Thanks to the Mortgage Bankers Association for Today's Weekly Spotlight on their Newslink. Tough times are upon us but long term opportunity continues to present itself. I took a few quotes out of the full article that can be found here: Commercial Lenders 'Demorph'
WASHINGTON, D.C.—Commercial mortgage bankers, once thought of as "morphing" into an auctioneer role, may return next year to a more basic but powerful position as advisor and educator to borrowers in the current climate, according to industry experts.
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"The mortgage bankers of the world can play a tremendous role in educating and helping these borrowers through that," said Adrian Corbiere, executive vice president and partner at Cohen Financial, Chicago. "It's interesting how borrowers and developers are calling mortgage bankers now saying, 'Help, what do I do?’ That never happened before. Certainly, we view that as one way of helping educate that group and trying to get them to make a decision."
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"That is a mortgage banking professional's 'nirvana,' being engaged as an advisor, as a consultant" said John Davis, executive vice president at Grandbridge Real Estate Capital LLC, Charlotte, N.C. "The past few years, we have been treated as a commodity, but now [borrowers] are coming back to us and seeking our consult."
Showing posts with label finance. Show all posts
Showing posts with label finance. Show all posts
Thursday, December 11, 2008
Thursday, September 11, 2008
Fannie, Freddie & Multifamily: Business As Usual
Yesterday I called into a Conference Call that was graciously hosted by Peter Donovan and his team at the CBRE Multi Housing Group.
According to Phil Weber, (Senior Vice President of Multifamily, Fannie Mae) it will be "business as usual" for the multifamily group at Fannie Mae. He classified Fannie's book of business in multifamily as being in excellent shape and that the newly formed conservatorship will not change the current business model.
Peter Donovan indicated that even some of the larger multifamily transactions will not be subject to regulator review. Fannie and Freddie (although Mike May was not on the call) will continue to manage the day to day operations on the multifamily side.
Peter Donovan believes that this move by the government removes the uncertainty from the market and will have a positive impact on a multifamily market with extremely solid fundamentals.
Click here for a recording of the call.
There is quite a bit of interesting information in the first 30 minutes or so; it is worth a listen.
According to Phil Weber, (Senior Vice President of Multifamily, Fannie Mae) it will be "business as usual" for the multifamily group at Fannie Mae. He classified Fannie's book of business in multifamily as being in excellent shape and that the newly formed conservatorship will not change the current business model.
Peter Donovan indicated that even some of the larger multifamily transactions will not be subject to regulator review. Fannie and Freddie (although Mike May was not on the call) will continue to manage the day to day operations on the multifamily side.
Peter Donovan believes that this move by the government removes the uncertainty from the market and will have a positive impact on a multifamily market with extremely solid fundamentals.
Click here for a recording of the call.
There is quite a bit of interesting information in the first 30 minutes or so; it is worth a listen.
Tuesday, August 26, 2008
Fannie, Freddie and Multifamily
We all know that the GSE's have been extremely active (and profitable) in the multifamily debt markets lately despite the broader market fallout and impending bailout.
The question that I ponder daily is: Will Fannie and Freddie continue to be the go to source for multifamily finance as we move towards 2009? And if not, what are the alternatives?
In somewhat interesting industry news today, Fannie Mae pulled out of further investment in the "The Mid-America Multifamily Fund I" which was a three year joint venture with Mid-America Apartment Communities on a goal to raise $500MM for acquisitions. Certainly makes sense given their focus on capital preservation, but it also gets you thinking about the potential collateral damage outside the debt markets.
Here is an excerpt from the Reuters article:
Fannie Mae halts purchases for Mid-America Fund
"While we will be the first to acknowledge that direct real estate investment and real estate lending are two different animals, and expect multifamily lending to continue given the profitability of the business, we believe that a focus on capital conservation at the GSEs will, at a minimum, cause the cost of financing for the multifamily industry to increase over the next 12 months," Bank of America analysts said in a research note.
