REITs discuss Fannie Mae (FNM) and Freddie Mac (FRE) lending on their conference calls. Fannie and Freddie are lending, but at much tougher standards. Loan-to-values are at 65%.
A sampling of those that borrow:
Our liquidity and balance sheet are strong; we have already tapped the secured markets to Fannie Mae and will continue to do so this year.
Q: Does the money come directly from Fannie or Freddie or they are just guaranteeing it and then there is other buyers because of that?
A: Right. The latter.
A sampling of how they are impacted with tighter standards:
Our balance sheet is in very good shape thanks to the $1.6 billion we borrowed from both Fannie Mae and Freddie Mac last year.
We’ll be carrying higher debt balances into 2009 than we otherwise would because of [them.]
The two GSEs continue to be active lenders in the multi-family space and there is plentiful debt capital available from them at attractive 10-year rates of about 6%. However, underwriting standards continue to be tightened, especially on refinancing transactions. Some cap rate floors have been instituted and lengthy interest-only periods are less common.
They’re looking for coverage is more, like, 1.3 times debt service; where, in the past, that had gotten as low as 1.15 or 1.2 times debt service. I’ll also tell you that I think quite smartly the agencies have focused and preferred to do acquisition loans than refinancing.
To give you an idea of recent Fannie and Freddie pricing, the loans that we put in place in November and December was single asset 7-year loans at 65% loan to value. The first loan was fixed at 6.2%. The second was a CAPT [ph] loan floating at 323 basis points over the Freddie reference bill rate, currently costing us 3.4%.
While rates have come down since our November financing, it is quite likely that agency spreads are going to stay wider than they have in the past.
Q: I am looking towards [the GSE’s] mandate to lower their balance sheet in 2010. What are you or other industry people thinking about their appetite going forward?
A: I think the way they’re planning to address this is by offering current and new programs that are of[f] the balance sheet. That is where they guarantee or securitize mortgage-backed securities.
We’ve entered into commitments with Freddie Mac for two seven year ARM mortgages on existing properties... at a floating rate of approximately 4% with cap of 7.5%.
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.
Q: What adjustments did you see made on behalf of the GSE’s from a valuation perspective or perhaps LTV etc.?
A: We’re looking at a kind of 75 LTV and we had chosen to go down one of the tiers in that agency financing and so this represents a 65% loan-to-value.