Real Estate Forum - October 2013

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