Month: March 2020

Fannie Mae, Freddie Mac relax appraisal, employment verification standards in wake of coronavirus

Will allow drive-by and desktop appraisals in certain circumstances

Citing the extraordinary circumstances that the country is facing with the ongoing spread of the coronavirus, the Federal Housing Finance Agency announced Monday that it is directing Fannie Mae and Freddie Mac to ease their standards for both property appraisals and verification of employment.

The moves are part of a growing effort to “facilitate liquidity in the mortgage market during the coronavirus national emergency,” the FHFA said in an announcement.

According to the FHFA, Fannie Mae and Freddie Mac will use “appraisal alternatives to reduce the need for appraisers to inspect the interior of a home for eligible mortgages.” The issue of appraisers needing to inspect homes as part of the mortgage process has been a mounting concern as the virus has continued to spread throughout the nation.

Considering that new research shows that the virus can live for “several hours to days in aerosols and on surfaces,” appraisers entering homes to inspect may lead to increased spread of the virus. Beyond that, cities and even entire states are going into lockdowns, thereby prohibiting appraisers from traveling to houses to inspect them.

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Multifamily Lenders Highlight Challenges During Coronavirus Crisis

On-the-ground issues may keep liquidity from flowing into the market.

The situation for the affordable and market-rate lending environment remains very fluid during the nation’s coronavirus outbreak, and it’s changing hour by hour, not even day by day, says Don King, executive vice president and head of the Multifamily Finance Groupat Walker & Dunlop.

“A lot of sponsors are anxious to take advantage of the low interest rates so we have seen an uptick in calls, interest, and potential activity,” says Philip Melton, executive vice president and national director of affordable and Federal Housing Administration lending at Bellwether Enterprise. “At the same time, we have concerns.”

One of the big roadblocks for lenders is on the ground, with shelter-in-place orders, lockdowns, and social distancing affecting physical inspections and third-party vendors doing on-site work.

“Right now we are struggling with how to prudently lend when we can’t get in to inspect units,” King says. “How do you prudently assess risk?”

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Amazon Just Bought Lord & Taylor Building from WeWork. Did It Overpay?

The e-commerce giant paid more than the building’s previous sales price. It may still have been a good deal, capital markets experts say.

At a time when most investors are nervous to embark on new deals, Amazon has charged ahead with plans to expand its footprint in the Big Apple. The e-commerce giant acquired the iconic Lord & Taylor flagship building in Midtown Manhattan from troubled co-working operator WeWork for $978 million, according to New York City Department of Finance records.

While at least a temporary recession is now all but a certainty, this deal was in the works long before COVID-19 became an immediate threat to the U.S., notes Eric Anton, associate broker in the New York office of brokerage firm Marcus & Millichap.

WeWork acquired the building for its headquarters in 2019 and announced a lavish, $438 million renovation project to reposition it to office space. But a failed attempt to go public followed, and the company never moved into the building.

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Freddie Mac, Fannie Mae move to protect renters from eviction during coronavirus crisis

GSEs will offer forbearance to multifamily property owners as long as they suspend evictions

Fannie Mae and Freddie Mac last week suspended foreclosures and evictions on single-family homes as the coronavirus continues to spread, but that policy will only help those living in a house, leaving many renters vulnerable to being evicted.

Not anymore.

The Federal Housing Finance Agency announced Monday that Fannie and Freddie are moving to protect renters from being evicted if they’re unable to pay their rent due to the impact of the coronavirus.

Specifically, Fannie and Freddie will begin offering mortgage forbearance to multifamily property owners on the condition that they suspend all evictions for renters who can’t pay their rent because of the coronavirus.

Because Fannie and Freddie back the mortgages on multifamily properties, but have no contact with individual renters, the only way for the GSEs to provide relief to renters is by providing relief to the property owners themselves. Missed rent payments mean that multifamily property owners wouldn’t be able to make their mortgage payments and the entire property would go into foreclosure.

As a result of the GSEs’ action, property owners now have the ability to delay their mortgage payments if their property is negatively affected by the coronavirus national emergency.

According to the GSEs, property owners can delay their mortgage payments for up to 90 days by showing hardship as a consequence of COVID-19 and by gaining lender approval.

The condition the GSEs included — that property owners can’t use the forbearance option unless they agree to suspend evictions — should have a sizable impact on the market, considering how much of the multifamily market Fannie and Freddie support.

According to the most recent data from the Mortgage Bankers Association, Fannie and Freddie hold or back approximately 48.6% of the entire outstanding multifamily mortgage debt.

