Multi Family Market Climate amidst COVID-19

The below information are notes taken from the call on Tues, March 31st from Berkadia CEO and Baker Botts LLP International Law Firm regarding the state of our economy and the impact of the COVID -19 disease.  

The difference between the current economic climate and the one from 2008 is that the banking system is now the solution instead of being the problem. Fannie Mae and Freddie Mac have done more lending in 2019 then and other year in history. With interest rates at a historical low, the demand to buy has been at an all time high.

Here are the predictions per Chief Financial Economist of Berkadia, Ward McCarthy.  

Projections for the economy:

  • Q2:  Shutdown will be temporary.  How abysmal will depend on the virus and people’s commitment to adhere to the restrictions placed on us.
  • Q3:  Will be transitional and move us back to normal as much as possible
  • Q4:  Believe to be back to normal and project that the country will return to a growth rate of 2.5%

Long term, single family housing will continue to flourish since there is a shortage compared to the demand.

1031’s – there is still money out there looking to be placed.  Fannie and Freddie Mac have made extensions in times of distress, but as of today, none have been made, but that could quickly change.

Recommendations per Justin Wheeler, CEO of Berkadia

  • Delay taking out any more loans until we get a better idea how long things will be shut down
  • Current properties should expect longer marketing time
  • Move to virtual tours
  • Pursue extensions as needed
  • Believes we will see more rescue capitalists coming to market to help people in need of funding
  • Freddie and Fannie will become slower to lend

Opportunities/Concerns:

  • Student housing hardest hit with preleasing lagging and concerns as to whether or not April and May rent will be paid.  
(Cont.) Thoughts from Baker Botts and Berkadia
  • There will be opportunities in Class A and more affordable housing will be needed.
  • Commercial agents will move from transactional agents to more of advisors’ roles.
  • April 3rd will provide a lot of clarity when rent is due as to the economic impact the virus has had on the MF loans.
  • More Real estate MF Bonds will be coming to market.
  • Hud – Construction loans in the pipeline are still moving forward.  
  • Vegas, New Orleans, and Florida MF could be hit harder than most cities, as well as, Houston with the drop in oil.
  • Student Housing is another given the uncertainty of the next fall semester.
(Cont.) Updates from Baker Botts and Berkadia

Construction Update:

New York Trade Unions are fighting with the City and State of NY as to whether or not they have the authority to shut down all construction sites.

Pennsylvania has been the most restrictive and has even shut down critical response systems such as sprinkler systems and the manufacturing of construction materials which is impacting many construction projects nationwide.

Austin projects are being evaluated on a project by project basis.

The issue as to whether States and Cities can prevail over the Federal Government is still being determined on mandated construction restrictions.  

Among subcontractors, there are concerns over the lack of policy from OSHA regarding abiding by the 6 ft rule.  Given this is the first time dealing with something of this magnitude, something will surely come of this.

Truckers are concerned about driving thru states that are mandated shut down and concerns about the safety of the materials they are hauling.

Government employees and architects aren’t showing up to sites to give the go ahead on projects because they are believed to be excused.  This is causing delays and frustrations.

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