The following article published in Multi Housing News Daily summarizes some recent changes in Fannie Mae’s apartment financing programs. Investors seeking financing for apartment projects would be well advised to investigate the programs offered by Fannie Mae and Freddie Mac since they have become very popular since the collapse of the CMBS financing markets.

Fannie Mae Announces Multifamily Financing Modifications, Record $2B in First Half Volume

Published: July 29, 2008

By Keat Foong, Executive Editor, MULTI HOUSING NEWS DAILY

Half Moon Bay, Calif. — Fannie Mae is working on a number of enhancements to its multifamily financing offerings, including a combined construction-permanent financing product.

The agency says it is cooperating with several DUS lenders who have construction lending expertise to combine construction financing with permanent debt. “The construction-to-permanent product will offer a seamless, lower cost execution and more certainty for the construction of new multifamily properties,� Fannie Mae states.

Currently, only HUD offers a multifamily construction-permanent loan, under its FHA mortgage insurance program. HUD’s combined financing requires one underwriting and approval for both loans, with the construction loan rolling over to permanent loan. Despite major improvements over the years, customers still complain HUD’s processing of the insured loan product can be cumbersome depending on the market.

Fannie Mae also announced it is enabling lenders to lock the interest rate on Fannie Mae loans at any point during the underwriting process. The Streamlined Rate Lock will provide more delegation to lenders and offer borrowers certainty of execution, it says.

Fannie Mae recently introduced the Refi PlusTM product, which is meant to make it easier for borrowers to refinance their existing DUS loan. Borrowers can lock the interest rate for their refinance loan up to 24 months in advance of the expiration of their prepayment period, and can use a Fannie Mae Supplemental Loan to immediately fund additional proceeds without having to wait for the existing DUS loan to mature.

Fannie Mae announced that it has experienced its strongest first-half year ever for DUS, with an increase of 30 percent over production in the same period in 2007. Fannie Mae’s investment in multifamily housing totaled $20 billion in the first half of 2008.

Fannie Mae reported large increases in its Small Loans and Student Housing financing. Its investments in Small Loans “surged� to nearly $5 billion in the first half of 2008. (Small Loans are loans of up to $3 million, or $5 million in certain markets.) The company also invested over $1.5 billion in Seniors Housing, and $264 million in Student Housing, doubling its mid-year 2007 production of $132 million. Fannie Mae’s investment in Manufactured Housing increased four fold, from $89 million through mid-year 2007 to $458 million through mid-year 2008.

This article describes major projects recently built or to be built in Times Square and other areas in New York City that are at the forefront of the Green Building movement. this movement is gaining strength from major corporations who want to own or occupy green buildings to enhance their images among yournger employees and customers and among the growing numbers of citizens who favor the building of more environmentally friendly developments.

BY: Matt Valley - NATIONAL REAL ESTATE INVESTOR - Jul 1, 2008

The dramatic transformation of Times Square from a seedy district infamous for porn shops and massage

parlors into a thriving retail and entertainment destination where tourists crowd the streets and look

skyward is legendary. It’s a wonderful success story of how the public and private sector can work

together to re-energize a city.
Lost in all the discussion about the “Disneyfication of Times Square,� however, is the strength of this

burgeoning office market, which thrives on a diverse mix of tenants in fields such as entertainment,

media, financial services, consulting and law.
What’s more, the Times Square office market has emerged as a pioneer on the green building front. The

catalyst was The Condé Nast Building at Four Times Square, a 1.6 million sq. ft. tower located on

Broadway, between 42nd and 43rd streets. The 48-story building was completed in 1999 by The Durst

Organization. Back then, it was the first speculative office building to have been developed in New York

in nearly a decade.
What made this project unique? Four Times Square was the first building of its size and financial

structure (multi-tenanted and not owner-operated) in the U.S. to adopt standards for energy efficiency,

sustainable materials, and indoor environmental quality, according to the U.S. Department of Energy. The

building also adhered to responsible construction and maintenance practices.
“We obviously went green before there was a standard for green,� says Thomas Bow, senior vice president

with The Durst Organization. “We really learned that you could build a large-scale project from a

sustainable and environmentally responsible perspective.� That knowledge was collected by Durst and set

down in a book, Lessons Learned: Four Times Square — An Environmental Information and Resource Guide

(Earth Day New York, 1998).
A towering symbol

Durst parlayed that experience into the $1 billion development of the 2.1 million sq. ft. Bank of

America Tower at One Bryant Park, a 54-story office building that opened a few months ago on the west

side of Sixth Avenue, between 42nd and 43rd streets. The tower expects to achieve the first

