In the slow economy of the last few years, affordable multifamily housing has remained a relatively stable market sector across much of the United States. And Baltimore-based MuniMae Midland, a company focused on financing these multifamily projects, has done well despite the changing economy.

Mark Joseph, chairman and CEO, and Keith Gloeckl, chief investment officer, stress that the need for affordable housing is one reason the company has been able to do so well in a down economy.

“Our emphasis on affordable housing means we are in a marketplace where supply is not anywhere near equilibrium,” Joseph says. “The demand outstrips supply by a great deal. While the portfolio we have under asset management showed definite signs of weakening last year, our portfolio is not as dramatically affected as others by the move to home ownership. On the whole, when compared to residents in higher end communities, tenants of affordable housing are less likely to become buyers — even with low interest rates.”

MuniMae Midland finances rental housing, including market-rate and affordable housing, ranging from garden apartment projects and high rises to student housing, elderly housing and assisted living projects. The company is financed by pension fund money, Fannie Mae programs, the HUD MAP program (the U.S. Department of Housing and Urban Development’s Multifamily Accelerated Processing program) and equity capital raised by its public status. “In February, we had an add-on offering and we raised $76 million in equity capital,” Joseph notes.

MuniMae Midland is the result of the October 1999 acquisition/merger of two companies focused on multifamily financing: MuniMae, a publicly held New York Stock Exchange company, and The Midland Companies, a privately held company. MuniMae was started in 1996, as a spin-off of The Shelter Group, a Baltimore-based developer and manager of multifamily housing. The company was first listed as a public company on the New York Stock Exchange in 1996, at which time the company had 13 employees and managed approximately $230 million worth of assets. The Midland Companies, founded in 1977, also had focused on financing multifamily housing. At the time of the merger, Midland had 130 employees and had originated in excess of $2.6 billion in multifamily financing.

“In 1998, MuniMae became concerned with what was happening in the public markets,” according to Joseph, a founder of the company. “That was when long-term capital went belly up. Wall Street capital sources became very shaky.”

Until then, MuniMae had relied on securitization, using Wall Street firms for much of its financing. The company’s board set a strategic goal to diversify major financing sources. One of the goals was to become a Fannie Mae Designated Underwriter and Servicer (a DUS lender).

“We thought we might be able to buy a license and grow internally,” Joseph says, “but we found out The Midland Companies, based in Clearwater, Florida, was for sale. We bought out the private owners, and MuniMae merged with Midland.”

Today, the company boasts $3.5 billion worth of assets under management and 230 employees. Joseph explains how the merger created a stronger company: “MuniMae brought to the table an expertise in financing, using Wall Street and the public markets, with an expertise in lending in the tax-exempt bond area. Midland brought to the table a whole network of production offices and a sales capacity. Midland also brought a Fannie Mae DUS license and tax-credit syndication capacity as well as a terrific underwriting and processing system. By merging the two companies, we have created a one-stop shop for financing of both debt and equity in multifamily housing.”

While MuniMae Midland’s headquarters office is in Baltimore, the company’s production and underwriting operations are based in Clearwater. Other offices are located in Detroit, San Francisco and Dallas. Satellite offices are located in Chicago, West Palm Beach and San Diego. All of these offices serve as marketing and production offices, with virtually all loans closing under the guidance of the Clearwater office. Further, MuniMae Midland plans to open an Atlanta office this month and a Los Angeles office later this year.

Service: The Real Secret to Success

“In real estate, the classic adage has been ‘location, location, location.’ That is certainly very important, but we think in terms of ‘service, service, service,’” Joseph says. “Service to our customers: with a one-stop shop where we have all of the financing tools in our particular business, we can provide great service and terrific execution for our clients. Service to each other: great teamwork will provide great service to the client. Service to shareholders and stakeholders: we are the fiduciaries for $3.5 billion of capital, and protecting the interests of those investors is crucial.”

Striving for better service, MuniMae Midland looks to create better products for clients. In the tax-exempt bond area, MuniMae Midland recently started offering a product that significantly benefits developers. Called a take-down bond, the product allows developers to ‘take down’ from tax-exempt bonds the money they need as they go, as opposed to having to take down the entire proceeds at the beginning of construction. “The interest starts when the money is drawn as opposed to when the bond is issued, thus eliminating negative arbitrage for the borrower,” Joseph explains.

Measures of Success

“We increased productivity in 2002 compared to 2001 by 25 percent,” Gloeckl says, noting that MuniMae Midland closed $766 million in loans during 2001 and $956 million in 2002. “Even though we had a greater degree of success, 2002 presented some very tough problems. There were regions of the United States that had higher vacancy and collection losses. These issues, coupled with potential tightening of credit policy by Fannie Mae and Freddie Mac, made our jobs harder in terms of trying to mitigate perceived risk to consummate deals. We had to really dig down into markets. We had to look at more deals and hold the line conservatively.”

MuniMae Midland expects to do well in 2003. “We’ve set aggressive goals for ourselves,” Joseph says. “We think it will be difficult, but we expect to increase our production by at least another 30 percent this year.”

“We estimate we’ll do about $300 million in Low Income Housing Tax Credit (LIHTC) and market rate equity in 2003,” Gloeckl notes.

The company also projects closing $1.26 billion in debt for 2003. For comparison, in 2002, MuniMae Midland closed 82 debt transactions totaling $956 million in loans. The company also originated about $240 million in equity, both LIHTC and market rate equity.

MuniMae Midland Serves the Southeast As a result of the current economic situation, a number of developers are approaching the multifamily housing market in the Southeast with caution. Many of the larger markets, such as Atlanta and Charlotte, North Carolina, are oversupplied and their recovery is expected to be slow, according to Michael Tozzi, vice president and Southeast regional manager for MuniMae Midland. Instead of larger cities, Tozzi believes that more activity will be concentrated in secondary and tertiary markets, such as Norfolk, Virginia, and Naples, Florida. “Developers are going to test their models in these types of markets to see if they can make deals work,” says Tozzi. “While these markets may not have as much depth as the larger markets, they may be able to differentiate themselves from the existing supply and be successful in markets that have good fundamentals.” In addition to growth in smaller markets, Tozzi also predicts a continued expansion in Southeast Florida. The area is still experiencing net population growth, which continues the northward push into Palm Beach and Martin counties, he notes. “In addition, the economy is becoming more stabilized year round, which bodes well for all housing types, including multifamily.” Across the multifamily markets, senior housing seems to be the most successful — especially independent and congregate care facilities, according to Tozzi. “The senior housing market has become more stable as financing for new deals is difficult to obtain, and many deals involve campus settings with a mixture of senior product types,” he adds. MuniMae Midland has been able to distinguish itself in the Southeast multifamily market by offering its clients a range of products and services in a tight time frame. One example of the company’s range and efficiency is in a deal that MuniMae Midland’s Clearwater, Florida, office closed for the 300-unit Verandas at Blairstone in Tallahassee, Florida. The client, Columbus, Georgia-based Flournoy Development, wanted to start rebuilding its development portfolio but most of the developer’s equity sources were short term. “MuniMae Midland’s REIT equity program fit their needs, and they liked the one-stop shop,” says Tozzi. “The application was executed in mid-August and closed in mid-November.” When approaching any deal, MuniMae Midland considers several criteria before deciding whether to finance a property. “Generally, we look for solid property characteristics in a market with good fundamentals and a well-capitalized, experienced sponsor/developer,” says Tozzi. “Our goal is to weigh all the factors in the deal with the hope that the sum total will ensure its success.” - Lara Rauba

©2003 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.