Creating sufficient housing supply, in whatever form, continues to be one of the country’s main challenges. With nearly a quarter of renter households spending 50% or more of their income on rent, the demand is certainly there. However, getting a deal to the starting line, let alone the finish line, requires experience and knowledge on the lender’s side and shrewd execution on the developer’s side.
Rob Wrzosek, president, affordable strategies, at NewPoint Real Estate Capital, says it’s increasingly difficult for affordable housing supply to keep pace due to rising inflation – particularly in concerns construction and material costs – chronic labor shortages and, to some extent, rising interest rates. These factors are in addition to existing regulatory constraints that developers must overcome.
“With the permitting and approval process, it can take 18 to 24 months from when a developer first plans to build affordable housing to when they can start digging the ground,” he said. “These regulatory burdens are not new, but they pose a new challenge with inflation at its current rate. Chances are that all the funding and subsidies you have in place will no longer be enough when it comes time to build. This concern makes it difficult to obtain closure.
Cut the bureaucracy
To help developers build capital faster and with greater certainty, Wrzosek, who in a past life acted as an outside adviser to the Obama administration on matters relating to the housing tax credit program of Low-Income People (LIHTC), was tasked with creating NewPoint’s exclusive suite of affordable housing finance solutions. The need, he says, is very evident given that there are established developers who may not go ahead today with construction or rehabilitation projects given regulatory hurdles and the environment. of the market, finding them too much to overcome, especially compared to investing in market rates. housing or other asset classes.
However, “given how grants work, this is an attractive asset class and new developers – in some cases, institutions that are branching out – are coming into the market and making it work,” he says. .
There are, of course, a variety of government or government-sponsored programs that can help, such as Fannie Mae, Freddie Mac, Federal Housing Administration, and LIHTC incentives.
“At NewPoint, not only do we access all of these programs, but we have created a suite of exclusive next-generation affordable housing solutions with the backing of private capital,” says Wrzosek. “We combine these distinct offerings with our team’s intellectual capital to determine the best product bundle for a specific business plan.”
“From there, we aim to create the most efficient and transparent way possible to provide financing to our borrowers. We help the developer community cut all the red tape from a grant perspective and get the most amount of funding at the lowest cost available on the market. »
Called NewPoint Impact, the new platform offers developers a choice of flexible and tailored solutions, ranging from construction and bridging loans to long-term permanent financing. Loans start at $8 million and have terms ranging from two to 40 years depending on execution, which range from tax-exempt bond financing to synthetic construction financing under Section 221(d) (4 ) and LIHTC re-syndication bridging loans.
Improving Perceptions on Affordable Housing
Wrzosek says the general perception of affordable housing has changed over the past decade. This is partly due to growing support from Fannie Mae and Freddie Mac. Agencies, which account for about half of affordable housing funding, are increasingly focusing on mission-oriented housing, which is tied to area median income (AMI), typically starting at 80% of AMI .
“It’s not like before where you looked at large state-owned housing developments being built and managed,” he says. “Today, residents of affordable housing are teachers, civil servants and nurses. It is an asset that, as long as it is properly funded and managed, will always provide liquidity. The perceptual barrier around the asset class has been removed, meaning its demand is near insatiable.
For these reasons, the affordable housing sector has seen an increase in investor demand in recent years. Consider that, according to Real Capital Analytics, the annual deal volume for affordable housing has grown from $1.3 billion in 2011 to $36.1 billion in 2021, a growth rate that has outpaced multi-family deal volume. at the market rate by a factor of 2.5.
Another factor influencing the growth of interest in affordable housing is the increased appetite of institutional investors, who seek to meet environmental, social and governance (ESG) objectives and value the risk-adjusted return profile and stability offered during times of recession. A recent high-profile example is Blackstone, which acquired interests in a portfolio of 90,000 LIHTC units and launched a company called April Housing to manage it.
“And as long as the financing is done appropriately, the risk of default is very low,” says Wrzosek. “If you look back in history, the default rate on affordable housing is near the lowest, if not the lowest, of any asset class. It therefore attracts a lot of attention from the developers and the investment community. »
NewPoint Real Estate Capital offers a variety of lending solutions for the multifamily, affordable and senior housing sectors. Visit www.NewPoint.com/impact to learn more about how NewPoint is reshaping the face of affordable housing finance.