Since we can't really get on with things until this mess is settled, and it doesn't appear to be working itself out, I am going to ask a few friends to chime in on a couple of basic questions as relates to multifamily:
How will multifamily lending be impacted with a taxpayer bailout of Fannie and Freddie?
What are the short-term and long term ramifications for the borrower?
How are industry fundamentals effected?
What is the target date of the event?
I am going to save myself the research hours and turn it over to the market experts since I do believe that this outcome is going to be much more than I could ever get my arms around. I do like the over-under at Labor Day though.
If you don't feel like posting please feel free to shoot me a note offline.
The question that I ponder daily is: Will Fannie and Freddie continue to be the go to source for multifamily finance as we move towards 2009? And if not, what are the alternatives?
In somewhat interesting industry news today, Fannie Mae pulled out of further investment in the "The Mid-America Multifamily Fund I" which was a three year joint venture with Mid-America Apartment Communities on a goal to raise $500MM for acquisitions. Certainly makes sense given their focus on capital preservation, but it also gets you thinking about the potential collateral damage outside the debt markets.
Here is an excerpt from the Reuters article:
Fannie Mae halts purchases for Mid-America Fund
"While we will be the first to acknowledge that direct real estate investment and real estate lending are two different animals, and expect multifamily lending to continue given the profitability of the business, we believe that a focus on capital conservation at the GSEs will, at a minimum, cause the cost of financing for the multifamily industry to increase over the next 12 months," Bank of America analysts said in a research note.
Since we can't really get on with things until this mess is settled, and it doesn't appear to be working itself out, I am going to ask a few friends to chime in on a couple of basic questions as relates to multifamily:
How will multifamily lending be impacted with a taxpayer bailout of Fannie and Freddie?
What are the short-term and long term ramifications for the borrower?
How are industry fundamentals effected?
What is the target date of the event?
I am going to save myself the research hours and turn it over to the market experts since I do believe that this outcome is going to be much more than I could ever get my arms around. I do like the over-under at Labor Day though.
If you don't feel like posting please feel free to shoot me a note offline.
Tuesday, July 29, 2008
Multifamily News & Notes, July 2008
Most are familiar with both ends of the Fannie/Freddie news spectrum these days but the negativity is still far outweighing the bright spots. Here is some perspective on lending activity in multifamily housing right now. Pretty solid YOY growth:
HALF MOON BAY, CA. -- Fannie Mae (FNM/NYSE) today announced that its DUS lenders delivered $18.2 billion of the company's total investment in multifamily rental housing, representing the strongest first-half ever for DUS lenders and an increase of 30 percent over mid-year 2007 production. Fannie Mae's investment in multifamily housing totaled $20 billion in the first half of 2008. Primary multifamily financing solutions include debt financing through lender partners and multifamily bond purchases (from the Fannie Mae Website).
Here is an excerpt from the WSJ. Last year I posted on this topic using some statistics provided by Red Capital. The "20.4 MM by 2016" referenced below is pretty staggering.
Campus Living, and Even a Theater - Specialized Developers Helping More Colleges To Meet Housing Needs
By DAWN WOTAPKA - July 23, 2008; Page C12As the population swells and the majority of high-school graduates seek degrees, enrollment is projected to climb to 20.4 million in 2016, up nearly 42% in 25 years. By 2020, Arizona State expects its student count to jump nearly 60% to 100,000 competing for just 22,500 beds on campus. "The market is huge," said Jim Arbury, senior vice president of government affairs for the National Multi Housing Council.
There are also strong growth opportunities for companies interested in expanding through acquisitions. Plenty of student housing remains in the hands of mom-and-pop operators; the top eight players in the industry own less than 5% of total off-campus demand.
"We have not begun to corner the market," said Paul O. Bower, chief executive of Memphis, Tenn.-based Education Realty, which owns and manages 41,500 beds in 70 properties.
Here is some anecdotal evidence that there is some strategic thinking getting behind the green movement. It seems obvious but all of us get caught up in launching a new product because we are in love with the idea and fail to solicit input from the end-user.
Builder taps focus groups for green condominiums
Washington Business Journal - by Vandana Sinha Staff Reporter
Taurus Development Group plans to enlist a different type of consulting group to help shape its next green condominium building: everyday people.
