Modern apartment buildings in Richmond, British Columbia, Canada.
Volodymyr Kyrylyuk

Who could have guessed this?

Rather than a dowdy, forlorn wallflower, affordable housing ends 2020 as the darling of the dance, showing off a suitors’ card that’s the envy of every other commercial property type.

“Our team is very thankful where we are right now. We have a lot to toast. We’re not far off 2019’s pace and that’s a blessing,” says Jeff Arrowsmith, a senior director at CBRE Affordable Housing. The industry leader has held several prominent financial and accounting positions prior to his present duties.

As an industry prognosticator, few may be better qualified to read the year-end tea leaves. Arrowsmith recently sat down and offered his 2021 outlook.

What kind of year was it for your business group?

On balance, a very good one compared to our initial fears when the pandemic struck. Our debt business had an exceptional year, growing significantly from 2019 and exceeding our pre-pandemic forecast. It’s been a great low-interest lending environment for buyers and owners looking to refinance their properties. Our brokerage business was lower in 2020, but mainly because of the industry COVID pause in late Q1 and early Q2. After the market recalibrated, we ended the year with about the same volume of property listings as we had in all of 2019. We still have a very active market for affordable housing with fairly stable pricing and buyers attracted to the relative stability of the asset class.

We feel good about how the year wrapped up. It’s time to look forward to a year of recovery.

Jeff Arrowsmith is a senior director at CBRE Affordable Housing.
Marissa Natkin Jeff Arrowsmith is a senior director at CBRE Affordable Housing.

What about property performance?

Rent collections have remained surprisingly stable. While there has been some weakening, the impact has not been nearly as dramatic as initially feared. Vacancy rates for affordable units continue to remain extremely low.

What’s your view of the agency and Fed performance in 2020? Should we expect more of the same in 2021?

The Fed, along with Freddie Mac and Fannie Mae, really stepped up to the plate in 2020 to keep rates low and providing strong credit support to the market. We had a record year working with both agencies. Their 2021 lending targets are even more mission driven. We can expect to see continued emphasis in lending for affordable and workforce properties in 2021.

What other trends do you see evolving in 2021?

We definitely see more equity capital chasing affordable housing investments. We’re taking calls from institutional equity sources we haven’t heard from before or with limited prior investing experience in the space. The new level of interest reflects how the perceived risk-return landscape has changed and how the sector is being viewed differently. Increasingly, affordable housing assets are seen as a long-term infrastructure position, generating stable, predictable cash flows.

How has the pandemic influenced decision making?

It really comes back to the performance of the properties. And that, in turn, comes back to Congress and their ability to bridge stimulus and assistance until job formation is robust again.

We’ve always believed in the risk-reward fundamentals of affordable housing. The pandemic has helped spur that thinking along. We’re seeing portfolio allocations and investment strategies shift in affordable housing’s favor. That’s a good thing. All that new interest and money lowers the cost of capital for new projects and rehabilitations.

What policy moves do you see in 2021?

There are many great ideas under discussion that could spur greater affordable investing. I am optimistic policy progress will be made in 2021. Among the priorities that has been on the table for some time is the very recently enacted “fixing” of the 4% tax credit, which will have an immediate impact. I expect we will also see movement in ideas to expand the volume of credits available through basis boosts for lower-income properties and new construction projects to spur creation of more affordable housing. Along with this, I think we could see greater bond volume for 4% projects and the relaxing of some of the more restrictive rules. Should be an interesting legislative year!

For more information on financing solutions for affordable housing developers, visit CBRE Affordable Housing.