Conference Call Highlights: Projections For Multi-Family REITs

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Includes: AIV, CUZ, EQR, FMCC, FNMA, IRET, UDR
by: Judy Weil
WSJ says:

Owners and developers of multifamily buildings are trying to stay afloat as the deteriorating economy and escalating job losses create difficulties in raising rents and shortfalls in projected revenues from these buildings.

A downturn in this sector also drags in housing mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE)… Together, the two mortgage giants have nearly $200 billion of these loans on their books.

The GSE’s continue to be the primary lender for multi-family real estate:

Deutsche Bank Berkshire Mortgage helped secure a $51-million Freddie Mac loan to refinance Fairfield Crossing, a 493-unit garden style apartment building here that is managed and partially owned by Zuckerman Gravely.

Real Estate Channel:

Connecticut: Apartments continue as the product of choice in national investment circles, according to a $10.6 million sale closed today by the New Haven, CT office of Marcus & Millichap Real Estate Investment Services… Financing was provided by Fannie Mae.

In November, Apartment Investment & Management Co. (NYSE:AIV) reported on its Q308 conference call that:

With more than $2 billion of property sales to date, representing about 8% of multi-family sales in the U.S., we have significant first hand knowledge of the market. As our sales demonstrate, the multi-family investment market continues to be relatively liquid. Buyers remain active with many local and regional operators pursuing new acquisition opportunities. However, values continue to soften. According to data released this week by research firm Property and Portfolio Research, or PPR, NOI cap rates in the top 54 U.S. markets have increased from 4.8% to 5.8% since the late 2006 peak in values.

Investors Real Estate Trust said on its FQ209 conference call: (NASDAQ:IRET)

We anticipate continued stability in the performance of our multi-family segment, which is located primarily in tertiary markets in the Great Plains, as well as in our medical office and assisted living segment, which together represent just over one-half of our real estate assets.

Cousin's Properties Inc.'s Q308 conference call: (NYSE:CUZ)

On Emory Point, a mixed use project in Atlanta... We previously announced that we were planning to start this mixed used development in the fourth quarter of this year. In that project we will be responsible for the retail and condominium developments while another party will develop apartments. It now appears this project will be delayed into next year due to our apartment partner's need to find financing for the apartments in this very difficult market.

For us that may not be such a bad thing, because it will give us some more time for the financing markets to improve for our condominium buyers. We and Emory continue to be extremely excited about this project and will let you know once the apartment financing issues have been resolved.

Analysts are taking the cautious route:

Investment News:

JP Morgan analyst Tony Paolone… slashed his funds from operations estimates for apartment REITs by 9% in 2009. Paolone [believes] apartment REITs’ operating income will tumble 2.4% on average next year.

Citigroup analyst Michael Bilerman… downgraded two apartment REITs — Equity Residential (NYSE:EQR) and UDR Inc. (NYSE:UDR) to “sell,” from “hold.” Apartment REITs, which have been outperforming many of their real estate peers in 2008, are expected to take a hit in 2009 as rising unemployment will likely cause both demand and rents to decline.