LEED-platinum rating for a commercial high-rise.
Bank of America is the lead tenant and co-developer on the project. The bank will occupy 1.6 million sq.

ft. and employ a workforce of 5,000 to 6,000 in the tower. As of early July, all but 30,000 sq. ft. of

the 2.1 million sq. ft. of office space had been leased. Gross asking rents per sq. ft. on the 50th

floor are $200 and $185 on the 37th floor, indicating strong tenant demand.
The green amenities include a rainwater collection system, plus an indoor-air quality system that

filters out any volatile organic compounds. “This is what the bank wanted to build, the best work

environment for the employees,� says Bow.
Dan Kaplan, a senior partner with architectural firm FXFowle, says that sustainability ranks high on the

list of requirements for major corporate tenants. “For the rest of the world, and especially the

European companies that are coming here, this is also a part of their criteria,� Kaplan remarked during

a discussion on Times Square as part of the Manhattan Westside Real Estate Conference held June 19 in

New York.
Leaders raise green IQ

But it is not just the Europeans — it is also a generational shift that is ushering sustainability into

the mainstream. When Stephen Siegel’s daughter recently filled out a college application, she was asked

to list five words that best describe her. One of the words she included was “green�. The chairman of

global brokerage for CB Richard Ellis shares that story to drive home his point: Businesses that fail to

offer a green environment for their employees will find it tough to recruit young workers.
“There are now benchmarks that are actually beginning to be available that prove the higher

productivity, the better work environment� that green buildings generate, remarked Siegel during the

Times Square panel discussion. “Even if it that means a slight premium in rent for the tenant, it can be

demonstrated now that there is a [measurable] payback,� added Siegel.
Robert Selsam, regional director of the New York office for Boston Properties and a panelist, has

observed a shift in green awareness. His company developed Five Times Square. Selsam says that today’s

tenants ask, “What’s your LEED rating?â€? Just a few years ago, they were asking, “What is a LEED rating?â€?

The following article summarizes Moody’s analysis of commercial property values in the U.S. One should not conclude that the value of any particular property has declined based on these figures since this is a fairly new analysis and its applicability to any particular property is yet to be estblished.

By Poonkulali Thangavelu
NATIONAL REAL ESTATE INVESTOR
Jul 24, 2008

Commercial real estate prices were down 3.5% nationwide at the end of May, from the previous month, according to Moody’s Investors Service Commercial Property Price Index. This represents three consecutive months of negative returns and also the largest drop since December 2000, when the Moody’s index was launched.

The Moody’s index is based on apartment, industrial, office, and retail property prices in cities
nationwide. It measures changes in transaction prices for commercial properties based on repeat sales of the same property. The current index reading is 8.8% below a peak reached in October 2007.

And average transaction price is falling steadily as more lower-priced assets are sold. In May, about
75% of the transactions were based on assets priced at less than $7.5 million. In the previous 12
months, only 50% of transactions were based on lower-priced assets. High price assets above $50 million represented 1% at end of May compared with 5% in May of 2007.

In another sign of reduced speculative activity, holding periods between repeat sales have become longer over the last two years. In July 2006, an investor’s average holding period for an asset was just over five years. In May 2008, the average holding period is a little over seven years.

Trying to follow legislation in the House of Representatives and US Senate oftentimes leads to nothing but a big headache. However, I thought it would be useful to at least post on the Housing Recovery Act that has been getting a lot of coverage in the news media. You don’t have to know the minutia of these types of issues, but you do want to be informed and educated as to what is happening in the housing industry and in the real estate market.

House Passes Bill That May Stem Foreclosures

Wednesday’s passage of The Housing and Economic Recovery Act of 2008 by the House of Representatives will help bring stability to the housing market and stem the rising rate of foreclosures, according to the NATIONAL ASSOCIATION OF REALTORS®.
NAR thanked Chairman Barney Frank, D-Mass., and the House of Representatives for their bipartisan efforts in getting H.R. 3221 passed.

“Realtors® are in the business of building communities, and our 1.2 million members understand that this legislation will go a long way in helping people buy and keep their homes,� says NAR President Dick Gaylord. “We look forward to prompt Senate action to finalize this bill, helping ensure that every American who can afford to own a home and wants to do so will have the opportunity and that everyone who responsibly owns a home is able to keep it. This bill must get to the president quickly, and we urge him to act immediately to sign it into law.�

NAR has expressed ongoing support for the major features in the housing package. The legislation includes Federal Housing Administration Modernization that will simplify and make FHA-backed mortgages more available while helping thousands of families refinance existing mortgages and keep their homes.

Other important components of the bill that NAR supports are reform of the government-sponsored enterprises (Fannie Mae and Freddie Mac), permanent increases to both GSE and FHA loan limits, a first-time home buyer tax credit, and a program to expand FHA that would allow more home owners to refinance their mortgages.

