A new study on loan maturities for affordable housing properties reports that the sector has avoided some of the turbulence seen in its market-rate counterpart, reports Yardi Matrix.
The firm also reports that approximately $10.5 billion of commercial mortgages backed by fully affordable properties are set to mature over the next three years, while another $31.7 billion is coming due by 2035.
Paul Fiorilla
According to Yardi Matrix, the study is the first of its kind to measure loan maturities purely for affordable properties, which it defines as assets in which at least 90% of units are subject to limits on rent because the property is receiving a subsidy from some level of government.
There are 26,000 fully affordable properties with 3.5 million units in Yardi Matrix’s database that serve as collateral for loans totaling $116.1 billion.
“Lending on fully affordable properties is less risky than market-rate properties because most affordable loans have longer terms and occupancy is usually stable,” says Paul Fiorilla, director of research at Yardi. “That said, the affordable multifamily lending landscape faces challenges from issues that include increasing expenses, the need for property owners to layer funding sources, and potential policy changes.”
The study notes that many market-rate properties have seen distress in the past two years as interest rates have increased.
“However, while distress isn’t completely foreign for affordable properties, it is not as prevalent as it is among market-rate properties, for many reasons,” says Yardi Matrix. “Some affordable properties have loans with favorable rates offered through government entities. Plus, the long terms that loans on affordable properties tend to have, of 10 years or more, give owners plenty of time to fix those with weak cash flow.”
The huge demand for affordable housing also means that most properties have low vacancy rates.
Other findings include:
- Commercial banks account for 39.4% of the affordable housing loans, while government entities, 32.2%, and commercial mortgage-backed securities, 25%, account for all but 3.4% of the remainder;
- Just over three-quarters of the loan volume ($87.4 billion, or 75.3%) encompasses properties owned by private entities, followed by non-governmental organizations, which account for $18.1 billion, or 15.6%; public housing authorities, which account for $6.8 billion, or 5.9%; and real estate investment trusts, which comprise $3.8 billion, or 3.2%; and
- Ten of the 140 markets tracked by Yardi Matrix account for about 40% of the loan volume, led by San Francisco; Los Angeles; Washington, D.C.; Miami; and Seattle.
Despite the sector’s stability, the affordable housing industry is not without challenges. The report notes that the industry is closely watching the Trump administration’s budget and policy proposals that could impact key Department of Housing and Urban Development (HUD) programs.
“Other areas of potential impact to the affordable debt segment include HUD funding and the privatization of the GSEs [government-sponsored enterprises],” says the report. “Cutbacks to HUD staffing could be detrimental to loan servicing and property management. Reduced funding could hinder the development and maintenance of affordable housing units, making it more challenging for borrowers to secure financing for their projects.”
An increase in expenses and development costs also continue to be worrisome as developers need more equity to finance projects and more complicated transactions.
“The upshot is that the affordable lending market is stable, but that stability may soon be tested by both policy and market forces,” says Yardi Matrix.
