DEMAND FOR AFFORDABLE HOUSING GROWING

Demand for affordable housing is stronger than ever. 

Publisher's note: We at Boothe Global Perspectives have noted that the housing market in some areas has shown increased activity, with demand for higher-value homes rising along with tepid demand for middle-level homes, but properties at the lowest end of the spectrum seemed to be attracting good demand. Now we see that affordable housing is booming. This is largely because of special programs provided by HUD and others which reduces the need for some borrowing leverage. Anthony Luzzie, with SIMMS, tells us the details. BBAR Inc. Appraisers confirms that demand for affordable housing is strong and that many investors are moving into this market for low-cost, multi-housing projects, even converting motels and hotels into apartment and condo projects, and doing so profitably. "One thing we notice is that when someone changes houses from low-rent, dumpy motels to owning a similar space but as private property, that the quality and pride in the property goes up. They take better care of something they own. We used to call that capitalism of the people," says appraiser Ben Boothe. "It is a good trend and offers profit potential and good investment opportunity for investors, plus it tends to upgrade blighted neighborhoods and gentrifies areas."

Text of article by By Anthony Luzzi
Published April 3, 2018: SURPRISING GROWTH FOR AFFORDABLE HOUSING

If you ask five mortgage (or investment) bankers to define an affordable housing project, you’ll likely get ten different answers. Every multifamily capital source, from state housing authorities to tax-credit issuers to rating agencies to HUD to Government Sponsored Entities, defines affordable housing with its own twist. Regardless of the definition, almost everyone agrees that the demand for affordable housing is stronger than ever. In some cases older properties are converted from old motels, hotels, or older apartments, into renovated new private housing condo's or privately owned properties. In this case, photoed, sometimes a simple yard area can be upgraded for  "outdoor events".

HUD has been doing great work in affordable housing preservation through the Section 223(f) and Section 223(f)/202 programs. The latter has been used to refinance existing elderly housing projects that were financed with HUD Direct Loans. A typical Section 223 or 223(f)/202 refinance provides enough proceeds to prepay the prior loan, increase capital reserves, fund repair escrows and transaction costs, and provide the non-profit sponsor with a 15% Developer Fee. In some cases, the refinance loan generates “excess” proceeds that can be used for another project related to the non-profit sponsor, or a take-out of equity for a for-profit owner.

One of the most common financing options for the formation – and preservation – of affordable housing is through the Low-Income Housing Tax Credit (“LIHTC”) program. LIHTCs are sold to generate equity in an affordable housing development – the equity drives down the amount of leverage necessary to complete a project, lowering the debt service and keeping the rents down, i.e., affordable. Bond and bank financing are primary debt sources for LIHTC deals, but HUD’s Section 223(f) program for preservation is gaining popularity with LIHTC developers, while the industry awaits the release of the Section 221(d)(4) Pilot program for new construction/substantial rehabilitation. Credit HUD for adjusting the programs over the years – they have significantly increased the amount of allowable renovation work per unit for Section 223(f), and HUD has changed program requirements for the better by lowering mortgage insurance premiums and by accommodating the hard deadline and other “real world” considerations of LIHTC transactions. Through almost three quarters of Fiscal Year 2018, which ends on September 30, HUD has issued 147 Firm Commitments for LIHTC transactions totaling $1.813 billion. While the number of Commitments is running about 9% behind the same period for FY 2017, the volume of insurance is up 22%.

(Publisher note:  We have known Sims Mortgage for decades, in their financing of prisons, detention centers, rehabilitation facilities and other projects. .  They are a reputable company, that has broadened the market into financing projects such as student housing, retirement centers and other projects with some success.  We see an expansion of affordable housing as good. We are also seeing creative designs for new projects that stimulate the imagination) 

Although Sims Mortgage Funding’s humble origins were as a Section 232 healthcare lender, Simms has increased presence in the multifamily housing space, including affordable housing preservation. Sims tells us that they have closed close to 40 HUD-insured loans for elderly and multifamily affordable housing projects using Section 223(f), 221(d)(4) and Section 223(f)/202. As the demand for affordable housing increases over the coming years, we expect HUD to continue to make its mortgage insurance programs more responsive in providing debt solutions. For additional information and more about the opinions presented in this article, please contact Andrew Patykula at apatykula@simsmortgage.com.