CRE lenders target affordable housing

CRE multifamily lenders are shifting focus amid new Federal Housing Finance Agency regulations and increased demand for affordable housing  Commercial real estate lenders are looking to ramp up the financing of lower-to-moderate income multifamily housing in 2016 as agency lenders see their lending caps increased and the high-end condo and rental markets, particularly in gateway cities […]

CRE multifamily lenders are shifting focus amid new Federal Housing Finance Agency regulations and increased demand for affordable housing 

Commercial real estate lenders are looking to ramp up the financing of lower-to-moderate income multifamily housing in 2016 as agency lenders see their lending caps increased and the high-end condo and rental markets, particularly in gateway cities like New York, are thought to be peaking.

It helps that more people are renting than ever before. A University of Pennsylvania report released last month shows that the US homeownership rate is now at 63.7 percent, a 48-year low, and the report found that people were renting versus owning due to financial necessity, not choice.

“There’s an increasingly large proportion of people who can’t afford to purchase homes,” says Gregg Gerken, head of US commercial real estate lending at TD Bank. “So looking at supply and demand, affordable housing seemed like a better space to play in.”

Gerken tells me that his bank is shifting its multifamily lending away from loans on Class A properties to loans on Class B properties that house lower-to-moderate income tenants this year.

“In the affordable housing market, for a typical lender, the lending cohort is growing,” he says.

That is also being facilitated after the FHFA increased agency lending caps and governmental investment and tax credit funding come back to pre-2008 levels.

Last month, the FHFA increased the multifamily lending caps for Fannie and Freddie from $31 billion to $35 billion; that will allow more multifamily lending in general — and on affordable properties that weren’t already excluded from the lending caps in May of 2015.

John Sabatier, executive vice president at JLL Capital Markets, says affordable housing loans have been a safe category in the multifamily debt space historically, with a strong track record of low default risk and regulatory benefits, but that investment into the sector will ramp up this year.

Developers and large lenders like life insurance companies backed off of affordable housing projects during the recession as state and local budgets and federal tax credits for affordable housing temporarily subsided, he notes.

“We are actually catching up to the lack of affordable housing that wasn’t presented to the market from 2008 to 2011,” he says.

Fannie Mae and Freddie Mac provided a combined $89.6 billion in new multifamily lending volume last year, according to numbers the GSEs released in February. Some anticipate that the GSEs loan volumes total may eclipse $100 billion in 2016, as Real Estate Capital reported previously.

Melvin Watt, FHFA director, said in prepared remarks that the agency’s decision to increase the caps was a reaction to “the realities of the market” and to ensure that Fannie Mae and Freddie Mac have the flexibility to meet demand.

But Sabatier added that even with new favorable market conditions for affordable housing, the demand from individuals and/or families seeking housing is not likely to be met.

“Even now, we see lending and tax credit pricing that is still woefully behind the affordable housing need in this country,” said Sabatier.

The steps taken by FHFA so far to encourage lending into affordable lending are certainly positive steps, however. The hope is that the increased investment into lower income housing this year will spur enough additional development and interest in the sector to ultimately satisfy demand in years to come.

 

SHARE