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NewPoint Teams with Morgan Properties on Big Affordable Housing Finance Effort

NewPoint Real Estate Capital has launched a proprietary platform to originate a variety of financing products against affordable-housing properties. It's teamed on the effort with Morgan Properties, among the country's largest owners of apartment properties, which will provide capital and its know-how.

NewPoint, formed only last year through Meridian Capital Group's acquisition of Barings Multifamily Capital, has fast become a major provider of mortgage financing under various Fannie Mae, Freddie Mac and U.S. Department of Housing and Urban Development programs. It also operates a proprietary bridge lending platform, launched late last year. Its venture with Morgan Properties would be complementary, but focused solely on affordable properties.

Given its agency-lending chops, NewPoint already has plenty of touch points with affordable properties. That is, properties that receive some sort of assistance, generally through the issuance of low-income housing tax credits or, perhaps, state-issued bonds. Such properties often are referred to as Affordable, with an upper-case A, as opposed to affordable, with a lower-case A, which typically refer to workforce housing.

The agencies' shortcoming is in funding the construction of affordable properties. While HUD's 221(d)(4) program is designed to provide construction/permanent financing, those can take months to close. And neither Fannie and Freddie provide construction financing. They will, however, fund affordable properties once they've stabilized.

"You need nimble capital," explained David Brickman, NewPoint's chief executive.

Another roadblock to developers hoping to build affordable properties is the time it might take to syndicate tax credits that would serve as the equity for a property.
Banks traditionally serve as construction lenders, but many affordable properties are simply too small for them. They might also face regulatory hurdles given the complexities, which often involve bond financing, and moving parts involved in financing affordable properties.

That's where NewPoint sees an opportunity. "The market's not very well served," Brickman said.

It can provide predevelopment financing, for instance, which would allow a developer to fund work before the actual development of a property takes place. It also will have the ability to provide subordinate financing or preferred equity. Brickman explained that the company's financing could be a "bridge to a syndication" of tax credits. In other words, it could provide either preferred equity, or some other capital that would allow development to get underway until a tax-credit syndication is completed. Its construction loans would be designed to be taken out by some sort of agency financing.

The housing-finance agencies all prefer funding affordable-housing properties, so take-out financing shouldn't be an issue. Indeed, Fannie and Freddie are required to do so by their regulator, the Federal Housing Finance Agency. Each is limited to funding $78 billion of loans this year, but 50 percent of that has to be what the agencies and their regulator call, "mission-driven," meaning against housing that is affordable to tenants earning up to 80 percent of an area's median income; or if in a rural area, up to 100 percent of the area's median income.

NewPoint's goal is to provide $1 billion of funding annually. That ought to be enough to finance 4,000 annually, with perhaps more than half of that involving new construction and the rest tied to renovations or the resyndication of expiring tax credits.

"This is all about the preservation of affordable housing," Brickman said. "That's becoming critical."

He pointed to the finite benefits provided by tax credits, a program put in place by the Tax Reform Act of 1986. Every year, roughly 110,000 affordable-housing units are built or renovated using tax credits. Those tax credits are issued by the federal government to states, which then award them to developers, on a competitive basis, for the development of housing. The tax credits are syndicated, or sold, to institutions, typically banks, that use them to offset their tax liabilities. They get other benefits as well, as passive owners of real estate.

But the benefits tax credits provide – low-cost equity – expire over time. As they expire, the properties they financed can revert to market-rate rents. Properties funded with tax credits typically are subject to rent restrictions of varying degrees, depending on the tax-credit program used.

The National Low-Income Housing Coalition estimates that affordability and income restrictions are set to expire for 312,446 federally assisted rental homes by the end of 2025. That's roughly 6.25 percent of the 5 million units in the country that receive some sort of federal assistance. The Coalition estimates that the 5 million units amount to roughly 10 percent of the country's entire stock of rental housing.

So, the challenge is not only a relative dearth of construction of affordable units, but also a growing volume of units that are coming off their restrictions.

Fannie last year launched its Sponsor-Initiated Affordability program to try to incentivize owners to set aside units at their properties as affordable.

–Originally published in Commercial Real Estate Direct