By the Numbers

The GSEs provide a backstop as market stress rises

| October 21, 2022

This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors.

Market volatility and rapidly rising mortgage rates have slowed traditional agency multifamily lending as commercial real estate sales volumes have retreated across property classes. But Fannie Mae and Freddie Mac have both tapped less frequently used channels to provide financing. That includes financing bridge lenders that were shut out of the securitization market and affordable housing portfolios struggling to refinance. Although such deals are likely to remain infrequent, they provide an important backstop for multifamily financing and provide investors with higher yielding options wrapped with an agency guarantee.

Freddie Mac extends a lifeline to bridge lenders

ACRE, a bridge lender which issued its first commercial real estate collateralized loan obligation (CRE CLO) last year, had been warehousing collateral for a second offering since the spring. Due to market turmoil and rapidly widening spreads, it was difficult to complete the issue. ACRE partnered with Freddie Mac and used their Q securitization program to get the $424 million deal done, FHMS Q018, which priced October 12. The A class was 80% of the deal, as is typical of a Q, and wrapped with an agency guarantee. It was issued at SOFR + 87 bp, had a weighted average life (WAL) of 2.3 years, and credit enhancement of 20%. This provides investors with some additional yield compared to a standard Freddie K floating rate deal issued around the same time. The FHMS KF144 AS class which priced on October 4, came at SOFR + 75 bp, had a WAL of 9.75 years and credit enhancement of 7.5%.

Those levels are still well inside the most recent AAA-rated tranches of CRE CLOs, which have priced in the area of SOFR + 270 bp for the A tranche. The cost of the agency guarantee for the issuer reportedly ranges from 65 bp to 90 bp depending on the collateral.

Freddie reportedly began marketing the Q program as an alternative path for securitization to the bridge loan community earlier this year, as volatility forced more deals to the sidelines. This was the second Q deal that Freddie has printed this year, and four more are likely coming to market before year-end according to an article in Commercial Mortgage Alert. Three of those deals reportedly will include bridge loans. Both MF1 and Harbor Group are CLO issuers who may tap the Q program for financing.

Fannie Mae helps refinance Blackstone’s affordable housing portfolio

Bridge loans aren’t the only part of the multifamily market struggling to lock in financing in a volatile market. Blackstone purchased two large affordable housing portfolios late last year to add to its affordable-housing division. CBRE and Wells Fargo are reportedly providing Blackstone with up to $1 billion via Fannie Mae’s credit facilities to refinance the debt. Both debt facilities were 10-year, floating rate and closed in late August with initial interest rates of 4.22% for Wells and 4.29% for the CBRE-sponsored one. The first two issue sizes were about $150 million each, so Blackstone is expected to continue to ramp up into year-end.

Affordable housing has long been the relegated to small or mid-sized multifamily operators and municipal or state housing authorities. The push into affordable housing by institutional investors is in part driven by the extreme lack of supply in the sector and forecast for growing demand over the next 10 years.

Mary Beth Fisher, PhD
marybeth.fisher@santander.us
1 (646) 776-7872

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