Maybe “missing middle” isn’t the best way to describe workforce housing today.
Key stakeholders are more aware and better understand the need to create and preserve more attainable housing options for moderate-income households
For example, Freddie Mac’s Workforce Housing Preservation product met its 2023 goal of preserving 3,000 units. This year, the agency is on track to preserve 5,000 more units.
Named Freddie Mac’s top workforce housing preservation lender in 2023, Capital One is helping advance workforce housing goals. Maggie Burke, a senior vice president of agency finance on Capital One’s Commercial Real Estate team, recently shared her views on how the industry is addressing workforce housing challenges and opportunities.
How do you define workforce housing?
Workforce housing eligibility is typically thought of as households earning 61% to 80% of the area median income (AMI)—and in some markets, up to 120% of the AMI. Often, these renters are teachers, firefighters, police officers, mechanics, and others that make up the service backbone of our communities. They do not qualify for subsidized housing, and the rents of Class A, market-rate units may cost burden a moderate-income household.
What makes workforce housing especially challenging for developers?
Workforce housing developments are difficult to pencil-out using standard, non-LIHTC (low-income housing tax credit) financing structures. There are fewer programs targeted specifically toward workforce housing to help bridge the cost of development and operations while keeping rents affordable for moderate-income residents. Creative financing structures are required to advance the creation, preservation, and renovation of workforce housing.
How do creative financing structures come to life?
Fannie Mae and Freddie Mac are taking meaningful steps to fill in gaps in the capital stack. Fannie Mae’s Sponsor Dedicated Workforce Housing product and Freddie Mac’s Workforce Housing Preservation Program are two loan products focused on preserving workforce housing.
For example, I recently worked with a client who planned to acquire a vintage 1970s garden-style community in the St. Louis MSA. Working with Freddie Mac’s workforce housing preservation product, we determined they could achieve their business plan goals by restricting 20% of the units to residents making at or below 80% of the AMI. In exchange, we were able to leverage a longer interest-only period.
Best of all, no residents were displaced, there’s no impact to value or exit issues, and affordability is secure through the life of the loan. That means financial stability for residents. An asset from the 1970s now receives 2024 upgrades while preserving affordable rents.
What would you advise a developer with a workforce housing opportunity to consider when selecting a financing partner?
A good lender works backward from your business plan, goals, and objectives. Have a conversation about the asset and equity structure. There are so many ways to structure a deal, and every opportunity is unique. The important thing is to work with a deeply experienced and well-resourced team with a large array of financing to work with. They will help ensure all options are on the table for the best, most-informed decision.
What’s your view on the path forward for workforce housing?
If you spoke about workforce housing even a few years ago, people might be scratching their heads. Today it’s different. There’s a lot of industry momentum. Agency programs now help incentivize owners and developers to take the next step. There are also local and state initiatives that target workforce housing preservation.
At Capital One, we are working to inform and engage the affordable housing community through a wide array of programs now available for workforce housing deals of nearly any size—large or small.
Learn more about workforce housing financing solutions from Capital One.
