Apartment Industry Releases Four-Point Plan To Address Industry's Liquidity Crisis

WASHINGTON, DC – After months of working with lawmakers and regulators behind the scenes, this week the National Multi Housing Council and the National Apartment Association launched a high-profile effort to help restore the apartment sector's access to capital.  The centerpiece of the effort is a four-point policy statement outlining necessary steps federal officials must take to avoid systemic failure in the apartment sector.

"We are facing serious risk of waves of defaults and bankruptcies of otherwise performing apartment properties unless the Federal Reserve and the Treasury Department take action," said NMHC President Doug Bibby in announcing the four-point program.  "In the next two years, an estimated $60-$80 billion in multifamily mortgages will mature and need to be refinanced.  With credit markets virtually collapsed, however, owners who are meeting their financial obligations but who—by sheer timing—are in the unlucky position of having their mortgages mature in 2009 and 2010 may be forced into foreclosure." 

"In addition to the refinance risk, the lack of capital has all but stalled new apartment construction and is preventing owners from tapping into their equity to maintain their properties at a time when America is increasingly relying on rental apartments to house our citizens," explained Bibby.

"The largest generation of children currently under the age of 20 in the history of the U.S. will be entering the housing market in the next few years and the number of seniors who can no longer maintain a house will begin to skyrocket," Bibby noted.  "In addition, the single-family foreclosure crisis has increased the demand for affordable rental housing.  Without federal action, however, the apartment industry cannot meet this demand."

According to Dr. Arthur C. Nelson, FAICP, Presidential Professor and Director of Metropolitan Research at the University of Utah, to meet emerging housing demands one-half of all new homes built between now and 2020 will have to be rental units.

"The good news is that the multifamily story is very different from the single-family story," said Bibby.  "The apartment sector is the only residential real estate sector that did not overbuild, and unlike the single-family market, underwriting standards and loan performance in the $2 trillion multifamily sector remain quite strong.  Like so many other industries, we are a collateral victim of the single-family housing bubble."

Citing the looming risk of systemic failure and a wave of defaults and bankruptcies on otherwise performing properties because of a lack of capital to refinance maturing debt, the NMHC/NAA initiative calls on the federal agencies to use the authority they have under the Troubled Assets Relief Program (TARP) and through their previously announced Term Asset-Backed Securities Loan Facility (TALF) to:

1. Purchase multifamily mortgage-backed securities (MBS) guaranteed by Fannie Mae and Freddie Mac.  Federal Reserve/Treasury purchases are important to invigorate the multifamily MBS investor market, which has begun to show limited signs of activity.
   
   
2. Purchase longer-term (e.g. 10-year) debt issuances by Fannie Mae and Freddie Mac so that the GSEs can support their lenders’ funding needs without having to rely on mismatched short-term debt.  This is essential to align the GSEs’ capital needs with longer-term multifamily loan products.
   
   
3. The Federal Reserve should use its authority under TALF to purchase highly rated commercial mortgage-backed securities (CMBS).  This would restore investor confidence, restart trading in the frozen CMBS market and establish a market-clearing price for a variety of real estate assets, including commercial and multifamily mortgages.
   
   

4. In separate action, the Federal Housing Finance Agency should exempt multifamily loans from GSE mortgage portfolio limits through December 31, 2010 or until a new secondary market structure for multifamily loans is operational, whichever comes first.  Based on Fannie Mae’s and Freddie Mac’s strong multifamily loan portfolio performance, exempting these loans will have virtually no impact on the overall portfolio risk of the two enterprises.

The new initiative comes on the heels of a recently released policy paper by Harvard University's Joint Center for Housing Studies detailing the growing importance of rental apartments and pointing to a looming liquidity crisis that could seriously impair the sector and lead to a critical housing shortage. 

More information on NMHC/NAA’s four-point initiative and the Harvard University paper, Meeting Multifamily Housing Finance Needs During and After the Credit Crisis, is available at www.nmhc.org/goto/CapitalCrisis.

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NMHC and NAA operate a Joint Legislative Program and represent the nation’s leading firms participating in the multifamily rental housing industry. NMHC/NAA’s combined memberships are engaged in all aspects of the development and operation of apartment communities, including ownership, construction, finance and management. Together, the organizations operate a federal legislative program and provide a unified voice for the private apartment industry. Nearly one-third of Americans rent their housing, and more than 14 percent of all U.S. households live in an apartment home. For more information, contact NMHC at 202/974-2300, e-mail the Council at info@nmhc.org, or visit NMHC’s web site at www.nmhc.org.

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