A Conversation with John Powell, Senior Managing Director of RED Capital Group, on Multifamily Finance

Like others who have been in the commercial real estate business for 30 years or more, ULI Executive and Preservation Compact Committee member John Powell has never seen the market as unstable as it is now.  We caught up with John a couple of weeks ago to talk about the state of the market and its ramifications for the preservation of affordable apartments.

"It's important to distinguish between the short-term challenges and the long-term outlook," he explained.  John added that even though Fannie Mae and Freddie Mac have entered a conservatorship structure with the Federal government, business is continuing, though it is clearly not "business as usual".  He further cautioned that it is too early to tell what the long-term ramifications will be.  He follows Fannie Mae closely, having worked there for nearly a decade in the multifamily and community development divisions, and in his current position as Senior Managing Director of RED Capital Group. RED Capital Group is one of the nation’s top Fannie Mae lenders and is a top FHA multifamily lender as well.

John sees a number of additional challenges confronting the financing of affordable rental housing.  Bond pricing is very volatile right now and there is limited liquidity for the enhancement of bonds.  John does not anticipate that Fannie Mae and Freddie Mac will re-enter the market for purchasing Low-Income Housing Tax Credits in the near term, thereby continuing to put pressure on this market.  Finally, John explains that since major banks are reducing their exposure to commercial real estate, construction financing is very difficult to obtain.

John sees the real estate market as volatile beyond the turmoil in the credit and capital markets.  Unemployment and limited wage growth will clearly impact the demand for apartments as well as rent growth.  At the Fall meeting of the National Multi Housing Council which John attended, the general consensus was for recovery of the housing markets either in the second half of 2010 or 2011.

Even though some people today are more focused on single family foreclosures and working to keep people in their homes, the need to maintain affordable rental housing for the long-term is still critical.  This is why John believes The Preservation Compact continues to be relevant.  The market may be cyclical but the need for affordable housing is with us now and in the future.  Financial products that can finance the preservation and production of affordable housing will be essential to meet demand in the long run.