What the Market Should
Know as the GSEs Prep
As Fannie Mae and Freddie Mac move
toward privatization, Jeff Lee, president of
Capital One Multifamily Finance, believes
they will have to make some important
Specifically, they will need to balance
pure economic returns versus mission-driven business. “There could be more of a
focus on return metrics to ensure they
could provide an adequate return on capital in the event of privatization,” Lee says.
Both Fannie and Freddie are taking steps to fortify their balance sheets at the direction of their regulator, the Federal
Housing Finance Agency, according to Brian Stoffers, global
president of debt structured finance for capital markets at CBRE.
“The GSEs have credit risk transfer protocols in place now for
multifamily lending [Delegated Underwriting and Servicing loss
sharing for FNMA and K series risk transfers for Freddie],”
Stoffers says. “I think those models are being very well received by
the FHFA. In fact, there’s some talk of creating more credit risk
transfer on the single-family side of the business.”
If those models work, it could speed the path to privatization.
“Mark Calabria [director of the FHFA] has said that he would like
to see this [privatization] largely implemented by 2024 and we
have every hope that it could happen if they continue to recapital-
ize with retained earnings,” Stoffers says.
If privatization does occur and there are no government guarantees backing Fannie and Freddie, Ryan M. Haase, director of
Capital Markets for Franklin Street, says bonds should trade
wider. That, in turn would make the GSE’s cost of capital higher,
which would result in higher rates to the borrower and consumer
and effectively level the multifamily lending playing field.
“With less governmental oversight, the GSEs will have more flex-
ibility to go into alternative and adjacent lending spaces where they
might create more production and efficiencies, thus resembling a
more typical CRE lending institution,” Haase says. “Their mandate
is to improve housing affordability, but it will be interesting to see
how privatization affects the importance of the bottom line.”
Others have concerns about Fannie and Freddie leaving the
market. Because of the need for Fannie and Freddie to buffer the
market in turbulent times, Gerard Sansosti, executive managing
director and debt and loan sales platform leader for JLL, thinks
questions still needed to be settled about if the GSEs become
completely private or if there is some kind of backstop for situa-
tions where credit dries up, such as The Great Recession.
“Unfortunately, the private market has shown that we can screw it
up and we cannot create [in downturns] liquidity if Freddie and
Fannie aren’t around,” Sansosti says.
For the time being though, the GSE’s should continue to be
the backbone of the residential lending market. Citing the
Mortgage Bankers Associations forecast, Stoffers says the agen-
cies’ percentage of the market should
range from the low 40 percent to the
high 30’s. “They have more money than
any lender that I know of with $100 bil-
lion over five quarters,” Sansosti says.
On the traditional affordable housing
funding, Lee says that Fannie and Freddie
also both recently re-entered the LIHTC
space as equity investors.
“There has been increasing competition
for LIHTC in recent years, but this isn’t a new
trend for 2019 and 2020,” he says.—Les Shaver
New York Gets Sense of
Pricing Following Rent Control Law
New York’s multifamily market has seen an overall lag in investment sales since the passage of the Housing Stability and Tenant
Protection Act of 2019. However, a recent uptick in activity in the
Northern Manhattan area suggests that investors are becoming
active again, according to Ariel Property Advisors.
“The Housing Stability and Tenant Protection Act of 2019 elimi-
nated or altered many different legal mechanisms to increase
rents. We’re still seeing how the market will adjust, but it is clear
that investors are basing values much more off of in-place cash-flow
versus future upside,” says Victor Sozio, executive vice president
and founding member of Ariel Property Advisors. “While this new
legislation has presented its challenges, investors have begun to
reassess pricing and strategies. We anticipate higher transaction
volume in the upcoming months to end the year.”
Northern Manhattan has been a particularly bright spot lately
with two large transactions skewing the overall dollar volume fig-
ure. In East Harlem, for example, L + M Development Partners
purchased a portfolio of buildings from Brookfield Properties for
$1.16 billion. The six properties consist of 2,654 residential units
and 40 non-residential units. Two-thirds of the units will be con-
verted into affordable apartments, with L+M purchasing the prop-
erties through its Workforce Housing Fund.
Another example is in Central Harlem where Fairstead Capital
bought two properties from Harlen Housing for $75.5 million. The
two affordable buildings, located at 50 West 139th Street and 560
Lenox Avenue, contain 214 residential units.
“Activity in 2020 Q1 this year is trending to be more active than
the same time last year,” Sozio says. “The market has had time to
adjust to legislation and so we’re seeing larger amounts of valua-
tions and listings. While the market is still hungry for post-legisla-
tion multifamily data points, we’re starting to see a clearer picture
of the new normal.”
For instance, he continues, in December 2019, the company led
the sale of a 31-building affordable portfolio for $120.6 million.
“The market is getting active again.”
In 2019, multifamily transaction volume was down in New York
City approximately 36%, from 450 multifamily transactions in 2018
to 290 in 2019, with the dollar value of multifamily transactions
down 40% from $11.5 billion to $6.9 billion. —Tanya Sterling ◆
Cushman & Wakefield has
hired Michael Movshovich as
an executive managing director to lead its new Alternative
Investment Advisory Group in
New York, a division managing
leasing and operations for clients that include hedge funds
and private equity firms.