The 2011 RealShare Apartments conference was a huge success with a noticeable increase in attendance and palpable optimism. The multifamily market is booming, and signs indicate it will continue to do well for the foreseeable future.
Multifamily Success Factors
Optimism for the multifamily market stems from some significant trends tied to the bad economy, including:
- Historically low homeownership with many foreclosures still to come – most every foreclosure means a new potential renter
- Stubbornly high unemployment rate and little job formation
- 60% of population has no rainy day fund (so no potential for ownership)
Freddie Mac and Fannie Mae Due Diligence
One particularly interesting panel included representative from Freddie Mac (Paul Angle, Western Managing Regional Director) and Fannie Mae (Heidi Green, Vice President), discussing the differences in the two GSEs, profiles of typical properties and current trends. Freddie Mac is often seen as more selective in their properties and markets, while Fannie Mae is a bit broader.
On the topic of due diligence, Ms. Green noted that though Fannie Mae’s underwriting standards haven’t changes in the last year, right now they are extremely focused on the condition of properties, their age and how well they’ve been maintained. This rings true with our own experiences at Partner in conducting Fannie Mae Physical Needs Assessments, which have very particular requirements on how they must be conducted and how the property is evaluated. According to Mr. Angle, Freddie Mac has always had high standards for their due diligence, including the Freddie Mac Property Condition Reports, which also has particular requirements.
While both Freddie and Fannie have very large backlogs, Freddie Mac is admittedly a bit slower in their process because they have a bit more diligence (Freddie re-underwrites after the DUS lender). Fannie Mae can be a bit more flexible and quick to reach rate lock due to their complete delegation of underwriting.
We at Partner have seen a lot of action with Fannie and Freddie lenders in the last few months, and have particularly seen an uptick in Fannie Mae portfolios and very short turnaround times for the physical due diligence – this trend was noted at RealShare.
Some panelists speculated on the future of Fannie and Freddie, thought the consensus seemed to be that nothing would happen for another couple years.
Despite the uncertainty in the market, several speakers commented that new multifamily construction is picking up, particularly student housing which is “red hot.” Other new projects noted were small 2-4 unit apartments in large markets. Construction costs are lower than they have been in a long time, aiding the new multifamily housing starts.
With the return of construction after such a substantial void, many lenders are finding themselves short on staff and are relying more on third parties for due diligence and loan servicing, including Construction Document Reviews, Construction Progress Monitoring Reports and other oversight.
Other Multifamily Players
Life companies, multifamily REITs, private capital sources and local banks were all noted as competitors of Freddie and Fannie lenders. Life companies were noted as perhaps the biggest competition; however, several references were made to the aggressiveness of local and regional banks in the multifamily market giving some of the major players a run for their money.
Partner’s Jenny Redlin was interviewed at RealShare opining the current multifamily due diligence trends, which will air on Globe Street in coming days.
Thanks to all the folks at ALM / Globe St for a great event!