Shrinking Fannie Mae and Freddie Mac?

Always awash in politics and not immune to economic conditions, Fannie Mae and Freddie Mac have shrunk considerably over the past couple years, but in no way have they become small players in the real estate market.  Today, they still control a portfolio of property valued at well over $300 billion. According to “Commercial Real Estate: Shrinking Fannie Mae and Freddie Mac?,” the latest podcast produced by John B. Levy & Company (available online at www.jblevyco.com), Fannie and Freddie currently hold 50 percent of the multifamily market, a significant drop from the 80 percent share it owned at the height of the liquidity market.“It’s a fact: Fannie Mae and Freddie Mac are shrinking,” says John Levy, founder of John B. Levy & Company.

“The result of this is that the third-party, the independent, the private market is reclaiming part of the multifamily section . . . and that’s how it should be.  Cutting the housing part of Fannie and Freddie right now isn’t a great idea right now because that market is so weak.  But it makes sense politically for these two players to be smaller, even in the housing market.  The only exception,” Levy adds, “is the low-income market.  It’s very hard to get the private market to effectively price and buy into low-income housing.”The market for investing in commercial real estate continues to improve, according to Levy.  Once limited to five or six core cities such as New York, Boston, and Chicago, robust investment activity has extended into second- and third-tier markets.  Today, commercial real estate investors are finding significant opportunities in markets that did not exist a year ago.“With the investment market, it’s as if you’re throwing a rock into a pond,” says Levy.  “First, there’s the big splash, and those are the five or six markets you could buy into last year – the Bostons and Washingtons and New Yorks.  

Now, we’re seeing concentric circles just like in the pond, and those represent an additional twenty to twenty-five markets that capital is going into because the big markets are priced too thin for investors to get the yield they need.  We’ve had success raising equity and preferred equity in many of these second- and third-tier markets,” says Levy, “even including those in the Rust Belt.”As the strength of the commercial real estate market continues to broaden, CMBS is running on all cylinders and expects to have a strong year.  Generating only $10 billion in 2010, CMBS should fall somewhere in the range of $40 to $50 billion in 2011.  Insurance companies and pension funds are literally in a sprint to bring money into the market, and insurance companies, in particular, are pricing their capital in an effort to secure cream-of-the-crop deals.“Money is definitely on sale right now,” says Levy.  “This is one of those times when you ought to back up the truck and take all you can get.  Whether you’re looking at ten- or seven-year money, or even fixed-rate money, it’s going at 4.5 to 5 percent.

Could it go lower?  Who knows?  But this isn’t one of those times to wait for 4.5 percent to edge down to 4.375 percent,” says Levy.  “We’re in the middle of a screaming buy right now, so take what you can get.  In a year or two, you’ll be glad you borrowed as much as you could.”Firm BackgroundJohn B. Levy & Company, Inc. is a real estate investment-banking firm headquartered in Richmond, Virginia.  Since John Levy founded the company in 1995, the firm has structured over $3.5 billion in financing for developers and owners of commercial and multi-family projects nationwide, often investing its own proprietary funds into transactions with its clients.  Mr. Levy is an expert on commercial real estate financing and the effects of interest rates on commercial real estate markets.  He is the originator and author of the Barron’s/John B. Levy & Company National Mortgage Survey, which Barron’s published for 23 years, and co-creator of The Giliberto-Levy Commercial Mortgage Performance Index (sm), the first and pre-eminent index to measure and analyze the performance of investments in the commercial mortgage industry.  

Additionally, he is a member of the Board of Directors of Anthracite Capital Inc. (NYSE: AHR), a New York Stock Exchange REIT managed by BlackRock, Inc. and a former director of Value Property Trust.  A seasoned speaker, Mr. Levy has presented nationwide to major real estate associations and key industry groups, including the Mortgage Bankers Association and the Urban Land Institute.  He has also appeared on Bloomberg and CNBC.  Most recently, Mr. Levy appeared as a guest commentator on FoxBusiness.com and FoxNews.com.For more information about John B. Levy & Company, please visit our website at www.jblevyco.com or call Andrew Little at 804-644-2000, extension 260.  You can also follow us on Twitter at www.twitter.com/jblevyco and become a fan on Facebook.