NEW YORK, NY - As investors and homeowners wait to find out how the federal government's takeover of mortgage providers Fannie Mae and Freddie Mac will aid the depressed housing market, buyers and sellers of apartment buildings are worried that proposed changes could hurt them. Fannie and Freddie, the government-sponsored entities (GSEs) that are the major source of financing for buyers of apartment buildings, have taken on an even greater role after the credit crisis closed the spigot on the flow of other financing. "They're one of the significant permanent lenders in that market place, and they have been a cost effective and proactive lender," said Richard Bassuk, president of Singer Bassuk Organization, which arranges financing for commercial real estate purchases.
Because of the availability of financing from Fannie and Freddie, buildings with apartments for rent have outperformed other property sectors by 20 percent from March to May, according to real estate research firm Real Capital Analytics. Last month Boston based Northland Investment Corp's Northland Fund III used a $205 million loan purchased by Fannie Mae to help finance a $270 million acquisition of 2,985 apartments in Austin. At the same time, Chicago-based Equity Residential, the seller, closed on a $550 million loan also purchased by Fannie Mae.
Mortgages bought by GSEs are usually cheaper for the borrower because of the implied backing by the U.S. government. Unlike its core single-family residential mortgage business, multifamily lending has been a profitable arm for both Fannie and Freddie. "It's been a good business for them," said Jamie Woodwell, vice president of Commercial Real Estate Research for the Mortgage Bankers Association (MBA). Fannie Mae reported multifamily delinquencies of 0.11 percent in June, compared with 1.36 percent for single-family mortgages. Freddie Mac saw its multifamily delinquency rate fall to 0.3 percent in July, while single-family delinquencies rose above 1 percent for the first time ever, to 1.01 percent.
The GSEs have increased their activity in the multifamily lending arena. At the end of the first quarter, the latest period for which figures are available, GSEs accounted for a third of the $856 billion of U.S. multifamily mortgage debt outstanding, according to the MBA. That's up 5 percent from the prior quarter. After the U.S. Treasury Department seized control of the GSEs over the weekend, participants in the apartment building sector are wondering how a workout will affect their business.
"That's a question on everyone's mind," said Keith Oden, president of Camden Properties Trust, which owns and operates 70,000 apartments in the U.S. Sunbelt. "We talked to the folks and Fannie Mae and Freddie, and we have been given very clear indications from them it is not only business as usual but they intend to increase their funding for the multifamily sector," Oden said.
The GSEs are likely to continue to fund multifamily purchases at least until a new presidential administration takes control, industry experts said. RBC Capital Markets analyst Mike Salinsky said it doesn't make sense for the GSEs to exit the multifamily lending business. "If you truly want to run these in two or three years as for-profit entities, why abandon one of your most profitable businesses?" he said. But that's just the point, said Ronald Johnsey, president of Axiometrics, an apartment investor and owner consultancy. "I think it something that could be spun off because it's profitable," he said.
Source: AllHeadlineNews.com