Led by an increased presence in the seniors housing market, Fannie Mae helped finance $34.3 billion in multifamily rental housing in 2006.
That figure would mark a nearly 34 percent increase over the $25.6 billion financed the previous year, but the numbers aren’t comparable. That’s because 2006 was the first year that Fannie Mae included commercial mortgage-backed securities (CMBS) in its overall multifamily figures, a move that helps account for the nearly $8.7 billion difference between 2006 and 2005.
The company did not disclose its CMBS volume for competitive reasons, which makes a year-over-year comparison difficult. The company’s production numbers through its DUS lenders, however, offer a clue that suggests total multifamily volume last year was likely little changed from 2005, as DUS production remained steady at $15.8 billion.
In comparison, Freddie Mac closed $28.8 billion in new multifamily transactions in 2006. That’s a 10 percent increase over 2005’s $26.2 billion, and a sign that Freddie Mac shed its accounting issues and was able to increase market share more quickly than Fannie Mae.
Fannie Mae invested $2.2 billion in seniors housing last year, a 29 percent increase over 2005, driven mostly by shifting demographics that suggest a large portion of America’s population is getting older and living longer.
“We think as part of our mission responsibility that having a strong interest and presence in the seniors space is critical,” said Phil Weber, senior vice president of Fannie Mae’s multifamily division. “And we think that if you look at the demographics, it’s a market that’s going to continue to grow.”
Beyond demographics, the surge in seniors housing demand also could be attributed to the market catching up to the overcapacity of such housing over the last decade.
“The seniors housing market really got screwed up in the late ’90s through overbuilding, and there were several years of hiatus,” said Chris Tawa, senior vice president and head of MMA Financial’s affordable housing lending division. “Now the market is much stronger, the overbuilding has been absorbed. It’s no wonder [Fannie Mae] is back in the market.”
The company’s seniors housing product is aimed at properties that provide independent living, assisted living, and assisted living with Alzheimer’s care. Fannie Mae’s seniors housing product for multifamily offers debt-service coverage (DSC) as low as 1.35x for congregate facilities, and as low as 1.45x for assisted-living facilities. Fannie Mae accepts a lower DSC for variable-rate, tax-exempt bond transactions: 1.30x for independent-living facilities and 1.40x for assisted-living facilities.
Other highlights from Fannie Mae multifamily’s fiscal year include the production of $6 billion in large loans (defined as loans $25 million or greater), up 17 percent from $5.1 billion in 2005, and $2 billion in equity investments that qualify for low-income housing tax credits (LIHTCs), up 11 percent from $1.8 billion in 2005.
These gains in large loans and LIHTC volume were tempered by a few losses in the affordable housing sector. Fewer small loans were administered last year, $3.9 billion, a 25 percent drop from the $5.2 billion that Fannie Mae closed the year before.
Overall multifamily affordable housing efforts totaled $2.6 billion in 2006, down 13 percent from 2005’s $3 billion. Bond credit enhancements also took a 10 percent dive to $1.9 billion, from $2.1 billion in 2005. Fannie Mae loans for manufactured housing communities also slump- ed, totaling $306 million in 2006, down 26 percent from 2005’s $414.6 million.
The company said that these volumes aren’t reflective of any change in philosophy, and that a similar script will be followed this year. “We think that 2006 is going to be reflective of 2007,” Weber said. “We don’t see any asset mix change that would be very dramatic from 2006 to 2007.”
Fannie Mae is closing the doors on the Fannie Mae Foundation as of April 30. The dissolution is part of a larger restructuring effort inside the company. Fannie Mae’s philanthropic efforts now will be handled by the newly created Office of Community and Charitable Giving.
Citibank and Fannie Mae Ink $676 Million LIHTC Deal
Fannie Mae recently sold a portfolio of investments representing $676 million in federal low-income housing tax credits (LIHTCs) to Citibank, N.A., in a transaction that marks the largest LIHTC portfolio sale in Fannie Mae’s history.
The portfolio consists of Fannie Mae’s investments in 12 funds owning 382 LIHTC properties, representing 31,050 units. Citibank paid cash plus an assumption of Fannie Mae’s debt obligations relating to the investments.
While additional details of the deal were not disclosed, the companies did say that neither the properties nor the tenants would be affected by the sale.
The equity interests sold represent slightly less than 10 percent of Fannie Mae’s overall LIHTC portfolio, a sizable amount given that Fannie Mae is the nation’s leading LIHTC investor. In 2006 alone, Fannie Mae committed $2 billion to equity investments that qualify for LIHTCs.
“We’ve said for a long time that we would basically be both a buyer and a seller in this market,” said Ed Neill, senior vice president for tax-advantaged equity at Fannie Mae. The Citibank deal “provided us favorable economics on the transaction and provided additional liquidity to the market.”
But the deal shouldn’t be taken as a sign that Fannie Mae is shying away from the LIHTC market, the company said. “We want to continue to be a leader in the market,” Neill said.
For Citibank, the deal bulks up a LIHTC portfolio that has been steadily growing over the last few years, while serving as an entrance into untapped markets.
“We have a very small portfolio relative to the size of our company; we didn’t get into this business until the late ’90s,” said Andy Ditton, managing director of Citibank community development programs. “From an investing-in-communities perspective, this is one of the things you can do that makes a difference and that can be done on a real scale.”
Investing in the 382 LIHTC properties “is a terrific way for us to enter some markets and support markets we’re already in as well,” Ditton said.
The deal initially took root a year and a half ago, but was interrupted by Fannie Mae’s efforts to get its financial statements in order. The transaction was revived earlier this year, and can be seen as a reflection of Citibank community development’s commitment to growing its business over the rest of the year.
“Our appetite is still very strong,” Ditton said. “Our volume is increasing this year in terms of new investments being made—to somewhere in the vicinity of $700-750 million, in addition to secondary market opportunities that we continue to pursue.”