While certain capital providers hit pause on lending in 2020, Fannie Mae and Freddie Mac remained active and competitive, and they have not taken a step back as other debt originators have returned to the market.
In a conversation with MHN, Sharon Karaffa, vice chairman & co-head of production of Newmark’s Multifamily Capital Markets division explains why she thinks Fannie and Freddie will continue to be at the forefront of multifamily lending despite the growing lender pool. She also shares the strategic direction she has set for her team.
Following a record-breaking fourth quarter in 2020, Fannie Mae and Freddie Mac’s origination volume tempered in 2021. How do you see GSE volume performing in the second half of 2021?
Karaffa: The GSEs had a very strong start to 2021 and had to tap the brakes going into the second quarter to manage the $140 billion production caps set forth by the 2021 FHFA Scorecard. As of June 1, 2021, the GSEs had roughly $89 billion of remaining lending capacity. We believe this will allow GSEs to stay competitive and continue lending for the balance of the year.
We have seen Fannie Mae and Freddie Mac continue to compete hard for strong business and we expect this trend to continue through the remainder of the year.
Are there any concerns about the amount of multifamily mortgage debt outstanding and the GSEs’ share of it?
Karaffa: The GSEs are charged with providing liquidity to the market in all cycles. In 2020, while other sources halted lending, the agencies fulfilled this critical mission by staying active and competitive. This drove their percentage of mortgage debt outstanding up.
However, in 2021, life companies, banks, debt funds and CMBS have returned to the market and the GSE business, as a result of the FHFA Scorecard for 2021, will be down by at least 12.5 percent.
What are some of the main trends in financing solutions currently?
Karaffa: Cap rates are historically low across the country. Buyer demand is very strong and mortgage rates are low, enabling cap rates to stay low and compress even further. In this environment, we have seen an uptick in variable-rate requests and pre-stabilization financing.
We have also seen an increase in portfolio activity, single-asset single-borrower financing and interest in cross-collateralized credit facility programs that offer maximum flexibility to our clients.
Tell us about the change in demand for multifamily debt solutions in 2021 compared to last year.
Karaffa: In 2020, we saw a high percentage of our total multifamily debt placed with the agencies. Very few non-agency lenders were active through most of 2020 and the GSEs were critical in providing liquidity throughout the year.
In 2021, pent-up demand from those lenders created a shift, with life companies, debt funds, banks and CMBS offering extremely competitive debt solutions to the market.
Looking ahead, what are some of the market expectations, challenges that will shape the multifamily lending arena?
Karaffa: Multifamily performed exceptionally well through the pandemic, with even the hardest-hit asset classes now seeing significant improvement and a new, positive outlook. Buyer demand remains strong and investment sales activity continues to increase. Borrowers have their choice of competitive lending options.
Additionally, we will soon have a new Director of the Federal Housing Finance Agency. Time will tell how, or if, FHFA’s priorities will shift under new leadership and how that will impact the lending arena in the year to come.
Newmark’s multifamily capital markets platform demonstrated triple-digit growth in sales-to-debt conversion rates under your leadership. What is the strategy behind this success?
Karaffa: Teamwork and collaboration are paramount. We work hard to build strong partnerships between our debt and sales professionals. By forming one Multifamily Capital Markets team inclusive of both investment sales professionals and debt originators, we’ve successfully built a culture of trust, collaboration and information sharing, which has enabled the delivery of the best possible solutions and services to our clients.
Your team also increased Newmark’s agency market share. How was this achieved?
Karaffa: We have grown organically by leveraging the capabilities across the Newmark platform to provide a wide range of services to our clients, deepening those relationships and enabling more agency business as a result.
We’ve also brought on best-in-market talent in various geographies and disciplines to complement our platform. In the past couple of years, we have added debt teams in Philadelphia, Denver and Charlotte, N.C., as well as in seniors housing and student housing.