Foong on Finance: When Will Financing Return?


Here are some “take away” items from the Mortgage Bankers Association’s annual commercial real estate financing conference, which I attended this week in San Diego. Yes, financing will be back, within two years.

That is the opinion of most of the financing industry members, some of them executives of leading players. We are talking about CMBS-like, securitized, financing in some form or other.

Indeed, during the conference Jones Lang LaSalle released its 2009 Loan Production Outlook Survey that showed 67 percent of nationwide commercial real estate lenders expect securitized lending to return to the capital markets by 2011. If some CMBS-like financing is once again available—remember how it heated up the multifamily markets?—it should, one would think, help boost apartment values at that time. Perhaps this will happen around 2011.

Meanwhile, Treasury Secretary Timothy Geithner’s just-announced proposal to expand government support under TALF (Term Asset-Backed Securities Loan Facility) to the commercial real estate mortgage securities could help restore trading in the securities—and ultimately, prompt securitized lending once again.

However, securitized financing addresses only permanent or maybe even bridge financing, but not construction lending, which may remain unavailable for the foreseeable future. Many lenders at the meeting were upfront about the current unavailability of capital. Most life companies seem to have stopped lending to the commercial real estate sector, or at least dramatically curtailed on their lending. As far as banks, one panelist at the conference lamented that the bigger national commercial banks are out of active balance sheet lending to the sector, but so are the smaller community banks who should be able to pick up some of the slack.

Another major concern of the multifamily industry is the financing industry’s ability to refinance the huge volume of loans maturing in the next few years. Given the current credit crunch, a refinancing crisis seems to be in the making. On this issue, Jami Woodwell, MBA vice president of commercial real estate research, noted at a press luncheon that longer-term fixed-rate loans that are maturing may have it easier than the huge volume of maturing short-term loans. That’s because such loans have gone through a longer period of price appreciation and amortization and were likely made in the early 2000s—before the height of the market.

Of course, the multifamily sector is in far better shape than other commercial real estate sectors by dint of Fannie Mae and Freddie Mac financing that is made available to it—for now. Throwing a shadow over multifamily financing in the minds of many, however, is the GSEs’ impending mandated reduction in portfolio in 2010—when they may have to reduce their multifamily financing volume.

With regards to this question, Fannie Mae said it is pushing more and more of its multifamily financing over to securitization. If the loans are securitized and sold to investors, rather than held in portfolio, they would not be subject to the portfolio limits. Let’s hope that works and liquidity remains in the multifamily sector. 

Last but not least, the lenders sure are aware of softening fundamentals in the apartment sector. On a multifamily financing panel, executives, including ones from Fannie Mae and Freddie Mac, told the moderator Shekar Narasimhan that they expect apartment values to decline from 12 to 20 percent this year.

And, take note, Fannie Mae and Freddie Mac have tightened their underwriting standards in the past few weeks. Heidi McKibben, Fannie Mae vice president, multifamily, told MHN that job loss is leading to higher vacancies and reductions in NOI. For example, in California occupancies have fallen from about 95 to low-90 percent, she noted. “It is important to have structures in place to ensure that [Fannie Mae] is not overlending,” she told MHN.

For detailed reports on these topics, tune in to daily issues of Multi-Housing News e-newsletters this week—or the next issue of Multi-Housing Finance and Investment in two weeks’ time. See you then.