Commercial Magazine

Deborah Jenkins, Freddie Mac

The pandemic hasn’t destabilized the multifamily market

By Victor Whitman

The government-sponsored enterprise (GSE) Freddie Mac is the largest financier of multifamily properties. Along with Fannie Mae, the agency is especially important in the affordable rental-housing space. Freddie Mac’s head of multifamily, Deborah Jenkins, spoke with Scotsman Guide this past January about a turbulent year for the sector in 2020, as well as what lies ahead for the apartment market in 2021. 

Are you concerned about the stability of the multifamily market once the federal relief programs end?

Multifamily is a little bit different than other real estate classes because the data shows that most renters, just like homeowners making their mortgage payments, have continued to prioritize their rent payments. The federal support through the CARES Act (the Coronavirus Aid, Relief and Economic Security Act) has been playing a key role. And yes, the eviction moratoriums have been helpful to renters. 

Looking at 2021, as far as outlook goes, everything is tied to the course of the pandemic and government support in the near term. Rents have been holding up in many markets, but large gateway markets have struggled. Overall, to date, we’ve held up well. Assuming the vaccine distribution continues and the virus is under control, the multifamily market should remain stable. 

We feel pretty good about where property values are now, and where they will be throughout the rest of this year and going forward.

Could multifamily property values decline in 2021? 

We’ve been watching this since March of last year, wondering what would happen with rents and vacancies and property-level cash flow. Would it be sufficient? Would there be something going on that would create a longer-term push downward in value? We haven’t seen it. Because of the strong fundamentals going back a decade, there is continued investor appetite for multifamily and that is reflected in values. Investors are taking a longer-term view of property performance. 

In terms of property values, in addition to the strong fundamentals of the multifamily business, you also need to consider the shortage of housing overall, and especially workforce housing, for both single- family and multifamily. That housing shortage has been persistent. Interest rates are also very low on a historical basis. As a result, we feel pretty good about where current property values are now, and where they will be throughout the rest of this year and going forward. 

Do you expect multifamily sales will pick up this year? 

We actually saw acquisitions start to pick up significantly toward the end of the third quarter and into the fourth quarter of 2020. The pandemic created short-term uncertainty for the first six to eight months out of the year. The bid asks between a buyer and seller widened a little bit. So, there was a bit of a pause through the middle point of the year, but acquisitions picked up significantly. Our expectation is there’s a lot of pent-up demand and we’re going to see the market start to gather steam. 

Given that banks and commercial mortgage-backed securities lenders may pull back this year, do you expect Freddie Mac to take an even greater role in financing multifamily properties? 

During the height of the pandemic, other market players did pull back a bit. Our volume for 2020 was about $82.5 billion. The Federal Housing Finance Agency (FHFA) has established a volume cap of $70 billion for the two GSEs in 2021. FHFA director Mark Calabria has indicated that they’re going to be watching the data closely to gauge market-liquidity needs and make adjustments as needed. 

The GSEs tightened underwriting on apartment loans in the wake of the COVID-19 outbreak, particularly in cities reliant on the oil and tourism industries. How long do you expect these policies to last? 

I’m optimistic that, at some point, we will be able to somewhat reduce some of those constraints. We are going to watch things closely. What we want to do first and foremost is continue to make sure that we’re underwriting sustainable cash flows. It will really be dependent on the COVID vaccine, the economic outlook and how that affects the data throughout the course of the year. 

We’re definitely turning the page. We didn’t know at this time last year what we would be facing, and 2021 will no doubt bring interesting surprises as well. Our goal is to continue to support the market and do what we are mandated to do, which is to provide liquidity, affordability and stability to the multifamily market. ●


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