Fannie Mae Multifamily Outlook - citibank.com€¦ · Source: CBRE-EA/Dodge Pipeline, July 2014 *...

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Fannie Mae Multifamily Outlook

September 16, 2014

Market Insights on Community Development

Kim Betancourt Fannie Mae Multifamily Mortgage Director of Economics and Multifamily Market Research

Tanya Zahalak Fannie Mae Multifamily Mortgage Real Estate Economist Multifamily Market Research

Mark Dean Citi Community Capital Managing Director, National Production Manager

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Your Webinar Host Mark Dean, Citi Community Capital, National Production Manager

Mr. Dean has over 27 years of experience providing investment banking and mortgage banking services to real estate developers and corporate sponsors. He specializes in financing multifamily housing using Private Activity Bonds, both enhanced and unenhanced, for public housing authorities, affordable housing developers, and senior housing providers. Mr. Dean works with both for-profit and not-for-profit organizations to finance projects such as affordable housing developments, senior living facilities, and market rate housing.

Mr. Dean has provided acquisition, construction and permanent financing for a wide variety of multifamily housing, senior housing, not-for-profit facilities. In addition to these types of financing Mr. Dean has executed current, advance and taxable refundings of existing bond and real estate debt. His experience includes both public offerings and private placements. His broad range of experience with loan products and debt credit enhancements includes conventional financing vehicles as well as bond insurance, contingent loan agreements, FHA mortgage insurance programs, GNMA MBS, Fannie Mae MBS, letters of credit, and collateral pledges. In addition, Mr. Dean is an expert on the use of low-income housing tax credits to finance multifamily apartments.

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Q&A

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From Fannie Mae Kim Betancourt, Director of Economics and Multifamily Market Research

Current Responsibilities: Kim Betancourt is Fannie Mae’s Director of Economics and Multifamily Market Research. She manages a team of real estate economists that focus exclusively on the multifamily sector. Ms. Betancourt is responsible for analyzing current economic conditions at both national and local levels, determining their impact on the multifamily sector, and identifying future trends. Experience: Before joining Fannie Mae, Ms. Betancourt was a Senior Vice President at GMAC Institutional Advisors and managed the Realpoint senior analytical research team. Prior to GMAC, Ms. Betancourt was a Director in the Structured Finance department of Standard & Poor’s and headed up the Servicer Evaluations Group. She has also held leadership positions with Citicorp and Midlantic National Bank. Education: Ms. Betancourt holds both a Master of Arts and a Bachelor of Arts with honors from Rutgers University.

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From Fannie Mae Tatyana (Tanya) Zahalak, Real Estate Economist

Current Responsibilities: Tanya Zahalak is a real estate economist focusing on the multifamily sector. She follows multifamily markets at the MSA level with an eye toward determining multifamily market trends and supply/demand imbalances. In addition, Ms. Zahalak is the Multifamily Mortgage Business’ affordable housing economist. In this capacity, she is responsible for analyzing economic conditions at both national and local levels and determining their impact on multifamily subsidized affordable housing. Publications include “Despite an Increase in Supply, Fewer Affordable Rentals” and “Is the Development and Design of Multifamily Housing in Line with Recent Trends.” Experience: Ms. Zahalak has been with Fannie Mae for over 15 years in a variety of roles and has experience in both single and multifamily housing including pricing and product development. Education: Ms. Zahalak received a B.A. in Applied Math from Washington University in St. Louis and a Masters in Finance from Johns Hopkins University.

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Multifamily Market Outlook

Kim Betancourt Tanya Zahalak

Multifamily Economics and Market Research Multifamily Mortgage Business

September 2014

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Source: The New Yorker

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Real Estate Fundamentals: Demographics Favorable Demographics are in Multifamily’s favor over the long-term, especially in the younger aged cohort…

Source: U.S. Census, Fannie Mae

U.S. Renter Population: Age 20-34 Cohort

56

58

60

62

64

66

68

70

Mill

ions

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…and even though there are more 1- 4 unit rentals than 5+ unit rentals... Real Estate Fundamentals: Demographics Favorable

Source: Census Bureau

U.S. Renter Occupied Stock by Structure 25

.9

5.7

19.7

24.2

8.5 11

.1

4.9

28.5

6.3

18.3

22.3

8.4

11.6

4.6

0

5

10

15

20

25

30

1, detached 1, attached 2-4 5-19 20-49 50+ Other*

Dis

trib

utio

n of

Ren

ter O

ccup

ied

Stoc

k (%

)

2007 2008 2009 2010 2011 2012

* Other includes manufactured/mobile homes, boats, RVs, vans etc.

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Real Estate Fundamentals: Demographics Favorable

Sources: 2012 American Community Survey

*Dot width is proportionate to number of renters represented by each age group

… renters aged 35-64 prefer single family dwellings and younger renters prefer multifamily dwellings.

