Fannie, Freddie Troubles Cloud Employment Prospects in the Multifamily Investment Sector
- Jul 29, 2008
Robert Baron, a real estate employment specialist, assesses the current outlook for jobs in the multifamily investment and finance marketplace. By Robert Baron American Real Estate Executive Search Co.When a lack of available debt brought turmoil to the commercial and residential real estate markets, multifamily investment remained strong. When the conduit market collapsed and skittish investors flocked to the sidelines, multifamily transaction volume remained consistent. And when the real estate employment market fell victim to a hiring freeze, the dissipation of bonuses and a re-pricing of executive compensation, many multifamily executives were shielded from the storm. Holding the umbrella were the two government-sponsored entities, Fannie Mae and Freddie Mac. Accounting for more than one third of the nation’s multifamily mortgage debt, Fannie and Freddie provided a hedge of protection against the dried up debt market, allowing lenders to securitize debt on multifamily assets and encouraging a steady stream of transaction volume in the midst of the credit crunch. Additionally, multifamily fundamentals have remained strong. Unlike the condo market, the multifamily market has not fallen victim to overbuilding, while the subprime fallout may have actually boosted demand for apartments and kept vacancy rates low. This can be attributed to the growing number of defaulting homeowners who have returned to the rental market and the many tenants living in investment properties relocating back to purpose built rentals when the owners of investment properties ran into trouble. From an employment perspective, this helped make the multifamily market one of the most reliable employers in real estate. In addition to executive compensation remaining stable, a number of lenders have actually increased their workforce in an effort to expand their Fannie and Freddie programs, creating an opportunity for many employees who were formerly employed in conduit lending. In addition to organic growth, displaced executives from the CMBS meltdown found a safe haven in multifamily, where debt was available and deals could still be done. As the U.S. government now evaluates options to bail out the flailing GSEs, the same fear that gripped the once flourishing CMBS market now casts a long shadow on the deep pool of debt held by Fannie and Freddie. Should the fallout surrounding these entities affect transaction volume on the multifamily side, employees can expect a phenomenon similar to what has affected the commercial markets, typified by a falloff in transaction volume and a tenuous employment market. However, the continued strength of multifamily assets, coupled with a prevailing belief that the government’s intervention will adequately sustain Fannie and Freddie, suggests that good real estate professionals with a solid understanding of property fundamentals will continue to find opportunities in the multifamily market. Providing financing remains available, acquisitions professionals will see this as the one bright spot in a low transaction environment.Employees with a solid background in management and operations are also well positioned to succeed in the current market climate, as the majority of multifamily portfolios remain well-leased and profitable. The government’s ability to rescue Fannie and Freddie will ultimately dictate the sustainability of the multifamily market. However, the market’s strong economic fundamentals will likely continue to encourage healthy investment and a wealth of opportunity for employees in both acquisitions and management. Robert Baron is the President of American Real Estate Executive Search Co. (AMREES), a national firm dedicated to executing senior level searches in the real estate industry. AMREES has offices in New York, Chicago and Toronto. Robert can be reached at Robert@amrees.com.