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JLL: Fannie Mae and Freddie Mac multifamily lending remains ‘active as ever,’ lending volumes could reach $100 billion
CHICAGO, Feb. 4, 2016 – Ever since their inception following the Great Depression, Government-Sponsored Enterprises (GSEs) and the Agencies have long focused their efforts on making housing affordable, but in 2016 the incentive, motivation and need to increase affordable lending allocations has never been greater. Last year, Fannie Mae lending volumes hit $42.3 billion and for the first time ever, Freddie Mac's volumes eclipsed Fannie's, notching $47.3 billion and becoming the nation's leader in multifamily lending.
According to The Wall Street Journal, nationwide rents rose 4.6 percent in 2015, the largest rise since the recession, while income growth has remained relatively stagnant. In 2016, the Federal Housing Finance Agency (FHFA) set Fannie and Freddie volume caps at $31 billion, which is $1 billion higher than the previous year and comes with an agreement to revisit throughout the year. This amount is relatively unchanged, but FHFA directed both groups to become aggressive on multifamily product where rents hit 50 percent or below area median income (AMI) levels, which JLL expects will lead to a rise in uncapped business.
"Both Freddie and Fannie are looking to place more capital in 2016 and we anticipate one or even both of the GSEs to eclipse $50 billion – last year's market cap issue really refined both groups' strategies and they are confident to go after deals," says Faron Thompson, International Director at JLL. "There's a rich, deep bench targeting more affordable product. Look for Freddie and Fannie to allocate more toward workforce housing lending."
The Mortgage Bankers Association's (MBA) outlook survey of commercial and multifamily mortgage origination firms shows that 90 percent of respondents expect loan originations to increase in 2016 and multifamily properties are anticipated to see an 11 percent increase.
Jamie Woodwell, Vice President, Research and Economics at MBA notes, "Vacancies are low and rental rates, job growth and valuations are up – all of these factors increase the demand for, and supply of multifamily mortgages. In particular, there is probably more attention than ever before to the affordable multifamily market."
The GSEs offer DSCR ranges from 1.15x to 1.25x with loan-to-value (LTVs) ranging from 80 to 90 percent and amortization schedules from 30 to 35 years depending on product and deal type. Freddie and Fannie also offer unique value-add loan products such as the newly created bridge-to-resyndication loan program, which enables affordable housing owner/operators to compete against conventional owner/operators who traditionally use banks and specialized bridge lenders.
For example, Freddie Mac's bridge-to-resyndication product, which JLL helped develop, provides borrowers with efficient, short-term financing. This structure enables them to quickly acquire affordable housing product at or near the end of their 15-year compliance periods. It also gives borrowers a new avenue for existing project-based Section 8 assets, which are in need of rehabilitation and highly sought after by conventional buyers. This structure gives the borrower time to position the properties for preservation via a re-syndication transaction using low income housing tax credits and simultaneously allows them to secure long-term, fixed-rate, tax-exempt financing.
Fannie Mae brings innovation to the table as well, with the introduction of their sub-rehab program. This product allows developers to conduct substantial rehabs, involving significant renovation costs per unit and temporary tenant displacement. The structure delivers a permanent acquisition and rehab loan at initial closing, eliminating the additional time and cost of incorporating a construction lender into the transaction.
"There's very strong demand for the creation or preservation of affordable housing assets, particularly in high-cost, densely populated markets," says Tim Leonhard, International Director at JLL. "Whether it is construction financing, permanent debt financing or pricing for LIHTCs, the lending and investing environment for affordable is incredibly competitive and aggressive – this will set the tone for the rest of 2016."
JLL Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm's in-depth local market and global investor knowledge delivers the best-in-class solutions for clients — whether a sale, financing, repositioning, advisory or recapitalization execution. In 2014 alone, JLL Capital Markets completed $118 billion in investment sale and debt and equity transactions globally. The firm's Capital Markets team comprises more than 1,700 specialists, operating all over the globe.
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JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $5.2 billion and gross revenue of $6.0 billion, JLL has more than 230 corporate offices, operates in more than 80 countries and has a global workforce of more than 60,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square meters, and completed $138 billion in sales, acquisitions and finance transactions in 2015. Its investment management business, LaSalle Investment Management, has $56.4 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.