MHN interviewed Bryan Dickson of NewPoint to discuss the challenges and opportunities facing affordable housing borrowers.
The lack of affordable housing remains a daunting reality for the entire U.S. Meanwhile, rising construction costs, supply chain issues, labor shortages and the prospect of higher interest rates will make it increasingly difficult to secure capital and build new affordable housing.
Multi-Housing News reached out to Bryan Dickson, managing director of affordable originations at NewPoint Real Estate Capital, to learn about some of the challenges of assembling a capital stack for financing affordable housing. Dickson, who joined the firm about a month ago, was previously a director at Citi Community Capital. Prior to Citi, he was Affordable Housing Policy and Products Director at Freddie Mac.
What are your goals in your new role?
Dickson: I joined NewPoint to leverage the NewPoint platform to help create a leading provider of debt and equity capital to the affordable housing development community in the U.S. We are creating a complete suite of products and solutions to serve our clients. We will leverage new processes, structures and technology to accomplish our goals and to serve the needs of the market.
Our expertise in agency lending, in addition to propriety lending solutions, such as bridge lending, taxable and tax-exempt private placements, permanent lending, and preferred equity financing will enable us to provide new opportunities and alternatives for affordable housing developers and investors.
The creation and preservation of affordable housing nationwide is core to our mission, and we have set our sights extremely high and have assembled a talented team from across the industry to make a lasting impact in the affordable housing finance sector.
How do you view the current state of the affordable housing crisis across the country?
Dickson: The pandemic continues to present uncertainty and significant challenges to our country, and specifically with low-income renters as real estate prices and apartment rents have increased around the country. This has placed more pressure on an already acute need for affordable housing.
Low-income wage earners are struggling as households have lost income, rents are increasing, and inflation has taken hold on the economy. With low-income renters in distress, there has been concern about families not paying rent and being displaced. Federal and state governments have intervened, implementing stimulus payments, expanded unemployment benefits, and eviction moratoriums that helped prevent large-scale tenant displacement.
In addition, the Build Back Better legislation, should it pass in some form, will represent the most significant expansion of spending for affordable housing ever to be contained in a single piece of legislation. The expansion of affordable housing programs will come when our nation critically needs additional tools to help those suffering the most.
The Build Back Better agenda includes several financing solutions to encourage affordable housing development. In your opinion, how effective are these incentives?
Dickson: We won’t know how effective these incentives will be until they are applied, and we look back after some period.
Provisions in the Build Back Better legislation—such as increased LIHTC allocations, reducing the 50 percent test threshold to 30 percent and providing a permanent 50 percent basis boost—may help to inject more dollars into affordable housing transactions. Still, the bill has not been enacted, and the ultimate impacts are expected to be positive but are still unknown.
There is a need for more resources to create and preserve middle-income housing. The Agencies have been major debt capital providers for middle-income multifamily housing for a long time. However, there is a further need for construction and moderate rehabilitation lending programs, subordinated debt and equity programs designed to create and preserve middle-middle-income housing.
NewPoint is committed to developing innovative debt and equity products and creative approaches to financing geared toward the middle-income segment of affordable housing.
What are some of the main challenges in the affordable housing financing landscape?
Dickson: Rising construction costs have been an issue in 2021 due to higher materials costs, supply chain issues, and labor shortages. Rising commercial insurance costs have also been a major concern. Given the continuation of COVID-19 resulting in inflationary pressures, construction cost increases appear to be here to stay for the foreseeable future. In addition, commercial insurance rates are being impacted by increased awards by juries, rising catastrophic storm losses and historically low-interest rates.
While interest rates have declined towards the end of 2021, the Federal Reserve has announced three possible interest rate hikes in 2022, pointing to a higher interest rate environment. These conditions will persist into next year, making it more difficult for developers to assemble the complete capital stack for financing affordable housing transactions.
What are your predictions for the affordable housing sector in 2022?
Dickson: The pandemic will continue to present uncertainty and significant challenges to our country, and specifically to low-income renters in 2022. Real estate prices and apartment rents are likely to continue increasing around the country placing more pressure on the need for affordable housing.
The pandemic’s effect on the economy and job market will evolve. Still, low-income wage earners will continue to struggle as rents increase and inflation continues to take hold in the economy. The Federal Reserve has announced it intends to raise interest rates three times next year and reduce its bond-buying program meaning overall interest rates will rise, making it more challenging to finance affordable housing transactions.
If enacted by congress, Build Back Better legislation will provide an important stimulus to facilitate more preservation and production of affordable housing. Still, the overall question is whether the legislative stimulus will offset adverse impacts from the health crisis in the near term and create increased affordable housing production in the longer term. One thing is certain, the need for affordable housing production and preservation will continue to be acute.
– December 22, 2021