The debt market for tax-exempt bonds has certainly come a long way since the depths of the recession, said panelists at the recent AHF Live conference.
“In 2009, the phone just stopped ringing—the only thing that worked then was FHA,” said Wade Norris, partner at law firm Eichner Norris & Neumann. “Back then, I thought it would take four or five years for the market to come back, but today we’re obviously in an up cycle.”
The market has expanded beyond the Federal Housing Administration (FHA), not to mention Fannie Mae and Freddie Mac, as the private sector stepped up in 2012.
“Banks are getting more aggressive on private placements in Community Reinvestment Act markets,” said Mike Hemmens, a director at lender Citi Community Capital. “Citi can get a deal done, up and down, in 75 to 90 days, and you can call us anytime during the process, which is dramatically different from the FHA.”
Fannie and Freddie saw healthy demand for bond credit enhancements this year, with Fannie exclusively focusing on fixed rate, while Freddie offered both fixed and floating. Fannie, in particular, revved up its engines again this year and will likely set a new record for overall affordable housing debt production when the final tally is done on 2012.
“In 2011, we did over $2.3 billion, and this year, as of August, we had already beaten that goal,” said Sarah Garland, a director at Fannie Mae. “We are having an extremely strong year, mostly seeing acquisitions and refis.” The company’s average deal size was on the low end in 2012, around $8 million, she noted.
But Freddie was no slouch either. Freddie Mac will see a 20 percent to 25 percent increase in its overall multifamily volume this year, according to Kim Griffith, the head of Freddie’s affordable division. And while preservation deals drove affordable housing debt volume this year, Griffith wonders if all this focus on preservation comes at the expense of new construction.
“We can talk about preservation all day long, and preservation is a good thing, but as an industry, we really have to crack the code on how to get new production, on how to lower construction costs,” he said.
While conservatorship has made new product creation a difficult process, both Fannie and Freddie have been working hard to roll out new features in their bond credit enhancement programs next year. “We did our first short-term bond deal last month, and that’s a very good alternative to doing it as a forward,” says Garland.