1 Fannie & Freddie What Next for Multifamily. Setting the Stage Good time to be an apartment owner...
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Transcript of 1 Fannie & Freddie What Next for Multifamily. Setting the Stage Good time to be an apartment owner...
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Fannie & Freddie
What Next for Multifamily
Setting the Stage
Good time to be an apartment owner or investor
• Rebalancing of housing
• Solid fundamentals
• Strong demographic outlook
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Apartment Recovery:
• Occupancy anticipated to remain strong
• Rent Growth to buck trend and maintain/slight increase
85%
90%
95%
100%
1Q95
1Q96
1Q97
1Q98
1Q99
1Q00
1Q01
1Q02
1Q03
1Q04
1Q05
1Q06
1Q07
1Q08
1Q09
1Q10
1Q11
1Q12
1Q13
1Q14
Occu
panc
y
-5%
0%
5%
10%
Year
-Yea
r Effe
ctive
Ren
t Gro
wth
Occupancy Occupancy Forecast Rent Growth Rent Growth Forecast
Slower (still above trend) rent growth in 2013, then upward
Copyright 2013, Witten Advisors LLC
Dallas, Texas
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Apartment Recovery:
• No indication of national apartment development bubble –
New supply still 750,000 below trend
• Strong Delivery Numbers in 2013, 2014, 2015
Permits Issued 5+ Units
0
200
400
600
2000 2003 2006 2009 2012
4
20 20 21 22 22 21 20 20 21 23 2220
1713
9 7 6 60
10
20
30
<5 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 >85mill
ions
of p
eopl
e
The Generations by Age Group
Baby Boomers Eisenhower GenGen XGen Y (Echo Boomers)Gen Z
(800)
1,200
1,900
2,300
(400)
(2,000)
(1,700)
1,800
3,400
5,000
4,900
2,300
500
700
20 - 24
25 - 29
30 - 34
35 - 39
40 - 44
45 - 49
50 - 54
55 - 59
60 - 64
65 - 69
70 - 74
75 - 79
80 - 84
85+
Population Growth by Age Group (000s), 2012E-2020E
Senior Housing will also benefit
Gen Y drives demand for apartments, entry-level
homes
Boomers downsize, drive demand for lifestyle
product
Smaller Gen X base replaces Boomers, limiting demand for move-up/luxury housing
23%
23%
29%
38%
64%
0% 50%
> 65
55-64
45-54
35-44
< 35
Propensity to Rent by Age
Group
Favorable Demographic Outlook For Apartments
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6
Commercial/Multifamily Loan Originations – 2012 MBA Estimate
Lending is returning to normal flow levels
• Note the correlation between government credit and private label CMBS
• CMBS data includes limited multifamily mortgage-backed assets.
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Multifamily Housing Finance/GSE Reform
Liquidity
Products
Pricing
Credit Backstop
CMBS
Banks
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Housing Finance/GSE ReformMore than Bad JuJu
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• GSE model has flaws (single-family)
• Prevent future bailout/losses
• Home mortgage finance system flawed
• Ned to get the private markets reengaged
• General agreement that duopoly needs to be replaced or significantly changed
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Multifamily GSE Reform: A solution in search of a problem
What is the Issue We Are Trying To Address?
• Government Credit Risk
• Create More Profits for Private Debt Providers
• Reducing/Eliminating Government Footprint in Housing
• GSEs are just “Bad JuJu” - So Multifamily Must Go
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Accept Reality
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Need to Address The Status Quo
• Need to phase out the GSE participation in the market
• We only need a catastrophic risk backstop
• Government should not be exposed to real estate credit risk
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Realty Check
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Are the multifamily programs a liability or an asset?
• Very low default rate for 23 years (handful of defaults)
• Apartment sector is not as subject to overbuilding
• They have been a market leader and complement private debt
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Affordable Housing
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The GSEs Contribute
• 16% of their MF volume in 2012 or $10 B was for targeted AH
• Exceeded goals of 80% of AMI by 150%
• TE bond CE and LIHTC financing
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Can they contribute more?
• $3-$4 Billion in NET revenues in 2012 – share the wealth
• MF low-income housing trust fund?????
• Set in motion moral hazard with a twist??
Affordable Housing
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• Federal credit for MF but only for security investors
• Expanded credit envelop – G-fee, RBC and insurance fund
• Risk retention
• Public purpose activities
Growing Policy Consensus
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What will they do?
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Congress - Senate
Senate Banking
• First hearing on March 19th
• Warner and Crapo want Congress to Lead
• Bi-partisan opportunity has a chance
• Chairman Johnson is retiring but may be motivated
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Financial Services Committee
• First Hearing March 19th
• Chairman Hensarling wants a bill that puts in place as much of a GSE wind-down a as he can get
• Working his caucus – not as unified on his position
• House leadership want a bi-partisan bill
Congress - House
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Preservation of the liquidity currently provided by Fannie Mae and Freddie Mac in all markets during all economic cycles is critical. This can be achieved either through:
(1) the preservation of current multifamily activities under conservatorship; or
(2) should reform become inevitable, the reform should preserve the high quality and value of the current multifamily secondary mortgage market activities.
NMHC/NAA Advocacy: What we want. . .
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GSE Reform: Why It Matters
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Commercial/MF Loan Orginations
Questions?