Fannie, Freddie and Multi-Family REITs Part I

by: Judy Weil

Industry magazine Globe St. notes that analysts have dropped apartment REIT ratings to Underperform. The only silver lining for those REITs is that Fannie Mae (FNM) and Freddie Mac (FRE) are still lending to them. In fact, they are practically the only ones lending to the industry.

As noted on REITs UDR Inc. (NYSE:UDR) and Colonial Properties Trust's (NYSE:CLP) conference calls, even when Fannie and Freddie aren't lending, they are backstopping lenders that do.

From Colonial Properties Trust’s Q408 conference call: (CLP)

Our multifamily portfolio is currently 90% unencumbered that unencumbered basis giving us the opportunity to success a new credit facility with Fannie Mae. Last week we locked the interest rate on $259 million of loan proceeds at a fixed rate of 6.07% for a 10 year term that will be secured by $15 multifamily properties.

We’re also in negotiations with Fannie Mae and Freddie Mac to provide additional financing of up to $150 million which should close in the first quarter. Combined the financings will total up to $500 million.

From UDR, Inc.’s Q408 conference call: (UDR)

For 2008 we closed five construction loans... through a number of strong regional banks.

In addition we’ve entered into commitments with Freddie Mac for two seven year ARM mortgages on existing properties.

On payback terms for a loan from another bank:

That’s the loan agreement between them and Fannie Mae. And even then we have an absolute right to have it prepaid later in that year or so.

Q: Fannie announced yesterday their intention to move more towards a securitization model as opposed to being a balance sheet lender in the multifamily arena, how do you think that’s going to effect the cost and availability of debt for you going forward?

A: My view of Fannie and Freddie, has always been that is where their best strike zone is, is an accumulator of paper market and then offload it. The times where they’ve gotten to putting it on their balance sheet they confused their mission so I applaud that and think it... will put our cost of money more in line with what I think other securitized real estate sectors will be.

The guaranty still appears to be evident and is going to be applied and that’s worth 50 to 75 basis points on the spread and so we’ll continue to enjoy that. We’ll see what investors’ appetites are in light of the single family paper getting remarked, multi family getting more volume out there.


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