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New Orleans

  Stemming a Potential Crisis in Affordable Housing

Freddie Mac’s Bridge-to-Resyndication program preserves critical multifamily stock


​​​The affordable housing sector in the United States is in the midst of a perfect storm:  nearly half of all existing affordable housing stock is nearing the end of its initial 15-year mandatory affordable set-aside period, while at the same time the country has experienced 23 consecutive quarters of rent growth and rising land development costs. These factors are causing an increasing number of private owners to reconsider the profitability of creating and maintaining affordable housing.  However, a recently created loan product could be stemming the rising tide of lost affordable housing units.

"I don’t like to use the word ‘crisis,’ but we’re at a definite tipping point in virtually every sizeable market in this country when it comes to affordable housing,” said Tim Leonhard, International Director with JLL Capital Markets. “Not only do we need to create more affordable housing, we desperately need to preserve what we currently have. We need to create a level playing field to allow affordable housing developers and owners compete   with traditional cash-on-cash/conventional developers and owners.”

To that end, Freddie Mac developed the Bridge-to-Resyndication program, which gives affordable housing buyers time to position properties for preservation via a re-syndication transaction using low income housing tax credits (LIHTC) and simultaneously allows them to secure long-term, fixed-rate, tax-exempt financing.  Since its fall 2015 inception, the product has funded more than $205 million of acquisitions, preserving five affordable housing properties across the United States, all of which were executed by JLL.  They include:

  • The $30.6 million Bridge-to-Resyndication loan for the acquisition of Summer Field Apartments, a 268-unit affordable housing property located in the Palm Springs submarket of Indio, California, which was paired with a $38 million Freddie Mac TEL featuring an 18-month forward interest rate lock.

  • The $25 million Bridge-to-Resyndication loan for the acquisition and rehabilitation of Heatherstone Apartments, an existing 455-unit affordable housing property located in Kennewick, Washington, which was paired with a $34 million TEL featuring a 30-month forward interest rate lock.

  • The $14.5 million Bridge-to-Resyndication loan for the acquisition and rehabilitation of the Parks at Fig Garden Apartments, an existing 336-unit affordable housing property located in Fresno, California which was paired with a $18.5 million TEL featuring 18-month forward interest rate lock.

  • ​The $10.6 million Bridge-to-Resyndication loan for the acquisition and rehabilitation of the Courtyards Apartments located in San Jose, California, an existing 81-unit affordable housing property.

  • The $13.5 million acquisition loan assumption for the acquisition and rehabilitation of the Sun Ridge Apartments, an existing 198-unit affordable housing property located in Concord, California, which was paired with a $20.6 million TEL featuring an 18-monh forward interest rate lock. ​

According to Harvard's Joint Center for Housing Studies analysis of the National Housing Preservation Database, the contracts or affordability restrictions on more than 190,000 units are set to expire each year over the next decade. At this rate, more than two million subsidized units out of a total stock of 4.8 million could potentially disappear over the next decade. And the National Low Income Housing Coalition shows that for every 100 renters with income at 50 percent or below the Area Median Income, there were only 57 affordable units available. ​

Maintaining affordable housing requires capital, and capital requires compelling returns. Given the strength of the multifamily sector (JLL research shows year-over-year rent growth at 4.7 percent), many investors are vetting options to follow the market and convert to market-rate product or sell to a cash-on-cash buyer.

"One of our primary duties is to preserve the existing stock of affordable housing for lower-income renters and 2016 will be paramount to ensure that affordable properties on cusp of conversion to market-rate remain affordable," said Shaun Smith, Senior Director of Targeted Affordable Production for Freddie Mac. "The Bridge-to-Resyndication product paired with the TEL execution offers an efficient loan with speed – exactly what today's borrower needs in an ultra-competitive market."

JLL Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm's in-depth local market and global investor knowledge delivers the best-in-class solutions for clients — whether a sale, financing, repositioning, advisory or recapitalization execution. In 2015 alone, JLL Capital Markets completed $140 billion in investment sale and debt and equity transactions globally. The firm's Capital Markets team comprises more than 2,000 specialists, operating all over the globe.

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