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CRE Finance World, Winter 2014

of production, and we hope to do $5 and a half billion next year. One of the strategies we have employed is looking at larger loans, say over $100 million. But this strategy is coming under pressure from the street firms as they get more competitive on single assets. Brian Lancaster: It sounds like the life companies have picked up the slack where the GSEs have shrunk. So do you feel there is more capacity, if say in 2014 there is another score card that says shrink another 10%. Josh, what was the base line for the GSEs? Josh Seiff: Well, the baseline was to shrink by 10% for each of the agencies, Fannie’s 2012 number was about $33.5 billion. I believe Freddie was about $27 billion in 2012, so the limits totaled to about $55 billion, between the two firms in 2013. I’d add in here that I think the pie got larger in 2013, so our relative market share will likely shrink more than 10%. The insurance companies did pick up the slack, but the originations from the agencies in 2013 will still be pretty hefty, just not as big as 2012. Richard Walsh: Could the life companies collectively provide another $5 billion in apartment loans? Absolutely. Ten billion? Yes. Beyond that, I wonder if from a portfolio weighting standpoint multifamily allocations wouldn’t have been reached. If so, the street should pick up some of the slack as well. Brian Lancaster: Has there been any discernible change as far as the rates that are offered to borrowers? Are the life companies competing at pretty much the same levels, or different? Richard Walsh: It only takes two of us to make a market. The pricing in the multifamily sector is still the tightest among the property types for any given loan to value level. If you look at any of the pricing surveys, you’ll see that multi’s are typically 10 or 15 BPS tighter in spread, for the same leverage level compared to a core office loan. Brian Lancaster: Let’s talk a little bit about risk based capital. How have changes in insurance company risk based capital and/or to MEAF impacted your commercial real estate lending? For example, your appetite for CMBS bonds versus lending for CRE whole loans. Can you talk about what these actual changes are and how they will impact what New York Life will be doing in 2014? Richard Walsh: They’ve changed the risk based capital factor from the mortgage experience adjustment factor — factors which compares how a company’s loan portfolio fares relative to delinquencies, foreclosures and modifications — to a two function test based on loan to value and debt coverage ratios. Overall, there has been a lowering in risk based capital charges; certainly that was the case for our own portfolio. CRE Finance World Winter 2014 22 Brian Lancaster: So was it a plus for the life insurance industry, or neutral? Richard Walsh: Among the major life companies, it hasn’t had a major impact. Brian Lancaster: Josh, let’s talk a little about your sector. The year 2013 was a record for Fannie Mae in the multifamily sector. Josh Seiff: Well, 2012 was a record year for both the agencies as we touched on. In 2013 our regulators required us to shrink our new issuance by 10% a piece. Jon alluded to this a little earlier and Richard mentioned it too, we pulled back a little on our production around late spring, early summer. As it turned out, interest rates did most of the work for us. We didn’t have to pump the brakes too hard to have a slower origination year given the increase in benchmark rates. So, we don’t know exactly what the final number will be, but I expect both agencies to be inside that 90% of 2012 number. The total will be in the low $50s (billions) of origination, between Fannie and Freddie. Brian Lancaster: Do you have any sense of production in 2014? Josh Seiff: It is difficult to say. We don’t know yet what FHFA’s plans are going to be for the 2014 scorecard. But away from that, and I think we have heard this trend through the rest of the conversation, I would see demand for agency loans normalizing somewhat as CMBS and portfolio lending increase their presence in the multifamily sector. I think a little bit less than 2013, but likely still a very strong year. Brian Lancaster: I looked at the FHFA press release calling for public comments on proposals to restrict loan terms and loan products in the multifamily space along with re-imposing multifamily loan limits. What is your view with what is happening? Josh Seiff: I can’t comment too much on GSE reform, but it probably wouldn’t be productive anyway since I don’t know what our regulators and legislators have in the works. I will say that I know both agencies have made a big effort to meet every aspect of the 2013 scorecard. So far as I’m aware we will meet the scorecard goals both on the production and on the portfolio reduction front. Away from that, I think we saw that request for comment go out, and the reply from the lending and investment community and property investor community were largely positive toward the GSEs multifamily platforms. I think there were about 60 responses and some number in the 50s said, “please don’t do anything.” It will be interesting to see how the regulators react to the comments of market participants. CRE Finance World Roundtable Discussion: 2014 Outlook


CRE Finance World, Winter 2014
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