SAN DIEGO-The GSEs will continue to play a significant role in multifamily housing, although it be up to five years before we know how that role will change, says Gordon Gerson of Gerson Law Firm APC here. GlobeSt.com caught up with Gerson to discuss his vision of the GSE's ideal role, the role of private equity and the negative consequences of too great a dependence on the GSEs in multifamily housing.
GlobeSt.com: In your opinion what would be the ideal role for the GSEs in multifamily housing?
Gerson: With respect to the ideal role, the GSEs have actually fulfilled the ideal role throughout the last five years. They've been a market leader during an economic down cycle when other multifamily lenders left the market, and during that time period they served the entire multifamily market. When I say that, I mean all sectors of the market. As our economy trends upward, and other lenders have returned to the market, the GSEs have been a market leader, lending in areas that other capital providers are not entering. I think the model needs to change a little bit. For instance, there have been Fannie Mae and Freddie Mac loans in areas like Newport Beach in recent years when no one else would lend or when debt was very difficult to obtain during that time period. However, now, when debt is still difficult to obtain in areas such as Riverside County, the GSEs can be a market leader in those areas. In bad times, the GSEs are a market leader by being everywhere; in good times, they will go to a much larger degree than others will.
GlobeSt.com: What about private equity?
Gerson: It would be a misnomer to say that the GSEs are not private equity because there is private equity there. It's just that there is a government backup or guarantee. But what about private equity that doesn't have a government backup or guarantee like the GSEs? In that regard, we have seen a welcoming of new private equity entering the market in the last year. CMBS, pension funds, life companies, banks and credit unions have come back into the market with a large appetite to lend. They did not have that appetite during the Great Recession; only the GSEs did. And the real issue is, in 2013, balance was restored to the marketplace, but for the four or five years prior to 2013, there was no balance to the GSEs because the others did not want to be in the marketplace.
GlobeSt.com: What are the negative consequences of too great a dependence on the GSEs in multifamily housing?
Gerson: More generally speaking, too much government control is anathema to those on both sides of the table. We have a long history of government policies steering sectors of the economy, if not the entire economy, but we never want too much dependence on government in any part of our lives. It's just to assure that you have liquidity and capital for the multifamily market in a distressed economy and the ability to provide capital where others are not in a good economy so you can avoid the negative consequences. In all of industry, competition fosters creativity and new models of risk, and for that reason you never want to have too much government involvement in any type of lending.
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
