San Diego—Massive losses and deep layoffs in the finance industry didn’t stop bankers and commercial real estate dealmakers from converging on San Diego for this year’s Mortgage Bankers Associatio ’s (MBA) Commercial Real Estate Finance/Multifamily Housing Convention & Expo—but the crisis that started in 2008 did put a damper on the mood.
“To say [2008] was a turbulent year does a disservice to the word ‘turbulent,’” said Mike May, senior vice president for multifamily for Freddie Mac, in one of the conference’s many sessions. “Catastrophic. A living nightmare. Hell on Earth. Any of them might better describe the business environment.”
Government intervention was the theme this year, as Congress debated a $789 billion stimulus package and the U.S. Treasury announced its latest plan to bail out banks and buy troubled assets. With the exception of Fannie Mae, Freddie Mac, and Federal Housing Administration (FHA) programs, lenders have closed their purses and horded what money they have on their own balance sheets.
The volume of new permanent multifamily commercial loan originations fell 62 percent in the fourth quarter of 2008 compared with the fourth quarter of 2007, according to research from the MBA. New construction financing almost vanished, except for FHA programs.
The downturn and the lack of financing sucked about 8 percent from the value of multifamily properties in 2008, and sales prices are likely to drop even more steeply in 2009, according to the consensus at the capital markets for multifamily session.
Attendance at the conference fell along with originations and property values: About 2,100 people came to the Grand Hyatt here Feb. 8 through 11. That’s less than half the number of people that showed up two years ago.
The mortgage bankers looked to government for help and celebrated the government’s plan to buy troubled assets including under-valued commercial mortgage-backed securities (CMBS). “We are thrilled to have CMBS and RBS (residential mortgage-backed securities) included,” says Cheryl Malloy, senior vice president of multifamily and governance for MBA.
Likewise, affordable housing expert David Smith, CEO of Recap Advisors, hopes passage of the stimulus bill would resolve uncertainty and encourage investors to buy up $3 to $4 billion in unsold low-income housing tax credits.
Fannie Mae and Freddie Mac announced their 2008 numbers: Both increased their core multifamily business of buying multifamily loans and made progress in their plans to securitize loans as mortgage-backed securities.
But evidence of the downturn was all around. The conference was held a few blocks from Petco Park, where developers still struggle to finance construction of a rapidly shrinking amount of planned condominiums, retail, and hotel space at Ballpark Village.
But the mood wasn’t totally grim despite the sometimes stormy weather outside the hotel. CIBC World Markets put on a cocktail reception with a jazz combo, along with a giant martini glass carved out of ice with the firm’s logo chiseled into the base and a spout flowing with chilled vodka. At the Wells Fargo afternoon correspondent meeting, instead of a dry recitation of the loan terms, the bank threw a party with an open bar and another jazz combo to console the bankers as more bad economic news rolled in.
