Because of that criteria, he doesn't come up against Fannie Mae or Freddie Mac lenders very much in deals. But when he does, the competition can be tough, he says, because the two GSEs are still being very aggressive in pricing, despite the changes in capital and market conditions. The reason, of course, is obvious: "There is different motivation behind [GSE] money than what can be had in the broader commercial and bond markets," he says. Krauch talks to GlobeSt.com about how GSE lending policies are impacting the broader debt and equity multifamily finance markets.
GlobeSt.com: Conventional wisdom is that the multifamily sector is doing well in large part because of GSE support. Do you think that's a good thing?
Krauch: The optimistic view is that they are providing liquidity to the marketplace -- and that is great for buyers. But I don't think it is good for the market as a whole and it potentially may delay the inevitable for the multifamily side. Financing for real estate in general is in trouble now because of aggressive money.
GlobeSt.com: How good is pricing from the GSEs now?
Krauch: We have seen quotes that are 230 to 260 over Treasury in the last month or two. In the private sector, scrutiny on loans has become far more intense and pricing has widened. We are not seeing that from the Fannie lenders though.
GlobeSt.com: Treasury rates must be having some effect on pricing?
Krauch: No, typically the spread correlates to risk.
GlobeSt.com: How has the credit crunch affected multifamily private sector lending?
Krauch: Just like the other asset classes, there aren't as many lenders out there willing to underwrite deals. A lot of deals aren't getting done as a result. For those that are, pricing has significantly widened. The Fannie lenders have been insulated from all that.
GlobeSt.com: Do you think the recent Economic Stimulus bill and the changes it made to Federal Housing Administration lending policies will exacerbate these dynamics? [Editor's Note: The economic stimulus package signed into law on February 13 included a temporary increase in both the FHA and conforming loan limits to $729,750, making them eligible to be purchased by Fannie Mae and Freddie Mac, or insured by the FHA].
Krauch: No actually I don't. That will mainly affect single family homes. The only correlation is that it will allow more renters to purchase homes -- which could have an effect on demand for multifamily.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