0%

10%

20%

30%

40%

50%

60%

Age<35 Age 35-64 Age 65+

Share of Total Renters

Age 65+

Age < 35

Age 35-64

0%

20%

40%

60%

0% 20% 40% 60%

Shar

e of

Mul

tifam

ily R

ente

rs

Share of Single Family Renters (1-4 units)

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Real Estate Fundamentals: Employment Growth Positive

Source: CBRE-EA, 2Q2014

Many metros will keep seeing job growth, although at a slower pace over the next two years.

Change in Employment – Select Metros

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Real Estate Fundamentals: Rental Demand Stable National estimated multifamily vacancy rates are at their trough…

Source: Fannie Mae Multifamily Economics and Market Research Estimates

Estimated National Rent Level and Vacancy Rate

$1,123

4.75%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

$920

$970

$1,020

$1,070

$1,120 Rent Level

Vacancy Rate

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Real Estate Fundamentals: Rental Demand Stable … keeping rent growth positive for nearly four years now…

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

(1,500)

(1,000)

(500)

0

500

1,000

Qua

rter

ly R

ent G

row

th

New

Job

s

Job Growth

Rent Growth

Source: CBRE-EA – Recessionary quarters shaded in yellow.

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Real Estate Fundamentals: Rental Demand Stable … with many metro-level vacancies expected to remain below their historic averages.

Source: CBRE-EA, 2Q2014

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Real Estate Fundamentals: Rental Demand Stable Most younger renters still want to own a home -- at least someday…

Source: Fannie Mae National Housing Survey, May 2014

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Real Estate Fundamentals: Rental Demand Stable

… and believe homeownership is a good financial investment.

Source: Fannie Mae National Housing Survey, May 2014

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Source: Fannie Mae National Housing Survey, August 2014

Nevertheless, it seems that many tenants plan to keep renting…


Share of respondents who say they would…if they were going to move

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… even though they are anticipating rent increases higher than forecasted...


Average 12 Month Rental Price Change Expectation (Percent)

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Real Estate Fundamentals: Rental Demand Stable … and expect rental prices to keep rising over the next 12 months.


Share of respondents who say home rental prices will…in the next 12 months

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“We decided to convert it into ‘high-density’ housing.”


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Real Estate Fundamentals: Rental Supply and Demand Multifamily starts are slightly ahead of historically average levels…

Multifamily (5+ units) Starts (3 month moving average)

Source: U.S. Department of Commerce, Bureau of the Census, per Haver Analytics DLX

1989 – 2008 Average

0

200

400

600

800

1,000

1,200

(000

s)

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Real Estate Fundamentals: Rental Supply and Demand … with the number of multifamily projects underway rising quickly…

Source: CBRE-EA/Dodge Pipeline, July 2014 * Anticipated completion date

National Condo and Apartment Completions and Units Underway

0

20

40

60

80

100

120

Thou

sand

s

Apartments

Condos

NOTE: Pipeline data is not an actual forecast of activity, it is a monitor of activity reported on to-date. As more projects are planned and tracked, figures in future periods might go up.

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Real Estate Fundamentals: Rental Supply and Demand … but there are really only a few metros that have a significant number of completions coming online soon.

0

5

10

15

20

25

30

35

40

45

Uni

ts (T

hous

ands

)

Beyond

2015

2014

Source: CBRE-EA/Dodge Pipeline, July 2014 – Metros with 2,000 or more units underway

Multifamily Apartment Units Underway – Select Metros

Expected Year of Completion

NOTE: Pipeline data is not an actual forecast of activity, it is a monitor of activity reported on to-date. As more projects are planned and tracked, figures in future periods might go up.

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Real Estate Fundamentals: Multifamily Investment Cap rate spreads have stayed wide...

Treasurys and Multifamily Cap Rates

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

10-Year Treasury

Cap Rate

Source: Real Capital Analytics, and Federal Reserve, Selected Interest Rates H.15, per Haver Analytics DLX

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Real Estate Fundamentals: Multifamily Investment

National Apartment Sales Volume and Cap Rates

… as investors have increasingly turned to buying existing apartment buildings.

5.5%

5.7%

5.9%

6.1%

6.3%

6.5%

6.7%

6.9%

7.1%

7.3%

7.5%

$0

$5

$10

$15

$20

$25

$30

$35

Billi

ons

Sales Cap Rate

Source: Real Capital Analytics – Note: Chart excludes $22 B Tishman-Speyer transaction in October 2007

6.0%

$26.0 B

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28

15.4%

39.3%

59.6%

16.4%

42.8%

62.5%

0%10%20%30%40%50%60%70%80%90%

Extremely Low IncomeRenters (Income<=30% of AMI)

Very Low Income(Income<=50% AMI)

Affordable at 60% of AMI

2009 2011

Relative Proportion of Affordable Multifamily Housing 2011 vs. 2009

Source: Fannie Mae, 2011 American Housing Survey

Based on cumulative affordable units. For instance, if a unit is affordable at Extremely Low Income i.e. affordable to income <= 30% of AMI, it is also affordable at the Very Low Income (<= 50% of AMI) category.

