NMHC Warns of Wave of Defaults and Bankruptcies in Apartment Market

By Anuradha Kher, Online News EditorWashington, D.C.–The National Multi Housing Council (NMHC) and the National Apartment Association (NAA) have launched an effort to help restore the apartment sector’s access to capital. At the center of the effort is a four-point policy statement outlining necessary steps federal officials must take to avoid systemic failure in the apartment sector. “We are facing a serious risk of waves of defaults and bankruptcies of otherwise performing apartment properties unless the Federal Reserve and the Treasury Department take action,” says NMHC President Doug Bibby. “In the next two years, an estimated $80-$100 billion in multifamily mortgages will mature and need to be refinanced. With credit markets virtually collapsed, however, owners who are meeting their financial obligations but who—by sheer timing—are in the unlucky position of having their mortgages mature in 2009 and 2010 may be forced into foreclosure.””In addition to the refinance risk, the lack of capital has all but stalled new apartment construction and is preventing owners from tapping into their equity to maintain their properties at a time when America is increasingly relying on rental apartments to house people,” explained Bibby. Many factors are contributing to this demand for rental housing. The largest generation of children currently under the age of 20 in the history of the U.S. will be entering the housing market in the next few years and the number of seniors who can no longer maintain a house will begin to rise. In addition, the single-family foreclosure crisis has increased the demand for affordable rental housing. “Without federal action, however, the apartment industry cannot meet this demand,” says Bibby. Dr. Arthur C. Nelson, FAICP, presidential professor and director of Metropolitan Research at the University of Utah, says that in order to meet emerging housing demands one-half of all new homes built between now and 2020 will have to be rental units. “The good news is that the multifamily story is very different from the single-family story,” says Bibby. Citing the looming risk of systemic failure and a wave of defaults and bankruptcies on otherwise performing properties because of a lack of capital to refinance maturing debt, the NMHC/NAA initiative calls on the federal agencies to use the authority they have under the Troubled Assets Relief Program (TARP) and through their previously announced Term Asset-Backed Securities Loan Facility (TALF) to:Purchase multifamily mortgage-backed securities (MBS) guaranteed by Fannie Mae and Freddie Mac. Purchase longer-term (e.g. 10-year) debt issuances by Fannie Mae and Freddie Mac so that the GSEs can support their lenders’ funding needs without having to rely on mismatched short-term debt.Purchase highly rated commercial mortgage-backed securities (CMBS). In separate action, the Federal Housing Finance Agency should exempt multifamily loans from GSE mortgage portfolio limits through December 31, 2010 or until a new secondary market structure for multifamily loans is operational, whichever comes first.