Fannie Mae and Freddie Mac were there when the industry needed them most, but where will they be during the next downturn?

The government-sponsored enterprises (GSEs) have been the picture of consistency over the last four years, as the private sector—banks, life companies and conduit lenders—hunkered down and licked their wounds.

This counter-cyclical liquidity became the silver lining of conservatorship. During the darkest days of the downturn, every borrower had the agencies on speed-dial. After all, if it hadn’t been for the GSEs, cap rates would’ve risen dramatically, and values would’ve plunged, much as they did in every other commercial real estate sector.

But the longer the GSEs’ future remains uncertain, the more important the private sector becomes. And to some multifamily veterans, it’s just a matter of time before the private sector again becomes dominant.

“It might not be quite as fluid for a period of time, change will come slow, but the private sector will, over time, be able to make up the slack,” says Walt Smith, CEO of Dallas-based Riverstone Residential. “When the markets froze up, the GSEs were the only answer just because we hadn’t developed any other model. But the next time it happens, the private sector could be there.”.

Even well-heeled pubic REITs leaned heavily on Fannie and Freddie during the downturn. Rochester, N.Y.-based Home Properties, for instance, has traditionally been a heavy Fannie Mae borrower. And that goes doubly so when the public markets freeze up. But according to their CEO, the GSEs’ possible demise isn’t cause for too much alarm.

“Let’s say the GSEs are gone—so what? I believe it will cost us only another 25 to 35 basis points to exist,” says Ed Pettinella, Home’s CEO. “Banks would kill to get our portfolio, and life companies too, so I really think it’s going to be a non-event.”

Still, the private sector’s ability to ramp up will be challenged by a more vigorous regulatory environment. Dodd-Frank will likely alter the way CMBS loans are originated and sold, and Basel III regulations await the banking sector.

But apartment firms will just have to adjust to a more cautious capital environment should the GSEs be eliminated.

“Further banking regulations are going to restrict the regional banks and what they can do, and I think that’s going to be just the tip of the iceberg,” says Tom Toomey, CEO of UDR. “The cost of debt is going to rise, and start drifting back to its long-term average. And this low-levered model that we think is temporary might be more permanent—you’ve got to get used to the 50 to 65 percent leverage model.”