Multifamily Market Musings: A Q&A With PGIM’s Mike McRoberts
MBA NewsLink interviewed PGIM Real Estate Finance Managing Director Mike McRoberts, who serves as Chairman of the firm’s Agency platform.
Prior to joining PGIM Real Estate Finance in 2011, McRoberts served as vice president and national head of sales and production for Freddie Mac. Earlier, he was National Head of Underwriting and Credit for Freddie Mac.
McRoberts is a past chairman of the Fannie Mae Delegated Underwriting and Servicing Advisory Council and serves on the Multifamily Committee for the Mortgage Bankers Association’s Commercial Real Estate/Multifamily Finance Board of Governors.
MBA NEWSLINK: Retail and hospitality property performance have grabbed headlines since COVID-19 arrived in the U.S. How are you viewing multifamily? Are there any type of product or markets that you are more or less bullish about?
MIKE MCROBERTS: Agreed that of all of the income property types, retail and hospitality have received the most attention and deservedly so given the significant and immediate impacts of the Covid-19 crisis. Multifamily is not immune from the impact and there are property types within the multifamily sector that are more susceptible than others.
Unfortunately, nursing homes and seniors housing properties have experienced higher severity health outcomes from infections, while student properties bring their own risks with such a high-density living environment. These are conditions that lenders must acknowledge and account for in their underwriting.
Additionally, geographic markets where employment is driven largely by hospitality, entertainment and energy jobs present higher risk, at least in the short term, and must be accounted for.
On the positive side, demand for suburban properties and properties in secondary and tertiary markets may see increased attention as the ability to work from home and desire to live in less-dense areas increases.
NEWSLINK: How are you advising multifamily borrowers in an uncertain market environment where pricing and terms are moving so quickly?
MCROBERTS: It is interesting to see how quickly capital markets have reacted to national, state and local developments. Over the last two months, underwriting requirements have shifted and owners’ focus on operations has elevated. It is very important for us as one of the largest Freddie Mac, Fannie Mae and FHA multifamily lenders to be closely aligned with the staff members of all three institutions and to be continuously transacting so we can maintain a real-time pulse on market conditions. At PGIM Real Estate, we closed 74 multifamily loans in March and April with 10-year rates as low as 2.47 percent. We stay in close contact with our clients throughout the loan process and help them make the decisions that are right for them and take advantage of the best terms that are available for each transaction.
NEWSLINK: MBA is extremely focused on forbearance programs and process across all membership. How is your shop thinking about the need for multifamily forbearance and the associated servicer advancing requirements at this early stage?
MCROBERTS: Multifamily Agency forbearance options were initially rolled out in March after consultation with FHFA and were later revised to be consistent with the CARES Act. These programs are there for property owners to access to the extent they have a hardship at their property and to minimize the negative impacts of the COVID-19 crisis on owners and tenants. At PGIM Real Estate, we are fully supportive of our clients access to these options regardless of its impact on advancing responsibilities. We are fortunate to be well capitalized and fully supported by a financially sound company.
NEWSLINK: A great deal of market attention is focused on private-label commercial mortgage-backed securities entering the current downturn with its complex servicing requirements. Any thoughts you’d share about Freddie Mac’s K series program as an active Optigo lender?
MCROBERTS: While it’s true that there are many characteristics of the Freddie Mac Multifamily business model that resemble the private-label CMBS business, there are many unique differences that make Freddie K loans much more palatable than a CMBS execution. Importantly, there is a small number of master servicers who make decisions in times like we have today, so communication from Freddie Mac can be more efficient, decisions are more consistent and outcomes more reliable. Although Freddie Mac is not the ultimate decisionmaker, they act as an advisor and have established a servicing standard for its program, which is referenced in the pooling and servicing agreement for each issuance.
As an Optigo Lender, we retain the primary servicing on all of our Freddie Mac loans, which allows us to stay connected to our clients throughout the life of the loan and to be able to provide recommendations to the Master servicers.
NEWSLINK: How does the current uncertainty compare to the 2008 financial crisis?
MCROBERTS: The Great Financial Crisis was incredibly unsettling and deeply impactful. The current crisis shares those characteristics, but is very different in terms of the drivers of the problems as well as the health of the financial system coming into it.
Thankfully, most financial institutions are much better capitalized today and come into this situation with management teams experienced in how to deal with these types of stress. We are much more longer term focused. Additionally, we have a Fed that is deeply experienced and well-read in the history of what works and what does not to remedy these problems. All of that gives me confidence we will get through this and get to a better spot more quickly than we have in the past.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at firstname.lastname@example.org; or Michael Tucker, editorial manager, at email@example.com.)