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Getting Started in Multifamily Apartment Syndication

By now, the term multi-family real estate investment is not new; in investment circles, it is a collective term as it is a proven wealth creation vehicle. Foremost billionaires and many high-ranking individuals made a bulk of their fortune through investment in multi-family properties. Although this was not possible without these concerned individuals having top-notch knowledge about what they were delving into. They continuously do research and update themselves coupled with the association with some of the best minds in the real estate mind. Knowledge is indispensable to crucial decisions and that is what this medium is trying to achieve by continually providing you with tips on how to successfully invest in multi-family real estate. With this topic; multi-family syndication. Syndication on its own is said to mean the pooling of resources together to achieve a unifying objective. The pooling together of resources can be in the form of time, money, expertise, etc. it is done as mentioned earlier to achieve an objective that is otherwise impossible to achieve alone or might take time. Then in plain terms, multi-family or apartment syndication is said to refer to the coming together of multiple parties to jointly acquire and own a venture to make money together. Real estate experts often see apartment syndication as a faster way of getting returns on investments that might otherwise take time to profit on.
Multi-family syndication is often seen as a way of raising money from passive investors and buying high valued apartment buildings. Over time, some creative ideas have been fashioned out as the ideal ways for you to get your foot in the door with multi-family apartment syndication. You do not want to be a newbie just walking around in uncharted territory. Below is a list of ways to start in apartment syndication.

  • Conservatively underwrite deals
  • Take your time to find an excellent off-market deal
  • Negotiate and deconstruct all the strange terms; get all legal documents in order.
  • Secure debt financing (if this is applicable)
  • Raise capital and be the point person for all capital sources.
  • Do property management.

To correctly state, multi-family syndication is a form of a group investment. In this type of real estate arrangement, individuals known as syndicators are allowed to share all the profits and losses regarding the investment. For multi-family syndication, here is how it works; the key players in the partnership are referred to as general partners and limited partners. The limited partners are also referred to as investors. General partners are mainly responsible for putting together the whole arrangement. They are like the brains behind the entire set-up. They bring passive investors to the negotiating table regarding the venture to be embarked upon. General partners typically refer to a group of registered syndicators who are specialized in the different aspects of multi-family syndication. They contribute to finding the right deals, underwriting it, they secure finance, and they gather and form relationships with investors for lasting profitable dealings.
While the limited partners, on the other hand, are passive investors, as mentioned earlier. They invest money and expect returns that are equity in the deal. For the money invested, they are entitled to cash flow from the profits the investment generates. They also receive either monthly or quarterly reports on the performance of the asset. Not to forget, there is also a vital part of the syndication arrangement that has not been mentioned. This is the property management group. They help to manage the day to day operations of the property along with any other employed onsite staff, and they are also responsible for the execution of the syndicator’s business plan. The role of the property management group mainly becomes active when a contract is in place already. During the time which they go in and help the general partner with the due diligence process. They evaluate the property structure and any aligning issues or environmental matters that have not been previously considered. Other factors crucial to a successful syndication arrangement include:

1. The Market:

What is any viable investment opportunity without a market? The very first step in a long-lasting value-adding apartment syndication strategy is to choose an active market. Optimum markets are mostly those with high growth metropolitan statistical areas with more than an average population coupled with job growth and employer diversification. Another vital factor to consider in terms of market structure is the rate at which the market rent is growing. Without any renovation or value-added service to the existing structure.

2. The Property:

After identifying a stable market, another thing to consider is the ideal property. The most common practice is to find stable properties with conservative underwriting that will also bring about the much-needed profits. There is a need for the property to be stabilized as a property that is already performing, but not up to its full potential provides only little risk. The identified property should add value as mentioned earlier, as the gold spot is to find a property that will be strong enough to withstand renovations and rebranding that will improve its value. The property should not also be too old to cause money loss due to failing systems. There is also a need for due diligence to be performed on the property, random checks coupled with a thorough financial audit to discover any undisclosed liability.

3. The Business plan:

After the property to be invested in has been locked down, the partners together with the property management group, start the implementation of the value-adding plan. This is simply a means of increasing the net operating income. Renovations, both interior and exterior and other forms of rebranding are done to increase the value of the overall structure. Other assured ways of increasing the net operating income are to find ways of improving revenue-generating facilities in the acquired structure, such as the laundry area or by tightening operational leakages.

4.An Exit Strategy:

This follows after a long-lasting, and any adverse policy tight business plan has been implemented. It is now decided that it is time to either hold or exit. This crucial step is dependent on the principal investor’s strategy. How long the business plan holds depends entirely on market conditions and its stability.

