Investors in multifamily workforce housing will soon have a new financing option thanks to a recently-announced Freddie Mac program. Appearing online in the Wall Street Journal (WSJ) as well as MultifamilyExecutive.com (MFE), the promising Freddie Mac program will offer borrowers the incentive of a lower-rate loan in return for keeping rents at an affordable level in this housing class. As the WSJ noted, instead of using traditional means, this program hits on market incentives rather than relying on government subsidies. With a current higher demand for workforce housing, this financing could pay off for everyone involved – providing an opportunity to ensure affordable housing for renters with lower-rate loans for the borrower.
The WSJ quotes an executive vice president of Freddie Mac and Multifamily head, David Brickman, as stating that the supply in workforce housing is already declining and the challenge is in finding ways to create more while preserving already existing housing. Freddie Mac’s program is poised to do just that: the largest backer of apartment loans will offer lower-interest rate loans to real estate buyers who agree to rent the majority of the property’s apartments to tenants making 80% or less of the area’s median income. The caveat to these terms is that the restrictions apply only for the term of the loan – which is typically seven to ten years. There are some concerns that renters will increase their income (effectively no longer needing an affordable housing-priced apartment) yet be able to retain their units, since this program doesn’t require income verification the way that a government subsidy program would. As one member of the National Multifamily Housing Council noted, at the very least, a service is still being provided by keeping rent at those levels even without income verification.
Freddie Mac has partnered with Salt Lake City, UT- based Bridge Multifamily Fund Manager along with Wells Fargo Multifamily Capital and KeyBank Real Estate Capital, according to the piece in MFE online. According to the MFE information, Freddie Mac will “aggregate up to $500 million worth of Capital Markets Execution program loans over a one-year period and then put all the social-impact loans into one securitization, for which Bridge will be required to purchase the subordinate bonds.” They go on to say that Wells Fargo will originate $400 million of the committed plan and KeyBank originating the rest. The WSJ details that Bridge already has properties in its sights, having closed on a 352-unit Tampa-area property. As part of the plans for this deal, Bridge will renovate the units, common area, and also plans to add both a community center and soccer field. Bridge will be able to close and perform similar deals and renovations, and help preserve affordable housing nationwide.
According to WSJ stats, in 2014 about ¾ of Freddie Mac’s loans went to apartments that would be considered workforce or affordable housing; however, just three years later in 2017 that number had declined to 2/3 of their loans. The WSJ pointed out it likely reflects a trend we covered in a recent BAM article: a high percentage of new construction multifamily inventory is leaning toward higher end and luxury apartments vs the affordable and workforce-type units. The new construction may be luring successful urban renters – yet the WSJ numbers show that the majority of renters at 60% would qualify for affordable housing.
The take-away for real estate investors is that the demand for workforce-housing is high, the supply is low, and the Freddie Mac program is providing low-cost loans to those buyers who agree to keep rents in the affordable range for the term of the loan – and while new luxury units may be be luring affluent urban renters, a higher percentage of renters need affordable units now, making this program timely and logical for investors.