The National Low Income Housing Coalition recently issued a comprehensive report on the nation’s inventory of affordable rental housing. The 2018 findings will surprise very few in the affordable housing industry: Affordable housing options are dwindling for many Americans.
Tracy Peters has some ideas that can help. Peters runs the affordable housing team at RED Capital Markets, LLC, a leading tax-exempt bond underwriter and mortgage lender. His firm has successfully financed thousands of affordable housing projects over the last 27 years. He recently shared his views on the opportunities ahead:
What’s on the minds of affordable housing developers today?
I think many developers are concerned about the continued pressure on state and federal budgets for housing. Although we have had some recent good news out of Washington on the housing budget front, developers must be diligent in order to preserve rental subsidies and other federal housing programs. Many are concerned with continuing increases in construction pricing and shortages in the skilled trades.
What projects do you like to point to as outstanding examples of public-private partnerships?
The best public-private partnership successes are tax credit projects that serve as the catalyst for neighborhood redevelopment in depressed areas. Relatively new programs, such as the Choice Neighborhoods Initiative and Rental Assistance Demonstration, provide opportunities for distressed areas to redevelop themselves. Many of these areas have not seen new investments in decades.
What examples of innovative transaction structuring come to mind?
In the past year, we have seen Fannie Mae utilize the capital markets to structure a tax-exempt bond forward product that has competitive terms compared to most other products in the market place.
How would you advise an affordable housing developer with a property nearing the end of its compliance period?
I recommend finalizing discussions with the limited partner to exit the partnership. As part of this process, the developer should decide how they want to operate and/or re-capitalize the property going forward. That allows the developer to seek possible financing options.
How optimistic are you that supply will one day meet need?
Realistically, I think the developer’s ability to create enough new units faces many challenges. Although Congress passed legislation in the past year that has increased the amount of tax credits available, new projects are facing higher construction costs, higher interest rates, and lower equity pricing. On the other side of the spectrum, we see many former low-income housing tax =credit (LIHTC) projects become market-rate projects after the LURA matures. Meanwhile, many public housing and Sec. 8 projects are becoming obsolete.
Given this environment, it is an obligation for all of us in the affordable housing community to continue to find ways to protect our current supply of affordable housing and expand upon it. Partnering with and demonstrating to local communities, employers, and other vested parties that affordable housing is not only needed but that it is critical for the growth and well-being of any community.
What should a developer look for in a potential financing partner?
The track record is the most important thing. A complex transaction must have financing providers that are able to execute. Even when using HUD, Fannie, or Freddie, execution isn’t a guarantee. The key is to find a financing provider that has worked and closed similar projects.
What differentiates financing providers?
I believe what sets financing providers apart is their ability to wisely leverage past experiences and relationships to solve issues that arise. We have a great deal of experience with almost all types of affordable housing financings. We’ve worked with clients to solve numerous issues, foreseen and unforeseen, that arise on almost all affordable housing transactions.
