Former HUD Secretary Never Expected Fannie, Freddie Move

“I never expected such a day to come,” said Henry Cisneros, executive chairman of CityView and former Secretary of the Department of Housing and Urban Development under President Bill Clinton. He was speaking of Sunday, Sept. 7, when President George W. Bush announced the federal government’s takeover of Fannie Mae and Freddie Mac. Two days later, on Tuesday, Cisneros (pictured) delivered the Opening Keynote Presentation, Home Ownership and the Uncertain Mortgage Market, at the first ever Cityscape USA, Bridging U.S. and Emerging Real Estate Markets conference at New York City’s Jacob K. Javits Convention Center. Cisneros proclaimed his long-term advocacy of the government-sponsored enterprises’ hybrid style: a mixture of private-company access to the capital markets and the security of governmental backing. “Many families got their first taste of the pathway to the middle class,” he said. He believes though, that Secretary of the Treasury Henry Paulson did what had to be done, and Cisneros cheered the preservation of the hybrid model through a government conservatorship of the flailing mortgage companies, a perspective that contradicts those who interpret the GSEs’ failure as proof that the government never should have been in the mortgage business. “If Fannie Mae and Freddie Mac did not exist in the United States, we would have had to create them,” he stated, again espousing the virtues of the middle class that has arisen from the opportunity for individuals to accumulate wealth through home equity. Cisneros continued with a glowing long-term outlook for real estate businesses, outlining six themes that make U.S. real estate a worthwhile area in which to do business. First was scale: The U.S. will require 213 billion square feet of new and replacement structures to accommodate the 73 million additional residents expected by 2030. Second, the country is becoming even more a nation of metropolises, as people and businesses center themselves in “engines of economics.” Demographics indicate that northern industrial nations’ populations will remain stagnant while the U.S. population soars, he noted, happily claiming, “Our issues will be of growth, of supply, of stock, of housing.” The transformation of the U.S. economy will necessitate particular kinds of properties to serve new industries, such as healthcare and new media. A new social awareness also provides opportunities for institutional investors to target sustainability and infrastructure projects. Last, Cisneros cited the unprecedented level of “global interconnectedness,” noting that China now exports per day what the country exported during the entire year of 1978. Panelists on the conference’s Day One keynote panel session, “Examining Effects from the Subprime Crisis on the Institutional Real Estate Market,” moderated by CPN editor-in-chief Suzann D. Silverman, also trumpeted a rosy long-term view, cautiously forecasting a rebound starting a year from now, depending on the residential sector and financial markets’ short-term future. That rebound will be a quick one, as capital is and has been poised to reinvigorate the commercial real estate market. Simon Ziff, president of The Ackman-Ziff Real Estate Group L.L.C., pointedly stated, “This is not a real estate crisis. This is a financial crisis.” The sooner financial institutions take the hit, the sooner capital sources’ itchy fingers can pull the trigger, he said. John Pelusi, executive managing director for Holliday Fenoglio Fowler L.P., claimed of his 29 years in the industry, “I have never seen the market in a better place to face a downturn,” though he slated the recovery stage as being early in the game. Craig Butchenhart, president of NorthMarq Capital Inc. pegged the market’s progress as having reached the fourth inning. Until the credit markets rebound, though, he cautioned that transaction services companies would face rough going for the next six to nine months. The strong fundamentals that all the panelists discussed mean that owners do not have to sell or refinance. Daniel Walsh, executive vice president & managing director for KeyBank Real Estate Capital, said the deals that are happening now are springing from the GSEs, life companies and, surprisingly, from the smaller, community banks which are even lending to and buying loans from their larger counterparts. Ziff noted that the current market is all about deal selection. Right now, smaller is better in finance, he said. He also noticed a pickup in the recourse movement. American Planning Association executive director & CEO W. Paul Farmer said long-term opportunities will follow the flow of water and the path of transit-oriented developments. He also believes that housing will return to the forefront in property location decisions. He does not see the current downturn as simply the end of “irrational exuberance,” he said. “This is the end of something greater. This is the beginning of something greater.”