Agencies may not meet allocations this year
“For the first time in a long time, there is an open question as to whether agencies will use all of their volume caps,” said David Brickman, former CEO of Freddie Mac and current CEO of NewPoint Real. Estate Capital. GlobeSt.com. It’s a surprising turn of events, given that Freddie Mac and Fannie Mae, the two major agencies, have dominated the multi-family loan markets for years. However, the two compete on price and underwriting, just as other debt sources seek to add multifamily offerings to their books.
“I expect them to be near crisis level in terms of market share. A lot more business has gone to debt funds, but also to banks and life insurance companies. Life insurance companies have been quite aggressive,” Brickman told GlobeSt.com. “If you’re modest leverage, longer term fixed rate financing, institutional product, life insurance companies have always been a good choice. If agencies can’t provide higher revenue, they can’t continue. That’s where we’re at for non-affordable and off-mission properties.
It’s not just basic and basic plus properties at market rates that get alternative financing. Value-added players use bridge lenders and debt funds instead of agencies. Banks also pick up a lot of business that would otherwise have gone to Freddie and Fannie. “Banks have become more aggressive in trying to put multifamily on their books in recent years as deposits have increased,” says Brickman. “It’s a more balanced market than it has been for some time.”
Higher interest rates could alter this dynamic and bring agencies back into the fold, but Brickman also argues that the opposite is also true; higher rates could make them even less competitive. “That will be the interesting thing to watch when rates go up and cap rates go up,” he explains. “Does it give them the opportunity to be more competitive or does it just propel the same market dynamics where they have challenges.”
Agencies aren’t totally out of favor; they still generate a significant volume of business, but there has been an undeniable shift in the market and more activity from other funding sources. “Agencies are still huge players and are still influential,” says Brickman. “But, they have been less dominant and have a lower share than they have been.”