by Stephanie Vernon on November 14, 2013 in Legal Issues
Years later the housing market is still feeling the effects of the crash that almost destroyed America’s real estate industry. Many markets have still not fully recovered and many families are still suffering from the consequences. While much of the discussion about the housing crash has been focused through the lens of the single-family homeowner, multifamily housing investors were affected by the crash in unique ways as well. As the government struggles to build reforms that will prevent another crash from ever occurring again, some are worried multifamily investors may be forgotten.
The Difference Between Multifamily and Single-Family Sectors
Experts and analysts are urging the government to consider the differences between single-family and multifamily sectors as they build the reforms that will control the housing market for the foreseeable future. Multifamily investors have an extraordinarily low rate of either delinquency or default, even throughout the housing crash and especially through the Fannie Mae system. The multifamily sector consists of financially knowledgeable individuals that simply do not need the protections that the single-family sector require. Furthermore, it’s simply more difficult for a multifamily loan product to fail due to the revenue opportunities present.
A Matter of Knowledge and Backing
Many single-family homeowners struggled throughout the housing crash because they truly were not aware of the financial hardship they were signing up for. Reform is required to protect these home buyers from purchasing homes that they cannot truly afford. However, multifamily investors are extremely aware of their own financial position. Historically, these investors rarely overextend themselves. Multifamily investors also have the financial backing necessary to weather difficult times, which is something that challenged many homeowners during the economic crash.
How Reform Affects the Multifamily Housing Sector
A significant amount of the housing market reforms being discussed essentially involve the placing of barriers between those that want to purchase property and the actual purchase of the property. Consumer protections are intended to be placed, affordable housing is intended to be supported on a government level and, more critically, the role of Fannie Mae and Freddie Mac is intended to be diminished if not destroyed completely. Unfortunately, the latter could be a huge blow for the multifamily housing sector.
Saying Goodbye to Fannie Mae and Freddie Mac
One of the major talking points regarding housing market reform is based around the central conceit that Fannie Mae and Freddie Mac contributed directly to the crash of the housing market through their lending and investment practices. The current administration has stated an interest in abolishing the system entirely and replacing it with private sector products. Many multifamily investors fund their investments through Fannie Mae, making this a huge blow to investors everywhere. As noted, very few of these investors defaulted even at the peak of the housing market crisis. Fannie Mae and Freddie Mac are both government-funded entities, but they provide an essential tool for investors and keep both the economy and the real estate market strong. Without the aid of Fannie Mae, many investors may find it more difficult to acquire funding.
Ultimately, the multifamily housing sector is not calling out for reform the way the single-family housing market is. The single-family housing market entrusts the average person with the ability to make incredibly large financial decisions, and thus the average person needs protection from predatory practices and the potential for astronomical missteps. The average investor, however, is knowledgeable enough that reform would only provide barriers to success. Reforming the multifamily housing sector could even lead to stagnation within the industry itself and ultimately harm the recovery and the economy.
by Aimee Miller on November 12, 2013 in Industry Experts
K. David Meit, CPM®, is the President and CEO of Oculus Realty. With approximately 25 years of experience managing all classes of multifamily properties, David is an expert in everything real estate, from financing, marketing and leasing, to real estate investment, operations and renovations. David is also a past president of the Property Management Association (PMA). His interview below provides invaluable advice to property managers and owners.
What sparked your interest in real estate?My father was a developer in New York City and Naples, FL. I grew-up with it. Although I have a liberal arts degree, I took real estate classes in school. After college I worked for Meit & Maxwell Properties where I ran the daily management of apartment communities in the Harlem neighborhood of NYC. Yes, I have stories. I have always been attracted to the multifaceted aspect of real estate – finance, customer service, operations, and administration. Founding Oculus three years ago was a natural transition in my career.
What are your top two pieces of advice to a property owner or investor?
Don’t fall in love with the deal. If the numbers do not work, walk away no matter how sexy the real estate may be.
Hire a well-trained, accredited and licensed property manager with deep experience with specific property types and submarkets.
How is the Washington, DC metropolitan area unique from the rest of the United States?The Federal government, of course. A third of the local economy relies on government spending. Over time this has created a very stable marketplace – sequestration not withstanding. Over the past decade DC has also become young and hip with an amazing food scene. Of course we have always had world-class museums (most are free!), performing arts and some of the best school systems in the country. The DC metro area is a hot destination for millennials and Gen-Y apartment dwellers who more often than not end up raising a family here, too.
What are the biggest challenges facing owners and investors in 2013?Increased interest rates will slow deal flow and make borrowing more expensive. However, it will also increase cap rates, causing competition for deals to decrease. It will become more of a buyer’s market, which is good for incoming investors like many of my clients.
How do you see the market changing in 2014? Where will it be in 2020?The batteries in my crystal ball ran out years ago. Increased interest rates will make home buying more expensive, continuing the trend towards multifamily rentals.
In addition to real estate, what are your other interests?My wife and I have two young children (11 & 15) that we love to travel with, especially in Europe where my wife is from. Museums and great food are our family past-times. I am also an avid cigar-smoker and can often be found enjoying a smoke with business associates, friends and family at some of DC’s best cigar clubs.