Monday, September 8, 2008

Fannie & Freddie - Winners & Losers

While early indications are that the GSE bailout announced this weekend will have little direct effect on Fannie Mae and Freddie Mac's multifamily lending, there will certainly be indirect consequences for commercial real estate. A few potential scenarios to keep an eye out for:

  • Today's drop in consumer mortgage rates to a sub-6% level not seen since mid-May could bring home-buyers back into the market. This would go a long way towards turning around the overall economy, but may hurt multifamily rental fundamentals given that some percentage of current renters are would-be homebuyers waiting for mortgage rates to improve.
  • As the spreads for GSE bonds narrow investors will be forced to balance the reduced risk of an explicit government backing with lower yields. The investors who still have an appetite for higher-yielding, real estate-backed debt may eventually restart the securitized debt markets.
  • Equity-investors in the GSE's, who's positions have been wiped out by the bailout, will be licking their wounds, but the ones who got out early may have free capital to reallocate to REIT's or homebuilders, two equity real estate plays that look pretty beat down.
The continuing Fannie & Freddie saga should be fun to watch no matter what happens.

Llenrock Group

No comments: