The Plot to Free Fannie & Freddie

PE->Insurance>CRE pipelines, Macking the manufacturing boom, plus: Shvo buys time

Author

Hiten Samtani
September 16, 2024

The Plot to Free Fannie & Freddie

Trump allies are devising a plan to privatize Fannie & Freddie, which would transform CRE lending

Move over, Britney Spears: The most-interesting battle to end a long and dramatic conservatorship – at least as far as CRE insiders are concerned – is that of Fannie & Freddie. Former top Trump admin officials are cooking up a plan to end Uncle Sam’s control of the multifamily lending giants if Trump makes it back to the White House, per WSJ. What that looks like is TBD, but if it goes through, it would transform CRE finance – the two firms owned/guaranteed 40% of the $2.2T multifamily mortgage market as of Sept. ‘23.

Frum folk 🎶 star Ishay Ribo rocked CRE’s who’s who at MSG Sunday night - tipster sent this 📷️ 

Conservatorship (Cont.)

Trump first-term insiders including Larry Kudlow and John McEntee are involved in the privatization discussions, per WSJ, with bankers telling the publication that the govt.’s Fannie & Freddie stakes could be valued at 100s of billions of dollars. An offering of the stakes would be among the biggest in history, and so you’d need the deepest-pocketed buyers – sovereigns (paging Khaldoon Al Mubarak) , pensions etc. – to get in the mix.

Here’s WSJ: The Trump allies have discussed having the Treasury Department partially back a certain amount of Fannie and Freddie loans through a so-called standby guarantee, the people said, similar to the way the FDIC backs deposits below a certain threshold at banks.

One path to privatization, per the publication, could involve sidestepping Congress and going through the Treasury Dept. & the FHFA, which oversees Fannie & Freddie and sets key metrics such as capital requirements. The r’ship between the FHFA & Fannie/Freddie has been described to me as that between a parent & a child 🍼 , w/ the FHFA slapping a series of onerous regulations on the GSEs that have hamstrung the multi market – the so-called tenant bill of rights among them. (Those regulations, which are baked into loan docs, also make the GSEs less profitable and complicate any privatization efforts.)

“Conservatorship was never meant to be permanent, right?” Fannie CEO Priscilla Almodovar said in Jan. “Someone somewhere has not taken a victory lap for the work that has been done to rehabilitate the enterprises. What I worry about is you do lose some commercial muscle when you are in this sort of state – you’re not government, you’re not the private sector.” (Lehman Bros. collapsed 16Y and 1 day ago, and the resulting GFC led to the conservatorship of the GSEs.)

Best-case scenario for CRE? A privatization deal that somehow retains the govt. guarantees. In that situation, pricing would stay about the same, while origination volumes would jump – “agency originations would become more like CMBS originations” is how one lender put it to The Promote. If Trump wins, this is all anyone will be talking about.

Feeling Chipper

A TSMC chip megafactory (Credit: Taiwan Semiconductor Manufacturing Co., Ltd.)

"We used to make shit in this country, build shit. Now all we do is put our hand in the next guy's pocket." - Frank Sobotka

When you think Sunbelt real estate frenzy, what probably first comes to mind is some sorry-ass overlevered multifamily complex with a name like “Springs on North Crescent.” 🌞 But the region is becoming the epicenter of another boom with far bigger national consequences: manufacturing 🏭️ U.S. and foreign cos. have committed nearly $500B to build factories for cutting-edge products (EVs, semiconductors) on home soil, per Green Street figures cited by WSJ, and that action is spurring RE investors to buy/build the necessary product – from apartments to warehouses to offices – to support it.

Take TSMC’s $65B 🫢 (for context, NYC’s Hudson Yards is a $25B project) chip fabrication complex in Phoenix: a Mack Real Estate/Frank McCourt ⚾️ JV is buying 2,300 acres surrounding the complex, planning 28M sf of mixed-use space.

“Our vision is to build an urban ecosystem around this job magnet,” said Richard Mack, whose JV can build on 600 acres and will sell the rest off to other developers. Giant homebuilders such as Lennar are also in on the action. Or take Tennessee, where Ford’s $5.6B electric pickup truck plant 🛻 has set off a speculative frenzy, pushing up the price of crop fields in the vicinity by 3x, per Brownsville mayor Bill Rawls. Developers are pitching never-before-seen mixed-use projects in the area, Rawls added, and the expected surge in employment could even impact the market in suburban Memphis (30 miles away). Similar stories are playing out in Texas and Oklahoma.

Several ? along the way, from interest rates to plant production delays. What gives developers reassurance is the billions of dollars of federal aid flowing through to make this manufacturing renaissance happen, so the election will also play a big role.

The PE—> Insurance —> CRE Pipeline

Apollo’s Jamshid Ehsani, who oversees increasingly aggressive CRE lender Athene

Private equity’s march into the insurance industry – either by acquiring insurers or by bankrolling their growth – is one of the biggest stories in CRE finance at the moment. Insurance cos. that would previously shy away from writing $200M+ checks are increasingly willing to do so, and are thus shaking up the lending landscape for everything from industrial to multifamily, going head-to-head w/ CMBS in some cases. Athene, which Apollo bought in ‘21 for $11B, is one of the names that pops up a ton – the firm did a $480M loan this month for Worthe & Stockbridge’s redevelopment of a Warner Bros. studio project. The FT just dropped an interesting read on the broader rationale, from Apollo’s perspective:

Annual profits from lending out insurance customers’ funds at Apollo top $3B and are growing at double-digit rates; the company’s market cap has soared to about $65B. Since the start of 2020, shares of Apollo have more than doubled, far outperforming the S&P 500.

The pitch to corporate clients is just one part of Apollo’s broader lending push, as it looks for loans of all kinds that can feed both its own and third-party insurers. It provides financing underlying rail cars, aeroplanes, music royalties, machinery, inventory, real estate and even other asset managers who are in need of capital. 

Apollo’s not alone: KKR, which anticipates a $500B hole in the CRE lending landscape, owns Global Atlantic, while both BlackRock and Blackstone have stakes in Corebridge. The Promote will dive deeper into this stuff in upcoming eds.

Shvo Buys Time at Mandarin Oriental

Shvo has landed a condo inventory loan on the Mandarin Oriental NYC

Now this is interesting, a window into the frou-frou Manhattan new dev market: Michael Shvo landed a $120M condo inventory loan on his 65-unit Mandarin Oriental project, where demand has been lackluster – only 15 units have sold so far, per Bloomberg. The lender is Ran Eliasaf’s Northwind Group, which seems more comfortable with this high-risk, high-reward asset class than most - you’ll recall that Northwind also stepped in to resurrect Bizzi & Fortress’ stalled supertall at 125 Greenwich w/ a $313M loan last year. Shvo and his partners put in more equity into the Mandarin Oriental as part of the financing, per Northwind, and some of the pricier ($25M+) units are set to close in the next 60 days.

Earlier this year, BVK, the German pension fund that backed Shvo’s epic national spending spree, hired Corcoran for a market study on the property, suggesting a disconnect between the partners. The Shvo-led group had bought the upper portion of the building at 685 Fifth Ave. (fka Gucci Building) for $135M from GGP in ‘18.

The project’s LA counterpart, Mandarin Oriental Residences Beverly Hills, went up for bulk sale earlier this month after the developers defaulted on their debt.

Quickies

Unquotable Quotes

“It took me about six seconds to get what they were trying to do.” ⏲️ 🧠 
- Capital markets vet Michael Winter, on joining Ripco after having “no interest in going to the CBREs or the Cushmans.”