Creating ample housing supply—in any form—continues to be one of the nation’s top challenges. With nearly a quarter of rental households paying 50% or more of their income toward rent, the demand is certainly there. Getting a deal to the starting line, much less to the finish line, however, requires experience and knowledge on the lender side and savvy execution from the developer side.

Rob Wrzosek, president, affordable strategies, at NewPoint Real Estate Capital, says it is increasingly difficult for affordable housing supply to keep pace due to rising inflation—especially concerning construction and material costs—chronic labor shortages, and, to a degree, rising interest rates. These factors rest on top of the existing regulatory burdens that developers must overcome.

“With the permit and approval process, it might be 18 to 24 months from when a developer first considers building affordable housing to when they can get shovels in the ground,” he says. “These regulatory burdens are nothing new, but they pose a new challenge with inflation running at its current rate. There is a very real chance that all the financing and subsidies you have lined up are no longer sufficient when it comes time to build. This concern makes it difficult to get to a closing.”

Cutting Through the Red Tape

To help developers get building quicker and with more certainty in their capital stack, Wrzosek, who in a past life acted as an outside adviser to the Obama administration on issues pertaining to the low-income housing tax credit (LIHTC) program, has been tasked with building NewPoint’s proprietary suite of affordable housing financing solutions. The need, he says, is very apparent given that there are some established developers who might not move forward today with construction or rehabilitation projects given the regulatory hurdles and market environment, finding them too much to overcome, especially compared with investing in market-rate housing or other asset classes.

However, “given how the subsidies work, it is an attractive asset class and new developers—in some instances institutions who are diversifying—are coming into the market and making it work,” he says.

There are, of course, a variety of existing government-sponsored or government programs that can help, such as Fannie Mae, Freddie Mac, the Federal Housing Administration, and the LIHTC incentives.

“At NewPoint, we’re accessing not only all of these programs but have created a suite of next-generation proprietary affordable housing solutions with the support of private capital,” Wrzosek says. “We couple these distinct offerings with our team’s intellectual capital to determine the best grouping of products for a specific business plan.”

“From there, we aim to create the most efficient and seamless way possible to deliver the financing to our borrowers. We’re helping the developer community cut through all the red tape from a subsidy standpoint and get the largest amount of financing at the cheapest cost that is available in the market.”

Called NewPoint Impact, the new platform offers developers a choice of flexible, tailored solutions, from construction and bridge loans to long-term permanent financing. Loans start at $8 million and feature terms that range from two to 40 years depending on execution, which range from tax-exempt bond financing to synthetic Section 221(d)(4) construction financing and LIHTC resyndication bridge loans.

Improved Perceptions About Affordable Housing

Wrzosek says the general perception of affordable housing has changed during the past decade. Part of it has to do with increasing support from Fannie Mae and Freddie Mac. The agencies, which represent about half of affordable housing financing, are increasingly focused on mission-driven housing, which is tied to the area median income (AMI), typically starting at 80% of the AMI.

“It’s not like before where you looked at large, publicly owned, constructed, and managed housing projects,” he says. “Today, affordable housing residents are teachers, public servants, and nurses. It’s an asset that, as long as it’s properly financed and managed, is always going to bring cash flow. The perceptual barrier around the asset class has been removed, which means its demand is almost insatiable.”

For these reasons, the affordable housing sector has seen increased investor demand in recent years. Consider that, according to Real Capital Analytics, annual transaction volume for affordable housing increased from $1.3 billion in 2011 to $36.1 billion in 2021—a growth rate that outpaced market-rate multifamily transaction volume by a factor of 2.5x.

Another factor influencing the growth of interest in affordable housing is increased appetite from institutional investors, who are looking for meet the environmental, social, and governance (ESG) goals and appreciate the risk-adjusted return profile and stability offered during recessionary periods. One recent high-profile example is Blackstone, which acquired interests in a portfolio of 90,000 LIHTC units and launched a company called April Housing to manage it.

“And as long as financing is done appropriately, the chance of default is very low,” says Wrzosek. “If you look back over history, the default rate on affordable housing is near the lowest, if not the lowest, of any asset class. So, it is drawing a lot of attention both from developer and the investor community.”

NewPoint Real Estate Capital offers a variety of lending solutions for the multifamily, affordable, and seniors housing sectors. Visit www.NewPoint.com/impact to learn more about how NewPoint is reshaping the face of affordable housing finance.