In addition to providing content for websites, blogs and marketing materials, Optimized Content & Research also offers political intelligence reporting. These reports summarize issues of interest to our clients, and offer forward-looking information based on sources in Washington, DC. Generally, these reports are utilized by hedge fund managers for investment purposes and corporate executives who need to stay informed on legislation or regulations that may impact their business.
This week, I wanted to offer some insight into political intelligence reporting. While not a full report, I thought I would share some information regarding the recent GSE reform proposal, specifically as it relates to the multifamily housing space. Future blog posts will cover other aspects of the proposal. To read the complete report, click HERE.
Treasury Recommends Reduction of GSE Multifamily Footprint
The GSEs multifamily acquisitions operate under a $35 billion cap in 2019. However, there are broad exemptions to these caps, including loans to finance affordable housing loans and loans for energy and water efficiency improvements. In 2008, the GSEs owned or guaranteed approximately 25% of all multifamily originations. The latest data suggests the GSEs now have acquired 50% of multifamily originations. Uncapped exemptions, specifically in the energy efficiency ("green") space, have fueled this growth. This has not gone unnoticed by their conservator, the Federal Housing Finance Agency.
The Treasury report, supported by FHFA Director Mark Calabria, recommends that the GSEs return to the mission of their multifamily business, which is providing rental units to low-income and moderate-income renters. This is a direct shot at the uncapped acquisitions, and the green energy space will be most impacted since it is overwhelmingly responsible for the growth of the multifamily business. The exclusions for green energy loans exploded in 2017 and maintained the same level in 2018. Here's an excerpt from the report on proposed remedies to this issue:
"FHFA should revisit FHFA’s efforts in 2012 and 2013 to restrict the GSEs’ multifamily footprint. Specifically, the exemptions from the cap merit a particularly close look. For example, exempt loans for energy efficient multifamily projects have been a significant driver of growth in the GSEs’ multifamily business, while lacking an obvious nexus to an affordability mission. FHFA also should consider requiring that a specified portion of the rental units that are in properties financed by GSE-acquired multifamily loans remain affordable to low- and moderate-income and other historically underserved renters even after origination. FHFA might also consider requiring the GSEs to ensure that those units are on an ongoing basis actually inhabited by these renters."
What Are The Prospects for Meaningful Reform?
To determine prospects for changes to the multifamily space, or overall reform, I first want to differentiate "legislative" reform and "administrative" reform. Legislative reform refers to actions taken by Congress, administrative reform refers to actions FHFA or other agencies may take without Congressional approval. Here's the formal recommendations offered by Treasury on the multifamily business:
Congress should implement a framework to limit the aggregate footprint of multifamily guarantors. (legislative)
Congress should limit the multifamily mortgage loans that are eligible to secure Government-guaranteed multifamily MBS to ensure a close nexus to a specified affordability mission. (legislative)
Pending legislation, Treasury and FHFA should consider amending each PSPA to limit support of each GSE’s multifamily business to its underlying affordability mission, including potentially through a revised framework for capping each GSE’s multifamily footprint. (administrative)"
Let's first examine the prospects for legislative fixes (Congressional action). Zero. Absolutely no chance Congress acts on GSE reform at the very least through the 2020 election, and likely far beyond that. Why? The answer is found both in the politics of the issue as well as the complexity of housing finance reform. The Corker-Warner effort provided an instructive lesson in the obstacles to housing reform. Here's a few reasons why Congress will do nothing on this issue:
The 30-Year Fixed Mortgage Is Safe: The 30-Year Fixed Mortgage is viewed as the foundation of the housing market by Congress. As long as homebuyers have access to this product, there is no political risk to passing on housing finance reform. While standards may be higher, the 30-Year Fixed remains highly accessible, and as long as that does not change, Congress will not act.
Complexity of Reform: Usually, whenever members of Congress face an incredibly complex issue, they rely on highly competent and intelligent staffers as well as outside experts to form a consensus. The consensus becomes the legislation. The problem with housing reform is that the opinions vary not only in terms of politics, but also within parties. In other words, there is no consensus on how to reform the housing finance market, and without a consensus there can be no legislation.
No One Wants to Own It: We learned from Corker-Warner that many members of Congress took an "all or nothing" approach to housing finance reform. Too many members refused to move in the negotiations, so ultimately they failed. Why? Well, let's say it passed. And, let's say there comes a time when interest rates inevitably rise. Regardless of whether a theoretical housing reform bill actually negatively impacts the housing market, if there is any downturn in the market, the supporters of the bill will be blamed. There's no political upside to that. I believe the only way to move Congress on housing finance reform is a threat to the 30-Year Fixed loan or some other systemic threat.
In terms of administrative fixes, we should look to FHFA Director Calabria. While he has a five-year appointment, if President Trump loses the 2020 election, Calabria will very likely be replaced (I believe courts have ruled that the FHFA Director is an at-will position). This gives him a year to act. When the capped and uncapped figures for the GSE's multifamily business come out for 2019, we will know whether they are actually reducing the uncapped green energy portion of their multifamily business. Based on our sources, we believe Director Calabria is committed to shifting the focus of the multifamily business back to affordable housing. That said, there are a lot of issues outlined in the Treasury report, so whether the multifamily business is a top priority remains a question, but we do believe it is definitely possible FHFA will try to reduce the uncapped portion of the business. We may see events play out similar to how the multifamily caps were instituted in the first place. In 2013 FHFA took public comments on how to reduce the GSE multifamily footprint, and two years later the caps were put in place. Another comment period may be in order with respect to the uncapped business, but again, time is a factor.
