.  As Dan Smith and Sean O’Malley of RBC Capital Markets Real Estate Mortgage Capital state in the August 2008 issue of Northeast Real Estate Business…..

“The shadow market is having a major impact in areas such as South Florida, Las Vegas and other markets that experienced significant condominium development in recent years and are now seeing high rates of foreclosures. The condominium-based shadow market is generally less of a concern in the Northeast, where condominium sales in major markets such as New York City and Boston remain strong. ”

The impact of shadow markets must be observed as the impact on vacancies and rates can be significant.

In summary, the apartment sector of the commercial real estate market remains a viable opportunity for real estate investments and lenders have designed loan programs specifically to meet this growing demand. Also, these programs are designed to be implemented in a fashion so that the processing of these transactions are efficient and quick. As such, common sense underwriting is key (i.e. stabilized properties with good occupancies, experienced borrowers with good credit and available cash reserves, cashflow sufficient to support debt service, etc.) to successfully completing and apartment loan transaction.

Categories: Apartment Financial News, Financial News, Real Estate Trends

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