Freddie Mac Multifamily
The beginning of a new year is a time for reflection and prediction. The multifamily industry just completed a tough year, and 2010 is being billed as the same.
The end of one year and the beginning of another is a time for reflection and prediction. The multifamily industry just completed a tough year, and 2010 is being billed as another very challenging year.
In light of this, the student housing industry is one sector that is holding up better than most. Why? In a recession, jobs are harder to come by and, as a result, more people head to college or stay there longer. That way, they gain new skills that better equip them when the economy finally turns. Indeed, when speaking with developers and property owners, there is general agreement that students are staying in school longer, colleges are full and enrollments are up. As a result, the student housing market is fairing much better than the broader apartment market.
One key growth sector for this market may be housing for community college students. More families are turning to community colleges for economic reasons, with students planning to transfer to four-year schools after a year or two. Community colleges have welcomed the lion’s share of students and experienced a 17 percent increase in enrollment from fall 2007 to fall 2009, according to the American Association of Community Colleges (AACC). The AACC statistics show that the nation’s 1,177 community colleges enroll about 12 million students, serving about 44 percent of the undergraduate students in the U.S. However, only about 320 community colleges offer on-campus housing according to the AACC.
We at Freddie Mac are evaluating the student housing lending opportunities presented by community colleges. To date our focus has been on four-year colleges and universities with enrollments of at least 8,000 students.
At Freddie Mac, we have identified growth opportunities in student housing by expanding our efforts. We’ve actively made one-off conventional mortgage loans on individual student housing communities in past years. In 2009, we expanded our product offerings to include various structured finance executions. We have closed on a floating rate credit facility collateralized by a pool of cross-collateralized properties. We also offer fixed-rate Crossed Facilities, as well as Non-Crossed Flow Facilities. These expanded executions bring more flexibility and liquidity to the market.
Growth in student housing provides a much-needed glimmer of good news in a very soft multifamily market. With unemployment at its highest levels in a generation, many are postponing household formation or moving back with family and friends, leaving traditional rental apartments vacant. The Census Bureau reported that vacancies in buildings with 10 or more apartments hit a record of 13.5 percent in the third quarter of 2009. While surveys of larger, professionally managed apartments show a vacancy rate substantially less than 13.5 percent, vacancies are higher than they have been in 15 years.
In addition, the weaker rental market, coupled with declines in multifamily property values, has led to a rise in multifamily loan delinquencies. According to a September 30, 2009, Federal Deposit Insurance Corporation report of insured depositories, 3.58 percent of multifamily loans were 90 days delinquent, more than double from the previous year. (At 0.14 percent in November 2009, Freddie Mac’s multifamily delinquency statistics remain among the lowest in the industry.)
Even though the multifamily market will continue to be stressed in 2010, you can count on Freddie Mac to be one of the few sources of mortgage liquidity. In the face of market adversity, we have remained focused on implementing a business plan that keeps the multifamily mortgage market liquid, supports affordable housing, conducts responsible lending and invests in our future. And part of that future includes providing mortgage capital to the relatively strong, vibrant student housing sector. SHB
He is responsible for student housing lending sales nationwide.