MHN Interview: Multifamily Lending in 2013
New York—What does 2013 hold for multifamily lending? MHN talks to Stephen Rosenberg, CEO, Greystone, about what he expects to see with lending and securitization, and how he thinks the sequester will affect the industry.
MHN: What are your predictions for multifamily lending in 2013?
Rosenberg: One thing that we’re seeing now is that on the agency-lending side, we have gotten notice from Fannie Mae and Freddie Mac that the federal overseer of those two agencies is planning to limit their lending for the coming year. For example, Fannie Mae did about $33 billion [in loans] last year, and the regulator now is limiting them to a 10 percent reduction of only $30 billion, and the way they’re going to get down that far is by tightening up underwriting criteria. It really does seem like there is a serious effort on the administration’s part to limit the market share of Fannie Mae and Freddie Mac, and I think that’s very significant.
At the same time, we’re seeing the securitization market heating up, and we’re seeing Wall Street conduits coming back in with underwriting criteria and interest rates that are competitive with the agencies. So I’m seeing a pretty clear transcendence of Wall Street securitization and declination on the part of government agencies. I think that’s a very clear trend.
There is still a desire, and our pipeline has grown significantly, for HUD business, so I see that as continuing to be strong. [We don’t know if] the sequester or the government budget challenges limit HUD’s ability to underwrite and close as many loans as it has been closing. There’s talk of HUD running out of government-approved capacity, and so we’re all a little bit concerned about that. If that doesn’t happen, I think you’re looking at another record year for HUD-insured multifamily business.
MHN: Do you think that will happen with HUD?
Rosenberg: I think that in the past every time it’s been on the horizon, HUD has been able to get an extension of what we call “commitment authority,” so historically they’ve been able to get it. Whether or not you can look at history is questionable because everything seems to be up in the air right now. I’m hopeful that they can get it.
MHN: Any other thoughts about the sequester?
Rosenberg: My sense is that impact of it hasn’t really reached us, and no one is really sure what the impact ultimately will be, if any. One thing that it will probably contribute towards is that if the economy sputters because of the sequester, interest rates might stay down that much longer.
MHN: What are some other challenges you predict?
Rosenberg: From a corporate perspective, our business is up on a lending side, so seeing transactions doesn’t seem to be our issue. Hiring, training and getting high-quality underwriters and analysts on board and working effectively is a challenge. In addition to training college graduates, we’re looking for seasoned underwriters and analysts to come on board.
MHN: What are some of your priorities and goals for Greystone this year?
Rosenberg: I think one goal is to become a conduit and offer the securitization option. What that really means is building another execution pod and making sure that works. We are thinking also that we need to expand our bridge loan program. We’ve committed more equity, and now we’re searching for more credit lines to expand that program.
Another large area that I think is going to be a huge opportunity is in the multifamily gap equity business. Ten years ago when the conduit Wall Street securitizations were making loans that were quite aggressive, those loans were almost all 10-year loans. Those loans are now maturing, and we have many borrowers who are coming to us that are basically asking us to refinance loans that might be at 90 percent of the value of the property. Lenders now don’t want to go past 75 to 80 percent, so borrowers have this potential 10 percent of their outstanding debt that is not refinanceable in the conventional market. So what we’re doing is creating a fund to essentially plug that capital gap so these funds would be investing in something senior to the equity, but junior to the first mortgage. I think there’s a huge need for that capital right now, and that will continue probably for the next three or four years.