GSEs Feel Pressure to Address Affordable Housing Demand

There is a tremendous need for more affordable rental housing across the U.S., and Fannie…

There is a tremendous need for more affordable rental housing across the U.S., and Fannie Mae and Freddie Mac are playing an increasing role in filling the gap.

Ted Patch, executive vice president & group head of multifamily finance at Walker & Dunlop, sees the affordable housing, or mission-driven business component of the GSEs activity, as very significant.

“Fannie and Freddie are extremely important components of the financing market for affordable and conventional housing,” Patch told Multi-Housing News.


READ ALSO: Critical Issues for Affordable Housing in 2022


This trend will continue in 2022. The Federal Housing Finance Agency has mandated that 50 percent or more of the GSEs’ rental business be focused on mission-driven affordable housing. In 2021, it required that 20 percent or more of Fannie Mae and Freddie Mac’s multifamily involvement had to cater to residents at or below 60 percent of the area median income. The FHFA increased that requirement to 25 percent or more in 2022.

The FHFA also sets the total volume of multifamily loans the GSEs can purchase each year. The agency recently boosted Fannie and Freddie’s caps by around 11 percent, from $70 billion in 2021 to $78 billion in 2022, for a combined total of $156 billion.

Capital One provided a $23.8 million Freddie Mac loan to Summit Equity Investments for the acquisition of the 99-unit Marq in Lafayette, Ind. It also arranged a $22.3 million Fannie Mae loan to Woodland Village I & II to refinance the 113-unit The Village at South Coast in Costa Mesa, Calif. Image courtesy of The Village at South Coast

“Big A” affordable

Source: Fannie Mae

Emily Schultz, managing director & head of Fannie Mae origination at Berkadia, said “Big A” affordable housing—which is regulated and required to remain affordable—was the fastest-growing segment for her company this past year. She said the firm financed around $3.3 billion in Big A affordable housing in 2021, with $2.1 billion of that completed through the GSEs.

See also  WinnCos. Breaks Ground on Boston Veterans Housing

Schultz noted, however, that the FHFA recently adjusted what qualifies as mission-driven affordable housing. The changes have made the GSEs less competitive in multifamily properties in coastal and major urban markets.

“Last year, they allowed us to adjust AMI up to 120 percent in high-cost markets and the property would still qualify as mission driven. This year, they took away the ability to adjust AMI in those high or very high-cost markets,” she said.


READ ALSO: Blackstone Establishes Affordable Housing Arm


Berkadia secured $35 million in financing through Fannie Mae in January 2022 for Eagle Property Capital’s purchase of a two-property, 310-unit multifamily portfolio in Orlando, Fla. Carlyle Court and Pendelton Park are situated across the street from each other and will be rebranded as Sunset Place. The firm also arranged $32 million in financing through Fannie Mae in March 2022 for Pensam Capital to recapitalize the 233-unit Promenade at Aloma in Orlando.

Kate Byford, head of agency finance at Capital One, said Fannie Mae and Freddie Mac have launched two primary initiatives around their affordable housing efforts. The GSEs have increased staffing and technology to expand the number of deals they can process and to streamline deal executions. They are also innovating around housing preservation.

Berkadia secured $67 million in financing through Fannie Mae for three properties in Orlando, Fla., in two separate transactions. The firm financed Eagle Property Capital’s acquisition of Carlyle Court and Pendelton Park Villas in January and recapitalized Promenade at Aloma for Pensam Capital in March. Image courtesy of Eagle Property Capital

“Both agencies have provided several high-profile loans to create new affordable housing supported by tax abatements, mission-driven equity and preferential financing terms, which is essential to abating the affordable housing crisis,” Byford said.

Capital One provided a $23.8 million Freddie Mac loan to Summit Equity Investments for the acquisition of the 99-unit Marq in Lafayette, Ind. It also secured a $22.3 million Fannie Mae loan to Woodland Village I & II to refinance the 113-unit The Village at South Coast in Costa Mesa, Calif.

See also  Richman Opens Miami-Area Affordable Housing

Alternative capital sources

Source: Freddie Mac

The multifamily financing market reached a peak last year, with readily available capital from all different lending sources, according to Byford. Debt funds, life insurance companies and banks were among the sources vying with the GSEs in the financing arena in 2021.

Last year saw the rise of debt funds as a source of major competition, observed Kyle Draeger, senior managing director & head of CBRE Multifamily Capital.

“Last year, the debt funds did a ton of that business. As a percentage of our business, we brokered a lot more debt fund business than we did in the past,” Draeger added.

CBRE arranged two loans totaling around $112 million through Freddie Mac this past year. In July 2021, it represented The Bozzuto Group in the sale of the 210-unit Gramercy at Town Center in Columbia, Md., and also arranged $43 million in financing for StoneBridge Investments for acquisition of the property. In a separate transaction, CBRE provided $69.4 million in financing for the 300-unit Harvest at Fiddyment Ranch in Roseville, Calif.

“While the agencies continued to provide competitive loans and both bumped up against their $70 billion lending caps (in 2021), they lost some market share as other capital sources stepped in with competitive terms,” Byford said.

CBRE arranged two loans totaling around $112 million through Freddie Mac. In July 2021, it provided $43 million in financing to StoneBridge Investments for the 210-unit Gramercy at Town Center in Columbia, Md. It also provided $69.4 million in financing for the 300-unit Harvest at Fiddyment Ranch in Roseville, Calif. Image courtesy of CBRE

A very competitive market

Patch pointed out the multifamily market is a very competitive environment right now. There is a great deal of money chasing multifamily deals throughout the country.

“We have seen a lot of escalation in property values. The investment sales market is very, very active,” he said.

Draeger noted the market is seeing a massive influx of capital since the sector has proven to be a very safe asset class.

See also  Enterprise Raises $350M for Affordable Housing Fund

“Institutional groups in particular view multifamily property as a good place to park their money,” he said.

A reliable haven

Nonetheless, the GSEs continue to provide a safe and reliable source of affordable financing. Fannie and Freddie are especially crucial during economic downturns or other moments of crisis.

“The GSEs continue to play an important role in the multifamily market in providing liquidity throughout the cycle. We saw this become especially evident at the onset of the pandemic as they stepped into the market when other lenders backed out,” Byford said.

The evolving conflict between Russia and Ukraine has also caused some capital sources to pull back. Draeger has seen a slowdown in activity so far this year, as some participants took a bit of a pause due to the invasion and ensuing volatility.

Read the May 2022 issue of MHN.