As workforce housing experiences a growing supply shortage, one solution is in creating more supply through construction. To that end, Freddie Mac has developed specific financing to assist with construction or major renovation of workforce multifamily housing. We look at Freddie’s new product and a major project utilizing it that’s currently underway, in today’s BAM blog…
Freddie Mac’s Non-LIHTC Forwards
The goal of Freddie’s workforce housing product is to both help create extra workforce housing supply, while at the same time offering flexibility in structuring and execution certainty at lower cost for the borrower. You can read more about the specifics on Freddie’s official page here.
Other product details:
Up to 80% leverage for eligible properties.
For profits or non-profits.
Broader income bands than LIHTC (lend on properties in line with workforce housing).
Use multiple types of subsidies.
Hedge interest rate risks.
Eligible properties are to-be-constructed or majorly renovated, garden, mid-, and high-rise multifamily property with public or mission-driven financial investment.
10% of units must have rent restrictions meeting FHFA rules for uncapped volume, with 80% of units having rent at or below thresholds based on FHFA designations (standard/high-cost/very high cost markets).
A Really Sweet Deal – Financing a Major Renovation
One of the first examples of this new Freddie financing in action is a mixed-use workforce housing project in Massachusetts. The project is converting the existing old Lowney Chocolate Factory into a property that will feature 130 residential units, in addition to both warehouse and office space. The financing is a $26.7 million loan, 36-month forward that converts to a fixed-rate 10-year loan. According to the Freddie Mac information, the program allows for both an 80% LTV and 1.25x minimum DCR. In keeping with financing requirements, 10 percent of the units are restricted to 80 percent Area Median Income or less (meeting Freddie’s requirement for 10 percent of rents uncapped in a very high cost market). 90% of units are also restricted to 130% AMI or less, which meets Freddie requirements of more than 80% of units at workforce level for a very high cost market. For this project, much of the financing (more than $9 million so far) comes from state and federal historic tax credits, as the building is on the National Register of Historic Places.
The BAM Bottom Line: The latest Freddie Mac product may be a valuable tool in creating more workforce housing supply. The demand for workforce housing is a constant, with little new construction adding to existing supply. The new Freddie Mac financing product may offer favorable terms for investors/developers looking to build or undertake major renovations in workforce housing.
