Lessons Learned
Still, despite all of the positive news on the financing side of the house, the industry is still facing one giant question around the future of the government-sponsored enterprises (GSEs). As Congress continues to debate their future, the growing menu of debt and equity options becomes particularly critical. In fact, when it comes to housing finance reform, a plurality of senior-level multifamily professionals (nearly 34 percent) favor a market with only limited government involvement over any other option, according to the survey. The way that large apartment firms approach that possibility is telling. First, they are diversifying their debt sources by striking more relationships with life companies, banks, and conduit lenders. Second, they are not pushing for every last dollar in leverage, to ensure that they’ll have more debt options in the future—most private-sector lenders, such as life companies, favor lower-leverage deals. (For more on the interplay between the REITs and the GSEs, see “Planet of the REITs” on page 16.)
In fact, many of the industry’s largest developers are beating back offers of additional leverage from lenders—a dynamic that probably didn’t happen too often during the last boom period. “In some cases, we’re turning down leverage from our construction lenders,” says Joseph Keough, CFO and COO of Atlanta-based Wood Partners. “We want to be sure that even in a downside scenario—or in a situation where Fannie and Freddie are less active—we’re not overlevered and that we still have the ability to take out the construction lender if we decide to hold the asset longer term.” The higher leverage levels being offered—and the push-back by borrowers—present a good microcosm of where we are today, a measure of how far the capital markets have come as well as the lessons learned during a bitter downturn.
Armed with both that hard-earned wisdom and low-cost capital, it’s no wonder that optimism—without the caveat of caution—has begun its reign.
