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Freddie Mac exec: Multifamily outlook remains strong

It continues to be a good time to be a commercial and multifamily loan originator, although 2019 production levels are expected to plateau, according to estimates from the Mortgage Bankers Association (MBA).

The trade group released its 2019 origination forecast during this week’s MBA Commercial Real Estate Finance/Multifamily Housing Convention and Expo in San Diego. Commercial and multifamily loan volumes were expected to reach $530 billion this year, roughly on par with the $526 billion volume recorded in 2018. 

debbyjenkinsMuch of that volume, of course, can be chalked up to the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. Debby Jenkins, who was named head of Freddie Mac Multifamily this past November, spoke with Scotsman Guide News during the convention about the agency’s big-picture plans for 2019.

What are your lenders most concerned about this year and how do you plan to address those concerns?

The concerns are generally not anything to do with multifamily itself. The fundamentals remain very strong — rent growth, vacancy levels, overall origination growth. It has been an asset class over the last decade where performance has been phenomenal. Credit quality has been phenomenal — almost zero delinquencies, even through the [financial] crisis. And that’s continuing.

The thing that we hear a little bit about is, “What stage are we at in the [commercial real estate] cycle?” I would say to that, demographic trends [and] the propensity to rent for a longer period of time. You have millennials that are not buying houses, not getting married, not having children as frequently. Then you have the baby-boomer sector, a large sector of our population, that is actually moving out of their single-family homes, moving back into rental housing, wanting to be near the urban core, near walkable communities to the restaurants and places that they want to go.

You look at all of those things and … especially where we (Freddie Mac) are most, in workforce and affordable housing, it’s undersupplied. So, just that supply-and-demand demographic and all of those things, propensity to rent, all play really well that the market is in really good shape. We do see possibly a bit of a slowing down of the growth. And if that occurs, I don’t think anyone is overly concerned about that. I think our lenders … [are] probably more concerned about global issues, geopolitical events and things that can occur from outside of the multifamily industry.

What affect does the rising interest rate environment have on Freddie Mac’s mission to provide affordable housing?

The interest rate environment is interesting on a number of fronts, not the least of which is, we already saw the [Federal Reserve] move a few times last year. We saw the impacts going into the fourth quarter, where the 10-year Treasury hit 3.24 [percent] and then proceeded to drop 60 basis points to where we are today.

You’re seeing the Fed talk not necessarily in certain terms as to whether they’re going to move more this year or not. Either way, though, the interest rate environment remains slow relative to history. And when you look at what happens when rates rise, not only does it make multifamily and other commercial real estate lending a little bit more difficult, it also has an impact on the affordability of single-family homes. So, if you think about someone who might be looking … to buy their first home, and when rates increase, that just makes that a little bit less within reach when the all-in costs of housing start to increase.

I think [rates have] an impact across the board, but we feel pretty good about where long-term rates are now. Obviously, the more interesting thing is Libor and shorter-term rates approaching a flattening yield curve, so we’re watching that. It has really just moved more folks in the multifamily space into fixed-rate, long-term financing, as opposed to floating rates.

Are there any job-migration patterns you are watching that may influence rental-housing demand?

On a national basis, we see [2019] pretty even with 2018 in terms of rent growth and vacancy levels — right around 4 percent rent growth nationally and about a 5 percent vacancy level sort of sustaining through the course of the year.

If you look at workforce housing and affordable housing in particular, where there really is not an increase in supply in those areas because most of what’s being constructed is Class A [space] and higher rent levels, they’re starting to outperform the Class A space because there just isn’t enough of that housing for working families.

In terms of markets in our outlook that’s published for 2019, four out of the top five markets are actually in Florida, in terms of rent growth specifically. That’s as much a supply issue as it is people migrating. Seattle is up there as another one, given job growth. We tend to see [multifamily] units constructed in areas where there is job growth. And that’s one of the prior things we look to when we see an increase in supply is, why would someone move there and want to rent? That job growth is very interconnected with our concerns, or the lack thereof, in supply.

Your green-loan programs have really taken off in the past few years. What is the future of these programs?

I would say that the goal of the GSEs’ green-financing programs is truly to ultimately pass on water- and energy-consumption savings at a property to the tenants as much as possible.

Historically, the [green-loan] requirements that are put out by our regulator (the Federal Housing Finance Agency) every year, they tweak a little bit depending on what the evidence is and what we’ve seen the prior year. And this year, the FHFA increased the requirements from 25 percent savings to 30 percent overall on a property. The bigger thing is that, in prior years, the majority of that savings was water-related, and this year they said to us that it needs to be 50 percent water and 50 percent energy savings.

The energy savings … that really is the part that goes to the tenant, in terms of savings, more so than water in an apartment building. And we’re really assessing, as we’re seeing early transactions occurring this year and getting those energy reports back, just trying to get a good estimate of what that cost is per unit to the owner, in terms of the energy savings.

We feel like it’s a strong program and green is driving down that consumption. And sustainable properties are definitely the wave of the future, so we’re going to continue to be very involved in that space.

What are your thoughts about the opportunity zones that were created by 2017 tax-reform legislation? How can Freddie Mac contribute in those markets?

Obviously, the concept of an opportunity zone and the opportunities that it presents is a great thing. We are hearing mostly from our sponsors and borrowers that happen to be developers, who are looking at this and trying to understand how they can go ahead and develop there.

For us, as Freddie Mac Multifamily, we aren’t in the construction business, so we’re trying to figure out how we can help, how we can partner with them in some way to provide the capital that would assist, just to further reduce the cost burden from the financing standpoint. … We are going to continue to see how [the program] evolves, and it’s new enough to where folks are still really working on it. 

Questions? Contact Neil Pierson at (425) 984-6038 or


Questions? Contact at (425) 984-6019 or

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