In terms of overall impact on the multifamily industry, specifically those who benefit from the GSE's green energy loan business, I think it's still too early to tell. Any FHFA action may be reversed based on election results, any action taken by Director Calabria will be highly criticized by Congressional Democrats (and perhaps some Republicans), and Congress will not take any action so there is no threat of a codified (permanent) change to the multifamily business.
Anyone interested in OCR's political intelligence reporting coverage (as well as content for websites, blogs, etc.) can contact me directly at John.Grant@optimizedcr.com
Both the commercial and residential real estate sectors offer exceptional opportunities for professionals, however, opportunity draws a crowd. Effective content marketing allows professionals operating in these sectors to distinguish themselves in these highly competitive environments. Content marketing campaigns offer a number of benefits (brand recognition, reputational, etc.), but ultimately the key metric for measuring a successful content marketing campaign is qualified lead generation. Based upon our work for clients both in the commercial and residential space, we offer the following on how content generates leads in the real estate market.
Identify Your Competitive Advantage
Everyone looks for an edge, and homebuyers, sellers, and real estate investors are no exception. If your content is generic, there's little chance it will compel a potential client or investor to take action. Competition in the commercial and residential real estate sectors is fierce, and your content needs to make the case why your target audience should select you over easily dozens of competitors. The clear and concise articulation of your unique competitive advantage is not only the key to generating qualified leads, it is the essence to converting a lead into a client.
The concept of "competitive advantage" is unique for every real estate professional and is comprised of numerous components. Identifying your competitive advantage begins with understanding what it is you do, or more specifically, what you do well. For example, if your business excels in a particular county or region of the country, stress your success in those areas. There's no benefit to claim that you operate statewide or nationally if you don't, in fact, it dilutes qualified leads. Expertise in a specific area is a tangible competitive advantage and plays to your strength and presumably past track record of success.
Deal size, property type, sales and/or investment strategies, and your personal experience and story are also elements of identifying your competitive advantage. If you are the residential luxury property expert in a region, tell that story. If your commercial firm targets multifamily apartments in the $30M-$50M range, claim that range as your own and provide the track record that substantiates your expertise on deals in this range. Specificity in content marketing does not limit your business, you can always expand in terms of region, deal size, and property type. A thorough assessment of your track record, deal size, property type, and regional expertise leads to clarity in terms of your business plan and growth prospects. Furthermore, specificity not only filters leads, it provides you the best chance of landing the clients you need to land and have the best chance of landing.
Your personal narrative can be another crucial element to conveying your competitive advantage to propsects. Businesses active in communities they operate (charitable work, local clubs, etc.) have a tangible advantage over ones that are not. This works on any scale. A homebuyer who knows their real estate agent is active in the community realizes that this agent has a reputation to maintain beyond one deal. An investor looking to put money into a commercial real estate firm likely will see the benefit of a firm with close ties within the regions they operate.
"Competitive Advantage" is a concept we stress heavily at Optimized Content & Research because the process of working with clients to identify it leads to additional discoveries beyond the immediate benefit of qualified lead generation. Once identified, it is crucial to weave this narrative of competitive advantage throughout all content disseminated by your business. Let's take a quick look at some essential marketing vehicles for your content.
Website: When a potential client visits your website, the key elements of your competitive advantage should smack them across the face. Your website is your first deal filter, and the content must be strong enough to get qualified leads to contact you. In addition to presenting your track record and expertise, make sure your it's easy to contact you from your home page.
Blogs: The key element of a great blog posting is to demonstrate an aspect of your competitive advantage. Leverage this forum to discuss market trends in your region, relay client success stories, and offer advice relevant to the prospects you want to land. Your blog should not be a blatant advertisement, give people something they might be able to use. That said, your blog should serve your business needs and remember the object of the exercise is to build a pipeline of qualified leads. As an aside, if you do bring up a national topic, be sure to relate it back to one of the elements of your competitive advantage.
Social Media: Let's start with one caveat. If you post various articles pertaining to real estate, take the time to make sure that the articles do not mention a competitor in glowing terms, and make sure the article is not written by a competitor. At OCR, we encourage clients to post content that we write on their behalf, so the posts lead back to our clients' websites. The lesson here is simple: whenever you have the opportunity to control a narrative, do so. Finally, post items that relate to a component of your competitive advantage (this includes charitable and community work) but obviously avoid controversial issues that may alienate client prospects.
Videos: We have found that the most effective videos are educational in nature, such as participation in industry event panels, etc. These events have a certain gravitas that tend to play very well on video. Respect the differences between written and visual communication (for a lesson on this, read about the first televised presidential debate in 1960) and be aware of all aspects of the visual presentation as well as the content since they can be equally important. Please, no videos films on yachts with a cigar hanging out of your mouth and a spread of lobster and champagne in front of you.
Should you wish to discuss how Optimized Content & Research can assist with your content marketing efforts, please contact me directly at John.Grant@optimizedcr.com