Starwood Lands $564M Affordable Housing Portfolio

Wedgewood Apartments, one of the 31 properties Starwood acquired in the Florida transaction.

Atlanta—Starwood Property Trust, an affiliate of Starwood Capital Group, is expanding its affordable housing portfolio with the $563.5 million purchase of a 31-property Low Income Housing Tax Credit (LIHTC) portfolio totaling 8,498 units in Florida.

HFF closed the sale on behalf of The Wilson Co., a well-known owner and manager of affordable housing in Florida, and arranged $255.9 million in financing for Starwood through Freddie Mac’s CME Program on 19 of the properties. HFF will service the loans through its Freddie Mac Program Plus Seller/Servicer program.

The portfolio consists of properties mainly in Tampa and Orlando that were developed between 1995 and 2004 under Section 42 of the Internal Revenue Code. Under the code, developers receive LIHTC to offset development costs and the LIHTC properties are given long-term rent and income restrictions as a result. According to HFF, the maximum allowable rents for the portfolio are about $350 below rents in nearby market-rate communities. It’s clear that there has been significant demand in the area for affordable housing as the average portfolio occupancy at the time of sale was greater than 97 percent.

HFF’s investment sales team was led by Managing Directors Doug Childers and Matt Mitchel, and Senior Managing Director Jason Nettles. HFF’s debt placement team was led by Managing Director Gregg Shapiro and Executive Managing Director Jody Thornton.

“This transaction represents the beginning of a new era for LIHTC investment sales,” Childers said. “Traditionally, LIHTC transactions have attracted primarily private, regional capital providers. HFF’s affordable housing experts were able to educate institutional investors regarding the portfolio’s relatively low cash-flow volatility and the regulatory and operational nuances associated with LIHTC communities. As a result, we were able to create a competitive bidding process that included large, institutional investors.”

He added that Starwood won out “by proposing an expedited closing process and demonstrating a thorough understanding of the opportunity.”

Shapiro added that the Freddie Mac financing allowed Starwood to “not only achieve their targeted returns on its investment but also to continue to invest in these communities and ensure that they provide high-quality affordable housing long term.”

Image courtesy of HFF