Time kills all deals. You have heard that phrase used many times over. Over the next few years, it will especially hold true as the demand for multifamily affordable housing properties increases. A market bellwether is shown through the Federal Housing Finance Agency’s (FHFA) recently announced multifamily loan volume caps and affordable housing mandates for Fannie Mae and Freddie Mac. In addition to providing the government-sponsored enterprises with $78 billion in loan volume cap each for 2022, FHFA mandated that at least 50% of Fannie Mae and Freddie Mac loan volume must meet “mission-driven” business, with a requirement that at least 25% of the loan production serve affordable housing properties at or below 60% of area median income. Generally, “mission-driven” transactions will include affordable housing properties as well as certain properties with green efficiency enhancements and those in high-cost areas.
From surveyors, title companies, lawyers, and other due diligence tidbits, here’s an “insider playbook” on how to navigate your affordable housing financing closing while trying to maximize these positive market conditions in the affordable housing space in 2022.
1. Property Level Historical Perspective
Choosing professionals with a historical perspective of the property is invaluable. Two areas where this may prove the most helpful are when you are selecting your title company and surveyor. Barring any prior issues with the title company and surveyor, you should try to use the same professionals again. If you are involved in an acquisition as the purchaser, determine the prior surveyor and title company as early as possible. Can you use the same professionals again here? A new surveyor’s findings may conflict with the old surveyor’s findings and result in new issues that need to be worked through. Similarly, if you use the same title company, they will have previously had the opportunity to raise any questions and find suitable resolutions to all parties—buyers, sellers, and lenders. They will also have the benefit of relying upon the prior title policy to determine what coverage was previously issued and be in a better position to issue the same coverage again. To the extent possible, negotiate in your purchase and sale agreement the specific surveyor and title company that the parties will use.
2. Bifurcate Roles
Do not be afraid to bifurcate your attorneys’ roles. While it is likely cheaper to have one attorney handle all aspects of your transaction, it may not be the most efficient and could add to the overall transaction costs. Attempt to use attorneys with the most specific knowledge of each issue. For example, one attorney may be well-versed in the provisions contained in the loan documents but not the best suited to deal with a local governmental agency that you need to obtain certain approvals from. At the outset of your transaction, clearly define each party’s role and try to find specialists within the confines of your transaction.
3. Develop a Deal Team
When selecting your lender, your counsel, and requesting lender’s counsel, develop a deal team and stick with them on all transactions. By doing so, the parties will not only have the benefit of using information from prior transactions, but they will have a deeper understanding of how the other parties operate and, in turn, be better suited to work together in an effective manner.
4. Understanding Your Property’s Attributes
Understand your property’s attributes as early as possible. By the time the deal kicks off, your goal should be to have a solid understanding of all issues relating to your property. Is there a regulatory agreement? If so, what are its terms? Are you in compliance with those terms? What approvals, if any, are needed from the governmental agency in connection with the financing? Do you intend to have subordinate debt remain at closing? If so, are copies of all subordinate loan documents available? These are just a few of many categories of property attributes that you must always stay ahead of to avoid surprise and delay later down the line.
5. Develop Relationships with the Governmental Agencies
In affordable transactions, often the biggest lead-time item is approval from governmental agencies, such as a local housing authority, on issues relating to transfer approval or subordination agreements. To the extent possible, develop relationships with government personnel and request to deal with the same parties on each transaction. By developing relationships with the local agencies, you may be able to streamline your request.