Privatizing Fannie and Freddie's Multifamily Business

CRE Finance World, Autumn 2012

Privatizing Fannie and Freddie’s Multifamily Business Chris DiAngelo Partner Katten Muchin Rosenman LLP A plan released in May by the GSE conservator, the Federal the pace of new supply has climbed considerably in 2012, it stillIt is likely that since 2009, the percentage of single-family rentalunits has grown relative to the other building types. Multifamilydevelopment fell to historic lows, just over 100,000 units per yearin 2010 and 2011, according to the U.S. Census Bureau. Althoughlthough not entirely overlooked, the multifamily businessof Government Sponsored Enterprises (GSEs) FannieMae and Freddie Mac has received considerably lessattention than their single-family business. A strategic Housing Finance Agency (FHFA), did not contain a single reference remains about half of the long-term historical average. Meanwhile, to the multifamily business. Commentary, seminars and panel as a consequence of the high foreclosure rate of single-family discussions on the topic are few and far between. homes, some 2 million single-family units have been added to the rental inventory since 2010, according to a Harvard University study. Reasons for this include that the GSEs’ multifamily business is much smaller and has performed much better than the single-family The upshot is that a not insubstantial — and, at the moment, business. The political process by its nature tends to focus on growing — portion of the nation’s rental housing stock is comprised disasters, such as subprime mortgages. not of apartment buildings but of single-family homes. Currently, the financing options available to the landlord owners of single- However, the lack of attention and relatively better performance family rental housing are currently the same as those offered to doesn’t mean that the GSEs’ multifamily business won’t be reformed owner-occupants. In light of this situation, it may be advisable for in coming years. To the contrary, the strong outlook for the multifamily the FHFA, when it addresses the multifamily business, to consider sector adds value to the GSE portfolio, which makes it attractive that business as not only the financing of 50+ unit structures, but to the private sector and increases the likelihood of creating in the context of the rental market more broadly. viable options to government control. We will briefly discuss some of the history and the reform options in this article. Role of Multifamily in the Nation’s Housing Stock The demand for multifamily housing is likely to be strong going The Multifamily Sector is More Than Just Apartment Buildings forward, regardless of federal involvement, for a variety of Although the GSEs’ multifamily business consists almost entirely demographic and cultural reasons. According to Harvard’s Joint of financing buildings containing 50 or more units, most of the Center for Housing Studies (JCHS), the demographic reasons include: country’s rental housing inventory is not found in apartment buildings. According to research conducted by John Weicher of the Hudson •A recent slowdown in household growth, leading to a large Institute, the nation’s rental housing inventory, by number of units, number of “boomerang” children looking to move out of their (in 2009) was distributed as follows: parents’ home. Type of Building Aggregate # of Units •Growth in minority households, which have a higher propensity Small Buildings 70% to rent. Single-family homes 37% •A growing number of elderly, who tend to age in place and thus 2–4 Units 20% keep single-family homes off the market. 5–9 Units 13% •A growing student loan debt burden on young adults, which Large Buildings 30% may make them less likely to take on more debt in the form of 10–49 Units 21% a mortgage. 50+ Units 9% A publication of Autumn issue 2012 sponsored by CRE Finance World Autumn 2012 13


CRE Finance World, Autumn 2012
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