As the KeyBank Real Estate Capital rolls out an expanded version of its Key Commercial Mortgage Access Plan, MortgageOrb caught up with Charles Krawitz, managing director, to discuss the new initiative and assess the health of Fannie Mae in the small-balance commercial space.
Q: Regarding the small-balance Fannie Mae program launch – why now? What specific market environment factors told you this was the right time for such an expansion?
Krawitz: Key has a long and successful history with Fannie Mae as a DUS lender, and I have had a very positive and productive relationship with Fannie's small-balance group, stemming from my life before Key. These two factors made a small-balance program at Key a natural fit.
Market conditions also factored into the equation. Fannie is filling the financing void created by the suspension of securitized lending, and I feel privileged to have them as a product partner.
Q: What is your current assessment of the small-balance market? Are the rumors of its death exaggerated? Where are the specific challenges right now for that market?
Krawitz: The small-balance market is certainly alive and well, and any implication otherwise is pure sensationalism. Properties valued below $5 million comprise the backdrop to the American urban landscape.
This is a market that not only houses the living quarters of America's workforce, but also contains many of the offices and stores that make America's economy the largest and most vibrant in the world. I travel almost every week, looking at small-balance properties in markets across the continent, and it does not appear that smaller properties are an endangered species.
Sure, the economic slowdown has impacted wages, wealth and spending power, but people will always need places to live and places to shop. It is small properties that cater to these basic needs, provide neighborhood convenience and have an enduring appeal.
Q: Are you seeing many former residential brokers moving over to the small-balance multifamily space right now? What kind of training should happen to ensure that these new entrants are sufficiently educated?
Krawitz: Transitioning from a residential broker to a commercial broker remains unusual, and there are good reasons for that. Although many residential brokers would like to ‘flip the switch,’ remaking yourself takes time and dedication.
No more can I go to sleep one night as a commercial real estate lender and awake in the morning as a geneticist than can a residential broker hope to wake up as a commercial real estate professional and be met with success. Selling a house or arranging a single-family mortgage is a far cry from effectuating the sale of an income producing property, or assembling often complex financing structures.
My advice to these ‘commercial-curious’ brokers is to first pursue courses offered by the likes of the Mortgage Bankers Association, Commercial Mortgage Securities Association or CCIM Institute on financial analysis and land-use dynamics.
A residential broker who wants to effectively transition to commercial must be willing to not only log in many hours of education, but to stomach the knee-jerk dismissal by ‘native’ commercial brokers. Seeing it through to the other side is challenging, to say the least.
That said, those with enough fortitude could very well reap both professional accolades and commission checks undreamed of in the residential world.
Q: What do you think of the much-discussed Fannie/Freddie plan from Congress? Is it a bailout? Is a bailout necessarily a negative thing in this case? Should something else have been done instead?
Krawitz: Fannie and Freddie are here to stay, and the troubles they've been having are to be expected in a market like the one we've been experiencing for the last 12 months.
It's our policy not to comment on legislation, but I can tell you that we remain confident in Fannie and Freddie. Both agencies are well capitalized, and they're open for business.
Their multifamily divisions continue to perform well, and we'll continue to use our relationships with Fannie and Freddie to give our customers what is – and should remain – the lowest cost of capital for multifamily loans.
Q: You've mentioned a particular focus in the seniors housing and healthcare sectors for your program expansion. Do you think these areas present the best opportunities right now? Why?
Krawitz: Seniors housing and the healthcare sector absolutely present the best opportunities right now. It all comes down to demand. Right now we've got a population that is trending older.
One out of every five Americans will be 65 or older by 2030. All of these people are going to need places to live, and much of the housing being funded by our company is going to be suited to fit their needs. We're in the middle of a senior boom, and it will be going on for at least the next several decades.