The D.C. developer is turning to a concept called “crowd sourcing,” which creates communities of interested people, in Facebook fashion, to get their opinions, from initial designs to final sales, and help determine how a multimillion-dollar project should be developed. Call it Focus Group 2.0.
HALF MOON BAY, CA. -- Fannie Mae (FNM/NYSE) today announced that its DUS lenders delivered $18.2 billion of the company's total investment in multifamily rental housing, representing the strongest first-half ever for DUS lenders and an increase of 30 percent over mid-year 2007 production. Fannie Mae's investment in multifamily housing totaled $20 billion in the first half of 2008. Primary multifamily financing solutions include debt financing through lender partners and multifamily bond purchases (from the Fannie Mae Website).
Here is an excerpt from the WSJ. Last year I posted on this topic using some statistics provided by Red Capital. The "20.4 MM by 2016" referenced below is pretty staggering.
Campus Living, and Even a Theater - Specialized Developers Helping More Colleges To Meet Housing Needs
By DAWN WOTAPKA - July 23, 2008; Page C12As the population swells and the majority of high-school graduates seek degrees, enrollment is projected to climb to 20.4 million in 2016, up nearly 42% in 25 years. By 2020, Arizona State expects its student count to jump nearly 60% to 100,000 competing for just 22,500 beds on campus. "The market is huge," said Jim Arbury, senior vice president of government affairs for the National Multi Housing Council.
There are also strong growth opportunities for companies interested in expanding through acquisitions. Plenty of student housing remains in the hands of mom-and-pop operators; the top eight players in the industry own less than 5% of total off-campus demand.
"We have not begun to corner the market," said Paul O. Bower, chief executive of Memphis, Tenn.-based Education Realty, which owns and manages 41,500 beds in 70 properties.
Here is some anecdotal evidence that there is some strategic thinking getting behind the green movement. It seems obvious but all of us get caught up in launching a new product because we are in love with the idea and fail to solicit input from the end-user.
Builder taps focus groups for green condominiums
Washington Business Journal - by Vandana Sinha Staff Reporter
Taurus Development Group plans to enlist a different type of consulting group to help shape its next green condominium building: everyday people.
The D.C. developer is turning to a concept called “crowd sourcing,” which creates communities of interested people, in Facebook fashion, to get their opinions, from initial designs to final sales, and help determine how a multimillion-dollar project should be developed. Call it Focus Group 2.0.
Monday, April 28, 2008
Glossary of Lending Terms
Here is a list of some "basic" lending terms from the AFT Conference. Don't be afraid to ask questions that may seem basic, chances are that at least 50% of the folks in the room have the same one.
Amortization: The way that debt is reduced by installments over a given period of time. Amortization is the calculation of equal monthly payments that pay off the debt and interest charged on a loan. It is expressed in years: a loan with a 30-year amortization would have 360 payments.
Debt Service Coverage Ratio (DSCR): DSCR is an underwriting formula that measures whether an income-producing property can sustain its debt based on cash flow. The calculation is Net Operating Income/Total Debt Service. For lenders, the higher the DSCR, the less risk it is taking on the loan. Freddie Mac and Fannie Mae lenders typically underwrite to a 1.20 DSCR, meaning that for every dollar spent on debt payments, the property generates $1.20.
Government-sponsored Enterprises (GSEs): GSEs are financial institutions that were created by the U.S. Congress to provide liquidity in a given market segment. Fannie Mae, Freddie Mac, and the Federal Home Loan Banks are GSEs. While these institutions have a public charter, they are privately owned.
Loan to Value (LTV): An underwriting calculation that measures the amount of a loan against the property’s appraised value. A borrower seeking a $1 million loan for a property worth $2 million will have an LTV of 50 percent, for instance.
Mezzanine Financing: A form of capital that fills the gap between a first mortgage and equity to achieve 100 percent financing on a deal. Mezzanine financing can be structured to emphasize debt or equity characteristics—it can work like a standard loan or allow the mezzanine provider to share in profits.
