Fannie, Freddie and Multi-Family REITs Part II

by: Judy Weil

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:

From Camden Property Trust’s Q408 conference call: (NYSE:CPT)

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.

Essex Property Trust’s Q408 conference call: (NYSE:ESS)

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:

From Equity Residential's Q408 conference call: (NYSE:EQR)

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.

Mid-America Apartment Communities’ Q408 conference call: (NYSE:MAA)

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.

UDR also noted lower rates on its Q408 conference call: (NYSE:UDR)

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%.

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

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.


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