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Commercial Department: Q&A: Frank E. Nothaft, Freddie Mac: March 2013

 

Q&A: Frank E. Nothaft, Freddie Mac

Frank E. Nothaft, vice president and chief economist, Freddie Mac

In the post-recession years, the government-sponsored enterprises played a significant role in pumping much-needed liquidity into the real estate market to compensate for scaled-back lending by private institutions. This role has been particularly critical to the multifamily market. We spoke with Freddie Mac’s vice president and chief economist, Frank E. Nothaft, about what’s ahead for the multifamily market and the overall economy. 

What’s your outlook for the economy and the multifamily market this year?

We expect economic growth and recovery to continue in 2013. We are expecting 2.5 percent to 2.75 percent economic growth in 2013 — a little bit better than last year. We expect long-term interest rates to remain extraordinarily low. As you know, 10-year treasury yields are below 2 percent — running at 1.7 percent or so. They are going to stay below 2 percent throughout 2013. With that, mortgage rates on apartment-building loans also will remain extraordinarily low. They have been running at less than 4 percent for 10-year mortgage notes. We expect that to continue in 2013, as well — [with regards to] Class-A type apartment buildings.

How has the multifamily sector been performing?

We have seen a great deal of improvement in the overall apartment-building conditions in the last two and a half to three years. Vacancy rates have come down. Nominal rents are up in the 4 percent range over the past year. We expect that to continue in 2013. Vacancy rates in rental apartments will continue to move a little bit lower, and with that, we are going to see some additional gains in rents. We are expecting rents to go up another 4 percent or so in ’13. Apartment-property values have been strengthening over the last couple of years. We expect property values to rise a bit further in ’13.

We had a very strong year in multifamily originations this past year. Multifamily originations were way up; we are estimating around $130 billion in originations by the end of this [past] year for the entire multifamily market. We are expecting [multifamily] originations in ’13 to be up about 5 percent in dollar volume from the levels in ’12.

What was Freddie Mac’s share of multifamily loans in the past year? 

The entire market’s multifamily origination was about $100 billion in 2011. Freddie Mac financed $20.3 billion in ’11, which is more than a fifth of the market. Through third-quarter ’12, Freddie Mac’s multifamily origination volume was $19.2 billion. 

Do you expect Freddie Mac’s role to continue at the same level this year?

A trend we already have seen over the past year or two is that there are other investors in multifamily loans who are becoming much more active in the marketplace. For example, life-insurance companies stepped up their investments in multifamily loans over the past year. Commercial banks have stepped up some of their lending in 2012 compared to ’10 and ’11. I expect those patterns and trends to continue in 2013, as well.


 

Rania Efthemes is director of content strategy at Scotsman Guide Media. Reach her at (800) 297-6061 or raniae@scotsmanguide.com.

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