Timothy Leonhard Author Archives

Since the advent of the Low Income Housing Tax Credit (“LIHTC”) via the enactment of the Tax Reform Act in 1986, over 2.6 million affordable rental units have been created by what many feel has been the most important piece of housing legislation ever passed.

It is no secret that there is a shortage of the creation and preservation of affordable housing units throughout the country which is an issue that needs to be addressed in every state. When most people think of states that struggle with very high housing costs and subsequent shortages of affordable housing, Tennessee is not the first state that comes to mind.

Over the better part of the past decade, given the extraordinary demand and competition for multifamily investment, many existing affordable housing properties nearing the end of their initial 15-year compliance period have been sold to “conventional buyers” whose goal is to drive high returns rather than be long term owner/operators of affordable housing.

Debt financing in most cases is the most important component of the capital stack on nearly all affordable housing developments (as is the case in most any type of real estate development.) The average Loan to Value on affordable housing development ranges from 80% to 90%. The housing finance reform debate may continue in Washington with no end in sight. However in the interim, one constant in all discussions on the topic of reform is that any Federal government involvement in housing finance must have as one of its core missions support of multifamily affordable housing.

With the mid-term elections behind us, and with Republicans controlling both the Senate and the House, it is possible that 2015 will see some movement toward change, subject to a potential White House veto. Expect 2015 to be very interesting on this front, with numerous discussions and proposals, and with much back and forth.

In my April column, I discussed the status of proposals to dismantle or significantly restructure Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs)

In my April column, I discussed the status of proposals to dismantle or significantly restructure Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs).

As we near the end of the first quarter of 2014 and await future developments in the debt markets, it is interesting to take a quick glance back at multifamily finance activity in 2013 and some of the challenges we faced in the industry.

Debt financing of many different types for affordable multifamily rental housing properties will continue to be plentiful in 2014, according to industry sources. But keep an eye out on interest rates, developments at the Federal Housing Finance Agency (FHFA), and the progress of the multifamily office realignment efforts at the U.S. Department of Housing and Development (HUD).

Since our last report in August, we have seen the recent federal government shutdown, which stalled operations at the U.S. Department of Housing and Urban Development (HUD), along with a sharp drop in multifamily mortgage interest rates.

Multifamily mortgage interest rates continued rising in the past quarter and are now well above the historical lows we enjoyed for several years. The first quarter saw increases in both investor spreads and all-in borrowing rates. The second quarter was no different, with investor spreads and all-in borrowing rates climbing even further, and rapidly.