What impact does the FOMC’s
decision not to taper QE have
on commercial real estate?
The residential sector normally contributes significantly to economic recovery
and growth following a recession, and the
Fed’s decision not to slow its QE lends
continued support to the mortgage market. High underwriting standards remain
hurdles for both consumers and businesses, but financing conditions have eased,
and expanded access to credit is requisite
for a sustainable economic expansion. A
continued accommodative lending environment will aid in the refinance and
restructuring of maturing loans and more
capital will favor real estate as a comparatively sound alternative to low-yield bond
and volatile equity investments. The
increase in mortgage rates over the past
year has rippled through commercial real
estate transactions by significantly increasing financing costs, particularly for non-core assets in secondary markets. A more
liquid credit market will broaden opportunities for investors over the short term,
but interest rates will continue to face
upward pressure over the long term as
the economy gains momentum.
What does the increased num-
ber of multifamily projects
coming on line mean for the
development market?
Nothing happened from 2008 to 2012,
so there was a large wall in any new
units being brought on line. That
meant that there was a huge need. The
market now seems like it’s being flooded with new units coming on line, but
really it is just naturally what would have
happened in 2008 through 2012. So,
now we’re seeing a lot come on line,
and that is basically because there was
such a lull. Because there is so much
construction going on, there is a lack of
talented construction management.
The market is becoming fierce to find
good construction management individuals because there is so much work out
there. One of the solutions is that firms
need to make sure that their top people
are tied into the company. Any time
there is this much work, people will
start making offers to workers who are
already employed. The solution is that
major development companies need to
have their people locked in.
Should you pick a Freddie or
Fannie report for your due
diligence assessment?
I often field calls from clients who have
recently gone under contract on a multi-
family asset asking me to prepare a Phase
I Environmental Site Assessment and
Property Condition Report as part of
their due diligence. My first question is
always: “Have you selected a lender?” A
typical response is: “It’ll likely be a Fannie
Mae or a Freddie Mac loan, but I’m not
sure yet which way it’ll end up.”
It seems that most in the industry lump
Fannie and Freddie together, and not sur-
prisingly so. Yet for all of their similarities,
there are enough differences that if you
select the wrong lender’s scope of work
for your due diligence assessments, you
could find yourself in trouble. Fannie and
Freddie each have specific guidelines for
third-party inspections and reports, most
notably for Phase I ESA and PCRs in
order to qualify for their loan programs.
If you’re not sure who your lending agency will be, choosing an assessment conducted to the more stringent requirements of Freddie Mac is likely to be your
best bet.
Check out Nadji’s “Street Smart” blog at
www.globest.com/blogs/streetsmart
For more on apartment renovation and
remodeling, visit Mike Rovner Construction
at http://www.rovnerconstruction.com/
Follow Partner Engineering’s “Science of
Real Estate” blog at www.globest.com/
blogs/buildingsciences
HESSAM NADJI
Managing Director, Real Estate
and Advisory Services
Marcus & Millichap
Real Estate Investment Services
MICHAEL CHANG
Principal and National
Client Manager
Partner Engineering
The REM Thought Leadership Program extends across our entire media platform (Real Estate Forum, GlobeSt.com and the RealShare Conference Series), providing
expert commentary and business advice from a variety of industry thought leaders. To learn more, visit: www.ALMRealEstateMediaGroup.com/ThoughtLeadership
Industry Research
THOUGHT LEADER
Environmental Engineering
THOUGHT LEADER
MICHAEL ROVNER
President and Founder
Mike Rovner Construction Inc.
Multifamily
THOUGHT LEADER