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Inside the Housing Market Recovery: An Interview With Andrew Chaban, CEO of Princeton Properties


Exhuming Al Czervik: One of the foremost industry experts in multi-family housing on what investors need to know about the market turnaround, Fannie, Freddie, and the homebuilders.

This was my cue -- enough of the softballs. I then asked Mr. Chaban, as he is clearly someone with a vested interest, what kind of faith he had in FNMA/FMCC as constituted, and what his opinion was on their viability going forward. Moreover, I asked how he looks at them as investments. He looked at me like Judge Smails looked at Danny Noonan after hurling his putter and knocking out Mrs. Havercamp, and then indignantly blaming Danny for a "worn grip." He said, with the caveat that the regulator (the Federal Housing Finance Agency) is doing its job, "FNMA/FMCC are simply the best for securing long-term, fixed, non-recourse financing," and then issued this warning: "Whether merged or not (as one would imagine, this prospect is mired in gridlock on Capitol Hill -- shocking), there still needs to be a Fed backstop, and there still needs to be the ability to sell on an agency basis, to the secondary market. If the greed of years past is taken away, the model works."

Okay, but as an investor Andrew, would you buy Mortimer!? Andrew said without equivocation, "On a purely theoretical basis, absolutely... again, at equilibrium, under the premise the regulator is doing his job, the business model is necessary, and works…and I still believe an investor would be buying them near their lowest point…again, if you can get past the name(s), it's a very viable business model." When pressed for specifics in regards to Washington, DC, his crystal ball was as foggy as anyone else's. (Please note that multi-family housing is approximately 4.5% of the FNMA/FMCC portfolio, with the other 95.5% being single-family housing. On Wall Street, Keefe Bruyette & Woods, the only analyst researchingh FNMA, rates it Underperform. There are two analysts rating FMCC; Keefe Bruyette & Woods and FBR both rate the entity Underperform as well.)

Now to be fair, I spoke to a couple of wily agency traders, one of whom who retorted, "I get why there is a story... I have a lot of baggage with GSEs [Government-sponsored enterprises]! On the debt issuance/portfolio side, they are shrinking; their future as an entity is so uncertain. If they start to really make money, I feel the government will try to grab the lion's share in new fees, etc…. just a point of view. I'm unsure of the potential for continued upside relative to housing, but the multi-level housing recovery is definitely for real. Overall, I'm just not sure how it can be monetized at the GSE shareholder level (equity), meaning FNMA/FRCC." That, my friends, is what makes a horse race; and frankly, after hearing this view, I felt like Sonny's crew at the track in A Bronx Tale when Benny "the Mush" yells, "C'mon Kryptonite!" and they all rip up their tickets.

We then moved away from the wasteland that is currently government agencies, and moved on to the American Dream: housing. As stated previously with regards to the NAHB, Mr. Chaban is currently the Chairman of the Federal Government Affairs Committee, and sits on the Executive Board. His company has won a NAHB's Pillar of the Industry Award eight times -- one can only imagine the red carpet at that event!

Andrew described the NAHB quite simply as "the voice that helps promote the policies that make housing a national priority." It represents both the property manager and builder in every arena: legislative, regulatory, and judicial. In this vein, he continued, "[The NAHB] is one hell of a large lobbying group." By extension, the NAHB Wells Fargo Housing Market Index is, as Andrew puts it, "a statistically relevant sample (approximately 400 respondents, both large and small) of builder sentiment."

At the nadir of the housing crisis, we know we were pulling readings in the mid-teens. On February 16, we got a reading of 48, which was inline with January's reading. We know that a reading of 50+ is generally positive and signals expansion. So I again asked Andrew to put his Wall Street hat on (a hat he usually does not wear), and view recent readings in the context of an analyst looking at a stock or industry. He said, "Right now, we're obviously near the cusp…to make the analogy of placing a stock rating…I guess I would have to put a 'neutral" on the Index.' We're just at the midpoint right now, after crawling out of a very big hole."
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