GSE Reform Won’t Disrupt Multifamily Lending This Year


It was an interesting year for the commercial real estate industry in 2018. The market absorbed four interest rate hikes without hesitation, and there was still an abundance of capital put to work. In fact, deal volume for the year either met or exceeded the expectations of 82 percent of Berkadia’s mortgage bankers and investment sales brokers, according to Berkadia’s 2019 Outlook Powerhouse Poll, which surveyed professionals across the firm at the end of last year.

We’re only a little way into the new year and there have already been several significant developments—the record-long government shutdown being one of them. That being said, there are two other potential changes coming from Washington that could have significant implications for commercial real estate in 2019 and beyond.

Interest rate questions

Interest rates remain a hot topic. So far, Federal Reserve Chairman Jerome Powell has evinced more of a wait-and-see approach when it comes to rate hike predictions—cutting the estimate from four to two—as investors remain cautious about an economic slowdown. Perhaps unsurprisingly, interest rates are the biggest trending topic for both mortgage bankers (81 percent) and investment sales brokers (83 percent) in the year ahead, according to Berkadia’s poll. But if we do see fewer increases and a lower interest rate environment, it could lead to strong activity given the generous amount of capital in the market.

We’ll be watching the Fed’s decisions closely, but economic fundamentals remain strong and our confidence in production opportunities across the market persists. Seventy-seven percent of Berkadia professionals expect deal size in the multifamily industry to either stay the same or increase in 2019, when compared to 2018. If this year is anything like last, we’re headed down a pretty good path.

The waiting game: GSE reform

Outside of interest rates, housing finance reform will likely be another topic of interest, even if we don’t see movement from the administration. The potential for GSE reform is something we’ve had on our radar for years, but the topic really came to the forefront in 2018, when we thought the ongoing conversations in Congress may lead to legislation. Following the 2018 mid-term elections, talks have dampened back down to a whisper among the divided Congress. It seems that when it comes to GSE reform, we certainly have time on our side. The administration is currently giving more focus to other items on its checklist and the extensive, thoughtful approach that legislation for GSE reform requires is not looking likely to rise to the top in 2019. However, it is in the administration’s stable of long-term priorities, so the focus on the topic could reignite.

Despite other priorities taking the lead, GSEs will remain on the minds of professionals across the commercial real estate industry until there’s clarity on the issue. That said, most of Berkadia’s mortgage bankers (82 percent) are confident that the GSEs will remain the lender of choice this year. Both agencies have indicated that despite the lack of a permanent political solution, they expect to provide significant liquidity and stability to the rental housing market in 2019.

While GSE reform stays in the back of my mind, I’m focused on the more immediate changes on the horizon, like the changing of the guard at the Agencies and how the interest rate environment will evolve over the next 12 months. The Senate Banking Committee recently held their nomination hearing for Mark Calabria to be the next Director of the Federal Housing Finance Agency—a vote for his confirmation is expected to be held by early April. Despite the potential leadership changes at the regulator, the GSEs closed over $140 billion in business last year, and we don’t expect that activity to slow down in the near term.

At the beginning of each year, there are always some inevitable unknowns for the industry—whether it be questions around market volatility or potential regulation headed down the pike. Regardless of what happens with GSE reform and potential interest rates increases, we anticipate the industry to remain strong in 2019 and to adapt to the changes as they come. As always, opportunities will remain, and we’ll be working alongside our clients to capitalize on the best ones every step of the way.

Hilary Provinse serves as executive vice president and head of mortgage banking at Berkadia.

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