by Suchi Rudra
As the nationwide affordable housing crisis continues to intensify, efforts for the preservation of housing units are becoming increasingly urgent. But in early September, National Equity Fund (NEF) announced the closing of a deal that has turned heads. The transaction has become the largest single investment in the organization's history – and one of the most significant preservation transactions the affordable housing industry has ever seen.
NEF's $444 million deal preserving the long-term affordability of 2,740 units (13 former LIHTC properties) across Portland, Oregon, and Albuquerque, New Mexico, has been lauded by industry peers and investors across the affordable housing sector.
“This was a catalytic transaction for moving the industry forward, a huge way to make a massive dent in the affordable housing space. We've had a lot of inquiries about this, because it shows our presence in the market, our ability to move quickly and thoughtfully, and our commitment to meeting a need that might otherwise go unmet,” says Brandon McCall, NEF's VP of Structured Finance.
Preserving communities and investing in brighter futures through intentional collaboration
As NEF's Head of Structured Finance Daryl Shore sees it, the preservation of affordable housing isn't just about saving buildings – it's about protecting residents, stabilizing communities and investing in brighter futures. Preservation of housing units is more cost effective than new construction and helps prevent displacement of residents caused by market-rate buyers and private equity investors who often drive up rents. But in today's aggressive housing market, organizations like NEF are finding themselves in competition with cash-rich buyers who can acquire properties very quickly. Despite this challenge, Shore believes that by adopting creative financing, forging partnerships and having responsive developers, it is possible for organizations like NEF to compete and keep housing affordable.
“Different parts of the sector can work together to move the needle. And quite honestly, that's the only way it's really going to happen. The for-profits, nonprofits, large investor banks, local agencies – this type of collaboration is going to be necessary, and it's really important for the industry,” says Shore.
In fact, it was NEF's push for deep collaboration among private and public partners that was critical to the success of this large-scale transaction, which included owner/operator Guardian Real Estate Services and J.P. Morgan Chase as capital partner.
“When you look at the capital stack, these are serious dollars from very smart people. I like the fact that we're an organization proving that you can do both in this work – bring in strong technical expertise, but not have to give up on the mission,” says Shore.
An impressive 93 percent of the 2,740 housing units preserved in this deal will remain affordable – a rare occurrence in preservation deals of this scale. This achievement points to a strong and growing appetite for preservation investments among the private sector.
What also stands out is the startlingly quick pace of this mega transaction, which McCall says is largely due to the organization's deep understanding of the housing ecosystem. Although there were plenty of moving pieces, like dealing with the added complexity of different regulations across two cities, NEF was able to close the deal in a matter of five months, beginning in February this year and wrapping up by the end of July.
Thinking more creatively about affordable housing
Historically, the industry has always relied heavily on LIHTC as the primary tool for developing and maintaining affordable housing – a “one size fits all approach,” as Shore puts it. But the agility and strong coordination of NEF's latest deal highlight the importance of using additional strategies. This deal in particular offers a powerful example of what happens after the LIHTC compliance periods expire and properties risk losing their affordability.
“There's definitely a need for LIHTC – I want to emphasize that. But there have to be other tools in the toolbox. And what we've done is a way for a developer to come in and preserve affordable housing for seven years, or hopefully longer, after the LIHTC compliance period ends,” explains Shore.
While NEF has long established itself as a leading LIHTC syndicator, the organization has evolved into a comprehensive real estate investment manager, with a focused expertise in multifamily affordable housing and the ability to provide end-to-end support for affordable housing projects.
“We can really touch every aspect of the life cycle of an affordable multifamily asset. So we are able to provide pre-development financing, we syndicate – because that's where we started – we finance and invest in the preservation of existing units, and at the same time, we provide permanent financing through our agency platform. We're focused on doing two things: creating more affordable units, but also preserving them; because that's what we have to do if we're really going to address the affordable housing crisis,” says Shore.
Ultimately, NEF hopes this achievement of balancing sophisticated capital solutions with unwavering commitment to their mission will inspire others in the industry to act more boldly and think more creatively in the fight to expand affordable housing.