Sponsored by Bellwether Enterprise
By John Powell and Phil Melton
The need for affordable and workforce housing is growing. 11.5 million Americans spend more than 50 percent of their income on rent, and for every new unit built through subsidized affordable housing programs, two are lost. With proposed cuts to the Low Income Housing Tax Credit Program (LIHTC) and Department of Housing and Urban Development (HUD), these statistics could be exacerbated.
With growing demand outstripping supply, affordable housing incentive programs are more critical than ever.
Incentive Programs: Meeting Demand
The FHFA’s new Duty to Serve rule requires Freddie Mac and Fannie Mae to increase mortgage financing for affordable housing preservation—leading each to target rural markets in the hopes of creating more debt liquidity and to focus on multifamily communities with five to 50 apartment units. In response, both continue to create innovative and cost-effective programs for affordable housing development.
In the first quarter of 2017, Freddie Mac provided financing for 159,000 multifamily apartments—83 percent affordable to families earning at or below 120 percent of area median income. It also expanded its offerings to include:
• Rehab products: help owners maintain and update aging, affordable apartments through low-interest loans
• Lower interest rates: help owners who commit to making apartments 15 percent more energy efficient
• Bridge financing: helps preserve affordable units through a new LIHTC syndication and lets borrowers lock in borrowing costs up to two years prior to a LIHTC resyndication
• Tax exempt loans for New Construction and Rehabilitation products: let borrowers obtain lower upfront issuance costs and long-term fixed rates at construction loan closing
Similarly, Fannie Mae provided financing for 202,000 multifamily units in the first quarter—85 percent being affordable. Its expanded offerings include:
• Green Financing Loans: provide lower interest rates and loan proceeds when builders implement green initiatives
• M.TEBS program: lets borrowers lock in low bond rates on Immediate Delivery Acquisition/Rehabilitation transactions
Expect both agencies to continue expanding their programs in this sector.
Programs at Work: Tahl Propp
A prime example of these programs’ positive impacts can be found in Harlem, New York, where Tahl Propp Equities renovated five affordable housing properties with new Section 8 HAP contracts. Bellwether Enterprise provided $62.3 million in tax-exempt bond financing for the properties, which include 549 low-income apartments, through Fannie Mae’s Reduced Occupancy and Rehabilitation program, eliminating the need for a construction loan. This enabled over $60,000 in upgrades and energy efficient features per unit. Housing Preservation and Development and Housing Development Corp. were instrumental in providing property tax incentives and distributing tax exempt bonds, respectively.
Additional Incentive Programs
Impactful incentive programs extend beyond Fannie Mae and Freddie Mac. Affordable New York, the new 421a program, provides tax exemptions to properties that meet specific standards including 25 percent to 30 percent of the units being affordable. It also requires owners to agree to long-term rent affordability—up to 40 years—in return for partial property tax exemptions.
As families continue to face housing struggles, more state and local governments and finance authorities are recognizing the need for quality affordable and workforce housing by implementing helpful programs. Efforts among all stakeholders to find creative solutions must continue.
John Powell is executive vice president and director of agency production at Bellwether Enterprise with over 40 years of experience in commercial real estate finance, loan origination, asset and portfolio management, underwriting and workouts. Phil Melton is executive vice president and national director of affordable housing & FHA lending at Bellwether Enterprise. With 20 years of experience, he has originated $3.7 billion in direct and coordinated products.
Learn more at www.bellwetherenterprise.com.