Four Observations on Multifamily from the Mortgage Bankers Association’s CREF23 Conference
The Mortgage Bankers Association’s CREF23 conference in San Diego in mid-February included comprehensive and insightful panel discussions led by some of the brightest minds in multifamily. During the four-day event, key themes and takeaways emerged that will likely shape the conversation on multifamily financing throughout the year.
1. Volumes are down, but optimism is up … especially in the East.
Conservatism reigns even as lenders remain cash-rich, and the demand for bridge and short-term financing has dominated many, if not most, loan requests. Positive sentiments directly correlate to geography right now. As the San Francisco, Oakland, and Boise markets soften, the New York City, Nashville, and Miami markets are buzzing.
In terms of marketability, there is palpable curiosity around deals and properties designed to thrive if the work-from-home or hybrid employment model persists through the decade. Today, developers are describing apartment configurations with five-plus bedrooms, multiple “plus den” spaces, workstations built into lofts, highest-end Wi-Fi speeds and, increasingly, clustered single-family rental (SFR) communities built with a “horizontal multifamily” perspective.
2. Inflation hedges have rarely been hotter or talk of CLOs quieter.
The evolution of the market, as it emerged from the pandemic, has attracted an influx of capital. While “beds and sheds” remain industry darlings, the collateralized loan obligation (CLO) market, a robust topic of conversation last year (following a record $50 billion year for commercial real estate CLOs in 2021), was mostly left out of the discussion at CREF23. With debt funds repositioning and pricing subsequently impacted, transactions have become more difficult to compare year-over-year.
3. FHFA targets are ambitious, and the agencies are bringing the energy.
An increased media focus on (and social awareness of) homelessness and families facing inflation-driven fiscal crises has, in part, helped keep intact the ambitious goals that the Federal Housing Financing Agency (FHFA) has set for its loan caps for 2023. FHFA increased its mission-driven business requirements, devoting 50% of Fannie Mae and Freddie Mac’s multifamily business to properties with rents up to 120% of AMI, depending on the market, half of which must be affordable at 60% of AMI. With the pace of rent increases climbing in the Sun Belt and many other markets, the agencies may feel increased pressure to assert on pricing and help accelerate the development of more rental housing this year.
4. Backlogged HUD hears industry concerns.
The U.S. Department of Housing and Urban Development (HUD) has taken steps in the last year to reduce the length of its underwriting queue, simplified 223(f) and 223(a)(7) refinancings with the help of contractors, and freed up HUD staff to focus on more complex deals and, increasingly, hiring more staff. HUD’s Ethan Handelman made a candid and transparent plea to attendees to review open positions at HUD and refer qualified candidates that inspired an impassioned panel discussion about role locations and the cost of living in Washington, D.C.
As CREF23 ended in San Diego, attendees departed feeling recharged with a full plate of food for thought and newfound optimism about the state of the multifamily industry in 2023.
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