Non-Recourse Debt: A type of debt wherein the borrower does not have personal liability for the loan. Non-recourse debt is secured by collateral, usually in the form of property. If the borrower defaults, the lender can seize the collateral, but can’t seek further compensation, regardless of whether that collateral covers the full value of the defaulted amount.
Senior Debt: A form of debt that has priority over other types of debt in a given deal. If a borrower defaults, the senior debt must be repaid before other creditors receive payment.
Spread: The amount charged by a lender for issuing a loan. The spread is one component of the all-in interest rate. The spread is expressed in basis points: 100 basis points equals 1 percent.
Subordinate Debt: A form of debt that ranks below other loans in a given deal. If a borrower defaults, subordinate debt providers would get paid only after the senior debt is paid off in full.
Capital Markets 101, Apartment Finance Today Conference, April 8, 2008
Amortization: The way that debt is reduced by installments over a given period of time. Amortization is the calculation of equal monthly payments that pay off the debt and interest charged on a loan. It is expressed in years: a loan with a 30-year amortization would have 360 payments.
Debt Service Coverage Ratio (DSCR): DSCR is an underwriting formula that measures whether an income-producing property can sustain its debt based on cash flow. The calculation is Net Operating Income/Total Debt Service. For lenders, the higher the DSCR, the less risk it is taking on the loan. Freddie Mac and Fannie Mae lenders typically underwrite to a 1.20 DSCR, meaning that for every dollar spent on debt payments, the property generates $1.20.
Government-sponsored Enterprises (GSEs): GSEs are financial institutions that were created by the U.S. Congress to provide liquidity in a given market segment. Fannie Mae, Freddie Mac, and the Federal Home Loan Banks are GSEs. While these institutions have a public charter, they are privately owned.
Loan to Value (LTV): An underwriting calculation that measures the amount of a loan against the property’s appraised value. A borrower seeking a $1 million loan for a property worth $2 million will have an LTV of 50 percent, for instance.
Mezzanine Financing: A form of capital that fills the gap between a first mortgage and equity to achieve 100 percent financing on a deal. Mezzanine financing can be structured to emphasize debt or equity characteristics—it can work like a standard loan or allow the mezzanine provider to share in profits.
Non-Recourse Debt: A type of debt wherein the borrower does not have personal liability for the loan. Non-recourse debt is secured by collateral, usually in the form of property. If the borrower defaults, the lender can seize the collateral, but can’t seek further compensation, regardless of whether that collateral covers the full value of the defaulted amount.
Senior Debt: A form of debt that has priority over other types of debt in a given deal. If a borrower defaults, the senior debt must be repaid before other creditors receive payment.
Spread: The amount charged by a lender for issuing a loan. The spread is one component of the all-in interest rate. The spread is expressed in basis points: 100 basis points equals 1 percent.
Subordinate Debt: A form of debt that ranks below other loans in a given deal. If a borrower defaults, subordinate debt providers would get paid only after the senior debt is paid off in full.
Monday, April 7, 2008
Multifamily looks for long ideas
Day one of the Apartment Finance Today Conference exceeded expectations for me. I anticipated a mixed-bag of murky, market forecasts but overall I found the group to be extremely optimistic and aggressively in search of market opportunities.
AFT attendees feel that we are not out of the woods on the national economy, and don't have confidence in our government's ability to help the matter, but I certainly got the sense that owners and developers have a confident mindset. "Access to capital is challenging, cap rates remain low and more product is on the market now, but we could have big positions in office, industrial or retail right now and be far worse off."
"NOI is slowing but still growing in many markets, GSEs (Fannie and Freddie) are supporting the market's capital needs in a big way, foreign and institutional money has not been frightened off and even 'well-documented' horror stories by the mainstream media, like Phoenix, still have strong fundamentals and growth upside for savvy long term investors."
Make no mistake, not all was cheerful and rosy. Pressing issues like the lack of tax credit investment, job growth and the bulge of multifamily CMBS refinancing needing attention in the next few years were touched on as significant challenges that can create an even more hostile environment for business.
