Multifamily Sector Update 2/7/2016

Maintaining Momentum for Fannie and Freddie

Fannie Mae and Freddie Mac both have lofty goals for 2016, which will require maintaining and perhaps even accelerating their momentum from last year. In spring of 2015, the FHFA (the Federal Housing Finance Administration) lifted a barrier hindering the lending agencies’ success: they decided that lending to affordable housing and “workforce” housing properties no longer counted towards the restrictive quota enacted since the financial crisis (when the government seized both companies). In response, both companies exceeded the previously set $30 billion limit by a landslide: Freddie Mac by $17 billion, Fannie Mae by a close $12 billion. The timing of the loosening policy could not have been more perfect; last year was a busy year of transactions, with a lot of purchases and financial activity. Borrowers needed loans to finance transactions including entire portfolios of apartment properties (think Freddie Mac financing Loan Star Funds’ purchase of Home Properties). Borrowers also turned to Fannie Mae and Freddie Mac to refinance apartment mortgages that reached the end of their terms (including many 10-year loans made at the end of the last real estate boom). Experts expect demand to continue as more loans come due. New loan products – such as Freddie Mac’s two rehab products for capital improvements, and a “value-added product” Fannie Mae is working on – have helped both companies further expand their business. Freddie Mac’s products, designed to maintain multi-housing stock in the US, require borrowers commit $10,000 to $50,000 in capital improvements, mostly for multifamily units. Fannie Mae’s product hasn’t made its debut yet, but it’s expected to expand its loan offerings for affordable and workforce housing. Fannie Mae and Freddie Mac have set a high standard for themselves with last year’s performance, but, given demand and the companies’ competitive advantages, there’s little doubt in expert’s mind that they’ll be able to surpass it.

College Towns: Not Just for College Students

A new 28-story tower graces the skyline of University City, but, unlike most of the older buildings in the area, it isn't targeting university students. Instead, the tower at 3601 Market Street, and the other new luxury residential beginning to appear around it, aims to house young professionals and graduate students. The goal is simple: to bring a new demographic into the area. More specifically, the conveniently located luxury housing will hopefully help University City employers, including the universities themselves, win over young recruits. This trend of luxury towers popping up in college towns is not unique to Philadelphia; developers across the country are investing in high-end housing for the staff rather than the students. College campuses have caught the attention of developers because of their potential to become “trendy live-work enclaves.” Their bars, restaurants, and residential services, coupled with the cities’ urban, walkable nature, make these areas extremely appealing for younger workers. However, touting luxuries such as a roof deck with a heated saltwater pool, a fire pit and outdoor televisions, these deluxe accommodations come with a steep price tag. For example, although overall median rent in University City is $1,450 a month, a mere 427-square-foot studio at 3601 Market would set you back $1,525 a month; two bedroom apartments start at $2,749 a month. These comparatively exorbitant rent prices, in conjunction with other restrictive efforts (such as time leasing to miss the start of the academic year, rejecting applicants who rely on guarantors, and designing spaces not tailored to young students), help developers assure potential residents that their halls won’t be inundated with raucous undergraduates.