“The $7,500 tax credit for first-time home buyers is a needed stimulus for a weak housing market,� adds Gaylord. “This bill would extend the tax credit availability through June 2009, which would have a further positive effect on the housing market.�

Source: NAR

Posted By Carter Brown

Use Real Estate agents effectively. All the deals you do will not involve real estate agents but they can and should be a valuable part of your business. Be prepared when you call and speak with an agent that you are considering adding to your team. Demonstrate to them that you have put some thought into your business and are fully dedicated to being a successful investor. Think about various strategies you are interested in, consider different market areas you are thinking about targeting, put some thought into your financing alternatives, etc. Showing an agent that you are serious about investing will increase their desire to work for you and do a good job. Your agent will not get paid until you close a deal, so the closer you are to making offers and doing deals the more excited an agent will be to get to work. Do not sign an exclusivity agreement with any one agent, but rather work with a few different ones. The most valuable service an agent can perform for an investor is finding deals and the more agents you have looking for deals for you the better.

Posted by Carter Brown

I thought this short article would be helpful for investors unfamiliar with credit scores. I like the note, but I don’t like the title of the article “Good Credit Is Step One For Buyers�. For investors, step one is finding potential deals and in many cases, credit doesn’t come into play at all because we are doing non-traditional creative deals. One of the attractions to real estate investing is the fact that you can invest successfully even if you have a terrible credit score.

Having said all that, I still think it is important to be familiar with what a credit score is, what influences it and how to improve your score.

Good Credit Is Step One for Buyers

Potential home buyers inevitably must confront their credit scores.

Here’s a primer for those who have never faced this issue before:

A credit score, commonly known as a FICO score, is derived from a history of taking on debt and paying it off.

FICO scores range between 300 and 850, with the highest reflecting the best credit risk. The median FICO score nationally is around 720-723, according to Fair Isaac, the company for which FICO scores are named.

Except for a first-time buyers or those who have a large down payment, lenders will want to see a FICO score of 680 or higher, says Robert Satnick, chairman of the California Mortgage Bankers Association.

To get their FICO score, potential home buyers can go to Myfico.com, a unit of Fair Isaac. Obtaining a FICO score and a credit report from one of the three credit bureaus that collect this history costs $15.95; the combination of all three scores and the FICO report costs $47.85.

The credit factors that determine the score are: a person’s payment history (35 percent of the score), how much they owe (30 percent), the mix of credit and installment loans they have (10 percent), the length of their credit history (15 percent), and whether they have applied for new credit recently (10 percent).

Source: The Associated Press, Alex Veiga (07/21/2008)

Posted by Carter Brown

The article below from Apartment Finance Today describes the current status of defeasance activity for CMBS loans. For those unfamiliar with these terms CMBS stands for Commercial Mortgage Backed Securities and defeasance is the process of removing a loan within a portfolio of loans that has been sold to a financial firm which, in turn, sells securities backed by the portfolio of commercial mortgages all of which prohibit early prepayment unless the holder of the mortgage is guaranteed the return from the mortgage for a certain period of time. Defeasance is done by firms that specialize in it and arrange for the seller of the property to purchase replacement financial instruments which are satisfactory to the holder of the mortgage to be removed from the portfolio.

CREDIT CRUNCH CUTS DEFEASANCE ACTIVITY
While apartment owners are the most likely to defease, falling values and declining liquidity make it a less attractive option.
By Brad Berton, “Apartment Finance Today� • May 2008