Obviously the folks who attend industry conferences and share best practices with peers are doing the necessary homework to be successful...so maybe I should expect this type of positive inspiration here. Nevertheless it was exciting to watch this very open and engaging dialogue take place. More tomorrow...
AFT attendees feel that we are not out of the woods on the national economy, and don't have confidence in our government's ability to help the matter, but I certainly got the sense that owners and developers have a confident mindset. "Access to capital is challenging, cap rates remain low and more product is on the market now, but we could have big positions in office, industrial or retail right now and be far worse off."
"NOI is slowing but still growing in many markets, GSEs (Fannie and Freddie) are supporting the market's capital needs in a big way, foreign and institutional money has not been frightened off and even 'well-documented' horror stories by the mainstream media, like Phoenix, still have strong fundamentals and growth upside for savvy long term investors."
Make no mistake, not all was cheerful and rosy. Pressing issues like the lack of tax credit investment, job growth and the bulge of multifamily CMBS refinancing needing attention in the next few years were touched on as significant challenges that can create an even more hostile environment for business.
Obviously the folks who attend industry conferences and share best practices with peers are doing the necessary homework to be successful...so maybe I should expect this type of positive inspiration here. Nevertheless it was exciting to watch this very open and engaging dialogue take place. More tomorrow...
Wednesday, August 1, 2007
Multifamily Loan Survey
In recent discussions with various commercial real estate lenders I have been assured that the residential mortgage meltdown is not having a residual impact on the commercial side. This anecdotal evidence has been confirmed by a survey just released by the California Mortgage Bankers Association.
"California Commercial Loan Delinquency Ratio hits 5-Year Low at .03%. Only 3 loans delinquent out of over 10,000 surveyed."*
Furthermore, none of these delinquent loans are multifamily.
Of the $88 billion of total servicing by the 17 mortgage banking firms participating, $27 billion is multifamily...multifamily represents the segment with the highest volume (31%) of any commercial property type in the state of CA.
That's not to say that delinquent residential mortgages won't have an impact on our industry but I think it is a strong indicator of sound industry fundamentals.
* June 30, 2007 quarterly commercial loan delinquency survey (CMBA).
"California Commercial Loan Delinquency Ratio hits 5-Year Low at .03%. Only 3 loans delinquent out of over 10,000 surveyed."*
Furthermore, none of these delinquent loans are multifamily.
Of the $88 billion of total servicing by the 17 mortgage banking firms participating, $27 billion is multifamily...multifamily represents the segment with the highest volume (31%) of any commercial property type in the state of CA.
That's not to say that delinquent residential mortgages won't have an impact on our industry but I think it is a strong indicator of sound industry fundamentals.
* June 30, 2007 quarterly commercial loan delinquency survey (CMBA).
Saturday, June 23, 2007
Student Housing
Niche market opportunities have been a growing area of attention lately. LIHTC, military and student housing development are all subsets of multifamily housing that have been consistenly active and somewhat immune to fears of being impacted by general economic conditions.
Homeownership rates can influence demand in rental housing but have little impact on student housing.
I came across some interesting statistics in a recent student housing
market study produced by Daniel Hogan at Red Capital. Here are some general findings:
Homeownership rates can influence demand in rental housing but have little impact on student housing.
I came across some interesting statistics in a recent student housing
market study produced by Daniel Hogan at Red Capital. Here are some general findings:
- The US Student Housing market consists of 7.5mm beds, 2.2mm are on campus.
- Between 2006 and 2011 college enrollment will increase by 1.3mm students.
- Few colleges are prepared to house these new students on campus since most of their limited resources are spent renovating existing structures that date back to the 60's.
- Parents and students will pay the premium for security and technology.
- Occupancy rates are higher than traditional market-rate housing (97 to 100% at institutional grade assets).
- NOI, appreciation rates and overall investor return in student housing are significantly higher than market-rate.
Many of these developers and operators are not on the MFE50 list and may not be on the radar of your sales team. This is another example of the opportunities that can get lost behind broad market statistics.
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