Days of Putting Little Equity Down for High Leverage Are Gone

Joseph Mullen (pictured) is senior vice president and director of multifamily investments for Madison Apartment Group, owned by BPG Properties Ltd. (BPG)Mullen has been with BPG for 20 years and has been involved in all types of real estate investments. In 2001, he was instrumental in the formation of Madison Apartment Group, L.P., BPG’s multifamily operating arm, and was named president at its inception. Mullen is responsible for the acquisition, investment management and operation of Madison’s extensive multifamily portfolio.  Most recently, Mullen guided Madison in the second largest multifamily acquisition the firm has ever made when it purchased the Boston Capital Real Estate Investment portfolio, an 11-community portfolio throughout Salt Lake City, Seattle, Dallas Jacksonville, Fla. and Portland, Ore.He talks to MHN Online News Editor Anuradha Kher about how the bailout and acquisition of Wachovia by Citigroup might affect multifamily and how Madison Apartment Group is still managing to do deals.MHN: Which region is exceeding expectations in the multifamily sector?Mullen: Probably nothing is exceeding expectations right now. But in the northeast and northwest region, where we have our properties, there has been a 4.5 to 5 percent rent growth over the last two years. That is not to say that we have not been affected by problems in the single-family sector. In one sense, it has been bad because there aren’t as many new rentals but in another sense, it has been good because people are not leaving our properties to buy homes. The turnover is much lower. MHN: What are the new financing trends you have seen recently?Mullen: We borrow from Fannie Mae and Freddie Mac and we are not a high-leveraged buyer looking for mezzanine financing or any other types of financing. So despite all the turmoil in the economy and changes in Fannie Mae and Freddie Mac, they still continue to lend. The spreads have, however, widened. The number varies depending on the deal. But this has not been purely due to the conservatorship because the GSE spreads had been increasing prior to the conservatorship. So far since then, there hasn’t been a dramatic change.MHN: How will the bailout help multifamily financing?Mullen: Since we borrow from the agencies, we will not see much of an impact from this bailout. But from what I have seen, the days of putting little equity down for high leverage are gone. I am not sure how this bailout package will impact multifamily or whether it will prevent or even moderate a recession. What remains the same, though, is that homeownership will remain difficult and, in that sense, it will help multifamily.MHN: How will the acquisition of Wachovia by Citi impact multifamily?Mullen: Since Wachovia is a Fannie Mae DUS lender, its takeover by Citigroup will have an impact on us. But I am not sure whether it will be an increase or decrease in financing from them.MHN: Do you think the bailout is the only way to help the economy in this crisis?Mullen: The bailout is one step to solve the problems in the economy and it’s necessary to stabilize the credit markets, particularly for small businesses.MHN: Is your company still doing deals?Mullen: We have an $850 million equity fund called BPG Investment Partnership 8, comprising various endowments and pension funds. In this market, to have availability to discretionary equity is a big advantage for us. We continue to buy properties with this fund. There are several opportunities for us because we are a value-add investor. We buy Class B- properties and do value-add, either through capital investment or operations. We recently bought multifamily portfolios in Connecticut, Philadelphia and the Atlanta region. So, we go where there’s good opportunity.