March 06, 2017

Multifamily Notes from San Diego

John Cannon
John Cannon, SVP Multifamily Production and Sales

John Cannon, Freddie Mac Multifamily senior vice president of conventional sales, shares some of his notes from the Mortgage Bankers Association’s Commercial Real Estate Finance Conference (MBA-CREF) held in San Diego between February 19 and 22.

Feb 18. At MBA-CREF. Meetings scheduled with several hundred customers over next three days to thank them for strong business relationships, find out what’s keeping them up at night, and help them succeed in 2017.

Feb 19. The conversations so far can be summed up in two words: cautiously optimistic. The hallway consensus is that the commercial real estate sector is having its longest run of positive growth in recent memory, but it can’t go on forever. Attendees are pointing out several clouds on the horizon, like federal policy reforms and rising interest rates.

Yet people are upbeat because the economic facts on the ground continue to paint a compelling picture for strong rental housing demand, particularly for class B and C assets. The optimists cite positive job and income growth, the influx of new Millennial households entering the rental market, and multifamily starts and completion rates that are keeping supplies in check – and rents healthy – in most markets.

Another positive: a clear market preference to live in urban communities that are close to work, shopping and entertainment. Customers agree Millennials and other new households seem to prefer renting because it gives them the mobility to easily change locations when they change jobs.

Feb 20. Attendees seem to be leaning even more optimistic today. The economic fundamentals are looking more solid, so maybe the aforementioned clouds are not so menacing. Basic supply and demand factors also make multifamily the commercial mortgage market’s favorite asset class. Nothing else comes close.

More meetings. Hearing more customers recognize Freddie Mac for having a business model geared toward innovation and leading, instead of reacting to, change. Very gratifying to hear such positive feedback from our industry’s best companies.

Green Advantage is often cited as an example. Designed to work with our conventional, senior and Targeted Affordable Housing products, Green Advantage transforms inefficient, older properties into energy- and water-efficient apartments that seniors and working families can afford. Explains why we saw more than $3.3 billion in Green Advantage loans within five months of its August launch last year.

Feb 21. Conversation today dominated by the search for innovative ways to finance workforce rental housing in places where people want to live. Multiple obstacles cited in meetings ranged from neighborhood opposition to securing financial packages that would ensure long-term affordability. We emphasized our commitment to work closely with our customers to find solutions as part of our dedication to their success, our affordable housing mission, and the final Duty to Serve rule announced by the Federal Housing Finance Agency.

Feb 22. Last day. I’ve yet to hear the question people always ask at these events: “What inning are we in?”, meaning aren’t we in the late innings of the recovery given how long it has lasted? The fact that nobody is asking suggests some quiet rethinking in our industry may be underway.

Feb 23. Headed home. Maybe our business isn’t a nine-inning game anymore. Maybe it’s changed from baseball to cricket – which I hear can have an unlimited number of pitches. I’m sure about one thing: Freddie Mac Multifamily is going to succeed because we built our business around giving our customers game-winning solutions. So regardless of the sport, or the inning, what’s important is the quality of the players on the field. And we have the best team in the industry.

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