The number of units affordable to Very Low Income renters declined by 200,000 units to 6.3 million in 2011.

Multifamily Affordable Housing: Affordability Still a Concern

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As a result, working renter households are more likely to be severely cost-burdened compared to homeowners.

Percentage of Working Households with a Severe Housing Cost Burden

24.5% 25.6% 26.4%

25.4%

21.2% 21.6% 20.9%

18.6%

15%

20%

25%

30%

2009 2010 2011 2012

Working Renters Working Owners

Source: Housing Landscape 2014, Center for Housing Policy

Multifamily Affordable Housing: Affordability Still a Concern

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Source: Cartoon Stock

31

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

Class A Class B/C

Multifamily Completions by Class Type

Source: Reis

There has been hardly any class B/C multifamily new construction over the past decade…

Multifamily Affordable Housing: Little New Affordable Stock

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35% 36% 37% 37% 38% 38% 38% 39% 40% 40% 41% 41% 42% 42%

65% 64% 63% 63% 62% 62% 62% 61% 60% 60% 59% 59% 58% 58%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Class B/C Class A

…with the share of Class B/C units shrinking steadily. Multifamily Inventory Share by Class Type

Source: Reis, based on multifamily sample tracked

100% = 8.8 M 9.0 M 9.1 M 9.2 M 9.3 M 9.2 M 9.2 M 9.3 M 9.3 M 9.4 M 9.6 M 9.7 M 9.8 M 9.9 M


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0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

LIHTC Units Placed in Service LIHTC Properties Placed in Service Source: HUD Low Income Tax Credit Database as of October 1987-2010; Integratec estimates based on HFA allocations 2011-2014

* Integratec assumed 15% of the current year allocations, 60% of the prior year allocations and 25% of two years prior allocations would be placed in service. For example, 2014 reflects 15% of the 2014 allocations, 60% of the 2013 allocations, and 25% of the 2012 allocations.

Low Income Housing Tax Credit Units (LIHTC) Projects placed in Service since 1987

Also, the number of LIHTC units placed in service has declined since 2005.


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Real Estate Fundamentals: Rental Demand Stable Coupled with steady rent growth by class…

National Effective Rent Growth by Class

Source: Axiometrics

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

% In

crea

se fr

om P

rior Y

ear

Class B Class C

35

2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5%

LIHTC Properties Market Rate Class B/C

Vacancy Rates for Market Rate and Affordable Properties 6/30/2012 – 12/31/2013

Source: Integratec Tax Credit Central, REIS

Low Income Housing Tax Credit Properties: Favorable Fundamentals

…vacancies for affordable housing have been consistently lower than market rate housing recently…

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Median Expense Per Unit ($) Q2 2012 – Q4 2013

…with occupancy rates for new subsidized units consistently highest. Occupancy Rates by Development Type 6/30/2012 – 12/31/2013

Source: Integratec Tax Credit Central

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Meanwhile, LIHTC vacancies continue to be low in most major metros…

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

Seattle, WA San Francisco, CA

Los Angeles, CA Baltimore, MD

Boston, MA Minneapolis, MN

New York, NY Washington, DC

National Average Chicago, IL

Philadelphia, PA Detroit, MI

Houston, TX Dallas, TX

St. Louis, MO Atlanta, GA

12/31/2012

12/31/2013

Median Vacancy Rate Trends for LIHTC Properties – Select Metros Vacancy Rates (%)

Source: Integratec, Tax Credit Central


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…with debt service coverage ratios solid…

0.60 0.80 1.00 1.20 1.40 1.60 1.80

New York, NY Baltimore, MD

Los Angeles, CA Washington, DC

San Francisco, CA Minneapolis, MN Philadelphia, PA

National DCR Chicago, IL Seattle, WA

Dallas, TX Houston, TX Boston, MA

St. Louis, MO Detroit, MI

Atlanta, GA

12/31/2012 12/31/2013

Debt Service Coverage Ratio



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Median Expense Per Unit ($) for Major Metropolitan Statistical Areas


…and operating expenses rising modestly…


$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

12/31/2012

12/31/2013

40


Median Expense Per Unit ($) Q2 2012 – Q4 2013

…and although operating expenses are rising nationally….


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Median Real Estate Taxes Per Unit ($) for Major Metropolitan Statistical Areas


…real estate taxes have mostly stayed flat year-over-year.


$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

12/31/2012 12/31/2013

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And just remember:

Thank You! Kim Betancourt, Director of Economics Tanya Zahalak, Real Estate Economist

Multifamily Economics and Market Research [email protected]

[email protected]

Twitter: @Kim_Betancourt



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Appendix: Tax Credit Central

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