EDITOR’S NOTE: In the Shadow of the Financial Crisis

By Keat Foong Executive EditorPhew! What a week! Our very own event Multi-Housing World 2008 Conference and Exhibition was held in Denver last week. Within less than a week—a week—prior to the conference starting, the following happened: The government took over Fannie Mae and Freddie Mac, Lehman Brothers collapsed, and the sale of Merrill Lynch was announced. And on the day the conference began, on Wednesday, the newspapers were filled with reports of the government bailout of insurance giant AIG. The next day, the stock market plunged. And by the end of our three-day educational and networking get-together, the Administration had gotten together with members of Congress to announce what is now its proposed $700 billion financial securities purchase plan. In a mere three days, Multi Housing World was literally tracking the fast-moving events as they were happening. It felt as though each day during the conference brought another earth-shaking event, which by itself may have been big enough be the subject of conversation for the rest of the year! One conference speaker passed the comment that this Multi Housing World may well have the honor of being the very first conference of the new real estate cycle! The multifamily financing and investment takeaway from the conference? Some opening session speakers were concerned, very concerned. “Today, it is really hard to be optimistic,” said Richard Green, professor and Lusk chair of the University of Southern California Lusk Center for Real Estate. The spiking LIBOR rates, he said, were “reflection of people being scared.” He said that on Thursday, morning. Since the conference, the crisis has continued to evolve. Congress is at press time tussling over getting the gigantic $700 billion asset purchase proposal passed. For now, the multifamily market is still chugging along. Multifamily fundamentals are strong. On the equity side, the word is that investors have pulled back, or are sitting on the sidelines, especially the institutional joint venture players, though mezzanine and preferred equity is still available. On the debt side, Fannie Mae and Freddie Mac are still active in multifamily and their official pronouncement is that it is “business as usual.” The two agencies are now providing as much as 90 percent of the permanent financing for our industry. All-in interest rates, despite the turmoil, are still generally favorable and holding steady. If you want construction or bridge financing, however, banks have reduced their lending. In the investment market, cap rates are rising, though there is still a gap between what sellers are willing to sell at and what buyers want to pay given the leverage that they can no longer obtain. And if you have the money, this may be the time to buy. As panelists said, at the session “Apartment Investment Cycle: Is it Time to Sell, Hold or Buy?” “this is not the time to sell.” Maybe it is a time to obtain debt financing, though, where you can, while capital can be obtained on favorable terms–and is still available…