In the Shadow of the Financial Crisis

By Keat Foong, Executive Editor

Phew! 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

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…