When HVM Management Co. looked to sell a portfolio of seven communities in the Carolinas late last year, principal Hal McCoy realized most buyers would likely want to replace the lowleverage conduit loans on five of the properties, in order to minimize their equity contribution.
So given that the seven-year mortgages weren’t scheduled to mature for four more years, the Greensboro, N.C.- based entrepreneur also realized he’d need to defease the loans in order to close the sale.
Indeed, when McCoy and company cut an $81.5 million deal with Berkshire Property Advisors, the buyer opted for far higher leverage by bringing in fresh financing from Freddie Mac. As it turned out, the relatively modest “premium� McCoy paid in defeasing nearly $22 million in mortgage debt made for a successful sale.
While defeasance activity has fallen fast since the credit crunch brought turmoil to the conduit lending arena, McCoy’s deal illustrates that the complicated option can still be attractive under certain circumstances.
With Freddie Mac and Fannie Mae lending while conduits are on the sidelines, many apartment buyers are still able to make aggressive bids by financing acquisitions at attractive leverage levels and interest rates. McCoy’s impression is that Freddie helped Berkshire leverage the entire sale at about a 70 percent loan-to-value (LTV), compared to well below 40 percent for the defeased loans.
And although HVM had to buy enough government-backed securities to cover the remaining four years of debt-service obligations, the company’s loan documents allowed it to use Fannie and Freddie bonds as the replacement collateral (it helped that the coupon rate on the loans being defeased was just 4.48 percent). With the Fannie and Freddie bonds yielding higher rates than Treasury issues, the difference between the principal balance and the cost of the replacement collateral came to a modest $900,000.
Adding various other fees (see sidebar at end of this article) necessitated by the defeasance arranged through niche pioneer Commercial Defeasance, LLC, McCoy’s total cost was a bit more than $1 million— well worth it given the portfolio price.
Defeasance transactions had kept experts at Commercial Defeasance and other specialty consultants pretty swamped through mid-2007. A potent combination of rising property values and cheap and plentiful conduit debt pushed activity upward for several years running.
But volume has cratered with conduit lending activity, as values are more likely to be falling than rising, interest rate spreads have widened substantially, and LTV ratios determining total loan proceeds have become more conservative. Still, defeasance professionals cited several circumstances under which apartment owners might find defeasance an attractive option.
Concern that financing might become even more expensive, and lenders more conservative, has prompted some borrowers to defease lowleverage loans and get the best new deal they can today while also tapping built-up equity, said Buddy Cramer, founder of specialty consultant DefeaseIt in Dallas.
A typical situation is a borrower that’s been paying off a 10-year conduit loan for eight or nine years and prefers to lock in refi rates and terms sooner rather than later. “They fear the money won’t be there or will be even more expensive� when the loan opens for penalty-free pay-off, Cramer said.
Some borrowers anticipating a higher capital gains tax hike ahead have even opted for defeasance in order to sell a property and pay the prevailing 15 percent rate, said associate Stephen Liadis at defeasance consultant Waterstone Capital Advisors in Charlotte, N.C. “That’s the big wildcard� potentially affecting defeasance activity volume, said Liadis, referring to expectations that a Democratic president would look more kindly than a Republican on an increase in the capital gains tax rate.
The availability of new loan proceeds is what drove the defeasance boom, and the current absence of liquidity has cut transaction volume dramatically, Liadis and others said.
With Wall Street capital flowing feverishly through the first half of the year, a record $31.1 billion of securitized mortgages was defeased in 2007, according to an analysis by Credit Suisse. But by December, volume had already fallen below $1 billion—compared to an average of about $2.5 billion a month over the previous 12 months.
Transaction volume among leading defeasance consultants is probably down 70 percent or more, Liadis said. “Our marketing program used to be sitting in our offices waiting for the phone to ring,� he recalled, adding that Waterstone’s volume has fallen from 30 to 40 transactions monthly to just a handful.
Borrowers who would likely look to defease in order to sell or refinance on attractive terms in a more liquid environment are pretty much “caught in an artificial bind� today, said Stephen A. Edwards, a partner in Atlanta law firm Kilpatrick Stockton, LLP.
In other words, would-be buyers aren’t able to secure financing packages allowing for a purchase price that would justify the cost of defeasance. Nor do owners—even those with substantial built-up equity—see refinancing rates and terms being attractive enough to persuade them to pull the defeasance trigger today, Edwards said.
As Federal Reserve policymakers move aggressively to reduce short-term interest rates, the higher cost of replacement- collateral securities also makes defeasance a more costly proposition today than just a year ago, Edwards said. As falling yields push up the prices of short-term Treasury bonds, it costs borrowers more and more to purchase the amount of replacement securities required to meet the remaining debtservice obligations.
In normal environments, the cost of the new debt an owner or buyer would tap for a refinance or sale tends to move up or down with Treasury yields, Edwards said. In today’s marketplace, however, commercial mortgage rates have generally been rising with the widened spreads, even as Treasury yields have tended to fall with each Fed rate cut.
“You could say we’ve got something of a perfect storm of negative arbitrage,� Edwards said, “and it’s putting a crimp on defeasance activity.�
The better news for the multifamily sector is that unlike their counterparts in other income-property categories, many borrowers have access to the generally more attractive rates and terms the Fannie and Freddie are quoting. Multifamily collateral accounts for about a third of all conduit loans being defeased.
Indeed, the apartment sector appears to be accounting for more defeasance transactions amid the slowdown than any other income-property category, DefeaseIt partner Joe Tillotson said.
Given the billions of dollars worth of conduit loans opening up for defeasance in coming years, Cramer and Tillotson say the market will revive. “It will come back as liquidity returns, but it looks like it’s going to take a while— probably into next year,� Cramer conceded.