5. The Money:

We saved the best for last; money makes the world go around, and it is crucial to the success of any business plan or future projections made. In an excellent multi-family apartment syndication deal, everyone wins; both the buyer, the seller, the investors, the property management, and the real estate broker. The sponsor’s share of the profit is the split from the limited partners, and a second form of the revenue for the sponsor comes in two forms; the acquisition fee and the asset management fee. Limited partners who are the passive investors and significant stakeholders in the business arrangement receive a large percentage of the profits from the operations and sale of the asset depending on the proportion of their percentage ownership. At this point, it is advisable to note that the splitting of the profit is not uniform, and they differ from structure to structure and will also vary by sponsor. The property management company for the random checks and the daily run of the business earns their share of the profit in two forms; from the construction management and the property management fee.

Benefits of real estate multi-family syndication:

1. Reduced Risk:

Acting as a passive investor and plugging funds into a real estate venture involving a syndicator is one with fewer risks. Compared to single-family housing units, which are like investing all your money in only one pocket. In that instance, although you may own 100% of the deal with regards to profit, you are also exposed 100% to the risks surrounding the investment; and this is not the deal with multi-family syndication arrangement, where you also get to share the risks with other investors.

2. Stable Value Creation:

One primary reason for investor’s preference for multi-family concerns over single-family housing units is the value it creates over time. Unlike single-family housing units that solely rely on market fluctuations and neighboring home prices, as an investor in a multi-family syndication venture, the syndicator has ultimate control over the value of the property and from time to time only finds ways to increase the property’s net operating income. The appreciation of capital can be achieved slowly and gradually over time.

3. Binary Occupancy:

Multi-family investments, according to research, have an average of 93% occupancy. The larger the property, the insignificant few tenants leaving is. However, this is not the case in a single-family unit as when your tenant leaves, you are left vacant and have to cover expenses from your pocket which can be disastrous in the long run.

4. The Advantage of Time Commitment:

Passively investing in a business set up is usually less time consuming than active investments. Investing in a single-family unit is deemed time-consuming as you need to find the real deal, handle the loan, and carry out the due diligence tasks yourself. With a syndication deal, you have a qualified person handling all that for you. Syndicators are responsible for maintaining the property and profits also come to you through a syndicator.

5. The Economy of Scale:

The handling of single-family units can be demanding. Operating expenses required are on a larger scale especially if the single housing concerns are scattered all across. Syndication provides the property management group necessary to handle all the changing dynamics involved in managing a multi-family housing unit. The management of the tasks linked with the management of the property while also being under the direction of a qualified and assuring syndicator.

The main advantage of multi-family syndication is that it expressly allows investors to take the full benefit and experience of the main sponsor, as capital is expertly aggregated amongst investors. Collectively investors can acquire high valued multi-family properties that would be unobtainable using a single fund source. The risks are also equally dispersed amongst the investors, coupled with the reasonable adjustment of investments at a comfortable risk level.

After discussing the advantages of joint investments in multi-family housing units, it is only normal for us to briefly mention some of the risks involved and some of the issues to watch out for. Here are some mistakes you should not make. Even though syndication is mainly an avenue to get maximum returns on investment, there are some mistakes a potential real estate investor should not make in multi-family syndication ventures. One is to avoid legal troubles as much as possible. Real estate is a legitimate business and one should aim to make it remain as such, endeavor not to have issues with your paperwork, violate regulatory guidelines or intentionally or accidentally mislead your investors. Legal tussles burn one out, try to run as far as possible from it. Else you open yourself to liability.

Another issue to consider is the issue of funding difficulties. It can be hard to know if to start with finding the right deal or locating the investors. Funding should be lined up first before finding the right contractor. Rookies in the real estate industry often make this single mistake. There is also the factor of non-existent or inconsistent marketing and this is in line with the issue mentioned earlier. There is a significant need for a consistent approach to marketing real estate opportunities to catch the fancy of investors. So, you are ready whenever the opportunity comes knocking. If you are trying to syndicate in multi-family investments, you are also in marketing, and you should be in charge of building your pool of credible investors by the development of an intentional plan to be out there and attract potential investors while also keeping them engaged as you continue to search for good deals to keep them interested. We do hope all through this compilation, and you have learned the basics of multi-family apartment syndication, the major parties involved, the roles of each party and the benefits and risk associated with syndication strategies. Cheers!!

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We’re Two Weeks In, What Should Multifamily Firms Do Now?

Eight things to do now, if you haven’t already, to protect your residents, employees, and firms during the coronavirus outbreak.

As the COVID-19 outbreak continues to rock the nation, the multifamily industry continues to grapple with the new reality while reducing risk and disruption for its residents, employees, and businesses. In a period where it’s anything but business as usual, it’s critical that industry stakeholders arm themselves with guidance and resources that will accurately inform important business decisions.

