Affordable Housing’s Edge in a Difficult Financing Arena

These communities are not immune to interest-rate hikes, but they are less affected, notes Graham Dozier of Regions Capital Markets.

Graham Dozier

Heightened interest rates continue to drive uncertainty in the commercial real estate finance arena. Like the other real estate asset classes, multifamily is impacted. Buyers, sellers, borrowers and lenders are all facing a different economic landscape than just one year ago. Both 2022 fourth quarter numbers and 2023 annual activity projections indicate a decline in finance availability for apartments. One area impacted to a lesser degree, however, is finance for the affordable and workforce properties serving Americans with lower incomes.

A recent report by the Mortgage Bankers Association evaluated commercial and multifamily lending in 2022’s fourth quarter and found financing for the sector at-large declined 52 percent from 2021 fourth quarter activity. However, the GSEs Fannie Mae and Freddie Mac 2022 fourth quarter activity only declined 13 percent from 2021 fourth quarter numbers. Likewise, 2022 annual lending for multifamily at-large was down 11 percent compared to 2021’s total annual activity, yet GSE lending was only down 4 percent.[i]

These MBA findings appear to indicate one thing: Finance for affordable and workforce properties has been more readily available than for market-rate communities, even as interest rates have continued to rise. For a logical explanation, one need look no further than the missions of Fannie Mae and Freddie Mac. Both are driven by a mandate to provide liquidity in the market, even amid challenges.

While a review of recent activity tells us what has already occurred over the past year, many are wondering what will happen in 2023. MBA asserts total commercial and multifamily lending will decline another 15 percent this year to $684 billion. The group projects a 16 percent decline in 2023 finance activity specifically for multifamily, including affordable, workforce and market-rate product combined.[ii]

While it’s impossible to know what the decline percentages will be at the end of the year, MBA’s assertion reflects a highly likely scenario for the overall apartments sector. Firstly, borrowers operating in a higher, or more volatile, rate environment are likely to hold onto current debt rather than refinance, if there is more time available on their term. The discretionary type of finance activity typically witnessed when interest rates are lower slows down when interest rates rise and debt becomes more expensive. On the other hand, many borrowers whose loan terms are ending will seek shorter-term fixed-rate loan options for the time being, until interest rates stabilize.

Fannie and Freddie Pricing

Thankfully for them, owners of affordable and workforce rental communities are better positioned to access financing today than their market-rate counterparts. That is in large part because Fannie Mae and Freddie Mac still stand firm in their support of the sector. In fact, with the agencies, the deeper the rental affordability, the deeper the pricing discount on the loan.

Even when dealing with a conventional property, the agencies always want to know if any units are affordable. Additionally, deals that preserve existing affordable units, as well as those that convert market-rate apartments to affordable units, will benefit via the way Fannie Mae and Freddie Mac price the spread.

For borrowers looking to finance lower-income apartments today, here’s some simple advice. Talk to a trusted agency lender and explore all options available. Be willing to learn about all finance incentives available for the property. If an option for you, find out how your deal might change and price differently if you add, increase, or extend affordable restrictions. For example, look into the benefit of bumping the percentage of units with affordable restrictions up from 10 percent to 20 percent. You may find a scenario like this will tighten the spread on a permanent loan, or layer in additional finance incentives, benefitting you in the long run.

Unfortunately, there are some aspects of the marketplace today that will require time to work out. Interest rate volatility is one. The existing logjam in deal flow is another. Deals and loans are sizing differently than in recent years, and there’s a notable discrepancy between the price sellers expect and what buyers are able to pay. Until inflation is brought under control and there is more stability with interest rates, the sales market likely won’t correct itself, and financing challenges will persist.

Graham Dozier is managing director of Regions Real Estate Capital Markets, a leader in affordable and workforce rental housing finance. 

This information is general education or marketing in nature and is not intended to be accounting, legal, tax, investment or financial advice. Although Regions believes this information to be accurate as of the date written, it cannot ensure that it will remain up to date. Statements of individuals are their own—not Regions’.

[i] Mortgage Bankers Association, Commercial/Multifamily Borrowing Down 54% in the Fourth Quarter of 2022, February 13, 2023, research/newsroom/news/2023/02/13/commercial-multifamily-borrowing-down-54-in-the-fourth-quarter-of-2022

[ii] Mortgage Bankers Association, Total Commercial and Multifamily Borrowing and Lending Expected to Fall to $684 Billion in 2023, February 13, 2023,

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