By now, apartment firms’ senior-level crisis teams should be in the throes of putting their COVID-19 response plan to work and adapting it as needed to the ever-changing circumstances. However, many questions continue to surface as apartment firms pick their way through these uncertain times. To assist companies in their efforts, the National Multifamily Housing Council (NMHC) offers this list of suggested apartment owner preparations and ongoing considerations.

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Commercial Real Estate Industry Coronavirus Resource Center

A page centralizing commercial real estate association responses, guides and resources in dealing with the ongoing coronavirus outbreak.

Many of the major North American commercial real estate industries have stepped up to deliver guidance and resources to the industry on how to handle the continuing coronavirus outbreak.

Here is a centralized list with links to the resource pages and statements provided by those groups.

If you have links to additional resources to add to this page, please contact [email protected]

Alternative and Direct Investment Securities Association

Statement on its upcoming 2020 Spring Conference, “The health and safety of our members and attendees is our top priority, and we are monitoring the COVID-19 (coronavirus) situation and guidelines set by the U.S. Centers for Disease Control and Prevention and the World Health Organization. We are working closely with the Rosen Shingle Creek resort to ensure that all appropriate measures are being taken to safeguard the well-being of our attendees, including the aggressive use of disinfectant cleaning procedures throughout the hotel, including the exhibit hall and meeting rooms, and the addition of more hand sanitizing dispensers readily available to all attendees.” (March 10)

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Hotel Owners Are About to Blow Through Cash on Virus Travel Cuts

Even well-capitalized hotel owners will blow through their cash reserves quickly in today’s environment.

(Bloomberg)—Some Seattle hotels saw occupancy rates fall below 10% last week, even before fresh guidance against public gatherings from the federal government presented a new challenge to the U.S. hospitality industry.

The data from the Downtown Seattle Association shows how bad things could get for hotel owners in cities where cases of the novel coronavirus were slower to arrive.

Travel restrictions and restaurant closures aimed at stopping the spread of the virus, along with a looming recession are all bad news for the hospitality industry, and even well-capitalized owners are going to blow through cash reserves quickly, Jonathan Falik, chief executive officer of JF Capital Advisors, said in an interview.

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Icahn is shorting the commercial real estate market, which he says is going to ‘blow up’

Billionaire investor Carl Icahn told CNBC he expects the U.S. commercial real estate market will crumble.

Billionaire investor Carl Icahn told CNBC on Friday he expects the U.S. commercial real estate market will crumble, much like the broader housing market collapse of 2008.

“You’re going to have this blow up, too, and nobody’s even looking at it,” Icahn said on “Halftime Report.”

Icahn said he is shorting the commercial mortgage bond market and it’s his “biggest position by far.”

Short selling is a bet against stocks or bonds, with shorts borrowing shares from an investment bank and selling them in hopes that the asset will lose value. If it does drop, shorts buy the shares back at a cheaper price and return them to the bank, turning a profit on the difference.

Icahn’s short is specific to credit default swaps, or “CDS,” which are assets that back mortgages of corporate offices and shopping malls. Icahn said the housing market bubble of 2008 has “happened all over again” due to loans made in 2012 to shopping malls and more.

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Regional Mall Owners Face One of Their Toughest Weeks on Record. How Will They Cope?

Restaurant and store closings might mean some very tough decisions for regional mall landlords.

This week was supposed to mark the opening of one of the biggest (and longest-planned) retail projects in U.S history—the American Dream Mall in the New Jersey. Parts of the property, including an indoor ski slope, have been opened for a few months. But on March 19, the American Dream’s developer, the Triple Five Group, intended to open the project’s retail section, water park and restaurants. With the new health guidelines coming into effect in New York and New Jersey, however, American Dream will remain closed until further notice.

This is a story that is playing out across the regional mall sector, which was already in a severely weakened state before coronavirus arrived in the United States. In many states and municipalities, including New York, New Jersey, California, Connecticut, Illinois, Massachusetts, Ohio and Washington, governments are requiring that businesses including restaurants, bars and movie theaters—the staple regional mall tenants—close their doors and only provide pick-up and delivery services if possible.

Meanwhile, a growing number of retailers, Apple, Urban Outfitters and Lululemon among them, have announced they are opting to close stores for the next few weeks out of concern for the safety of their customers and employees. Others, like Kate Spade and the Gap, have scaled back their operating hours. And there is expectation in the market that more retailers will follow their example. But as closings announcements accumulate, the publicly-traded chains’ stocks are getting hammered.

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