GlobeSt.com: What is Dallas doing to produce more affordable housing?

Melton: Dallas has continued to see an affordable housing need and while the city is in need of new stock, the outlying suburbs have been more receptive to new developments as opposed to the city of Dallas itself. We have seen some acquisition/rehab deals being done in the city, but most activity is in the outlying suburbs.

GlobeSt.com: What is the current affordable lending environment and where it is headed?

Melton: The lending market is very robust for affordable housing, especially with Fannie Mae, Freddie Mac, FHA and USDA. All the entities are highly focused on providing responsive and competitive products for affordable housing developers. A lot of the new innovations in the lending space have been for affordable as the FHFA mandate for Fannie Mae and Freddie Mac focuses on green initiatives and affordable housing endeavors. It is a good time to be a developer seeking debt for affordable housing/workforce housing transactions. A key element to this is the fact that the FHFA has excluded these types of transactions from the cap requirements for Fannie Mae and Freddie Mac.

GlobeSt.com: What obstacles do developers, investors and communities face related to affordable housing?

Melton: The most prevalent issues remain neighborhood opposition unfortunately. Developers have done a great job in reaching out to communities to show the neighborhoods what new affordable housing can look like; however, the first inclination still remains opposition and fear. Another major issue is the lack of sufficient soft funds to fill the gaps often seen in affordable housing developments. This makes it much more difficult to create a sources and uses scenario that makes economic sense for a number of deals. Another issue is the lack of buildable land near employment centers for developers. The high cost of land often makes it less feasible to develop affordable housing compared to developing higher-end multifamily communities, thereby pushing affordable populace further from their workplaces and making them further disadvantaged relative to economic opportunities.

GlobeSt.com: Why is preserving properties growing in response to long-term low-income housing tax credit project completion?

Melton: We are seeing the wave of year 15 deals (deals that were originally financed with low-income housing tax credits) continue on an annual basis with the number of units hitting this milestone continuing to increase. As such, there is often a need for new financing which may or may not include low-income housing tax credits right away. Often, transactions built 15 years ago don't need a substantial amount of renovation yet so we are seeing interim financing of five to seven years with the intent of resyndicating those deals after year 20 to incorporate a substantial rehabilitation. Most of these assets are under extended-use agreements: thus are required to remain affordable for 30- to 50-plus years, thereby maintaining affordable rents while having physical needs that will have to be addressed. As such, we are seeing high levels of demand for qualifying assets in the acquisition space with new buyers entering the affordable housing market. This provides significant new liquidity and demand for these assets, most with an eye towards recapitalizing down the road.

GlobeSt.com: Are affordable projects including sustainable elements or is that too cost prohibitive?

Melton: Yes, we have seen sustainable attributes incorporated into new developments and in acquisition/rehab deals. The level of inclusion varies greatly geographically as well as due to economic impact. Many state agencies are seeking and requiring certain energy-efficient building materials and components (appliances, HVAC, watering systems, etc.) so we are seeing developers including those items in development budgets.

DALLAS—Nationwide, 11.4 million families spend more than 50% of incomes on rent. Affordable housing and development is a critical issue in the US—but one with an uncertain future due to the new presidential administration.

Dallas-based Phil Melton, executive vice president and national director of affordable lending and FHA lending at Bellwether Enterprise, recently discussed some of those affordability issues, housing uncertainty, the lending environment and other topics in this exclusive.

GlobeSt.com: In what ways is the current administration causing affordable housing's future to be uncertain?

Melton: There are a couple of major areas that are being impacted. First is the corporate tax rate and at what level that ends up being in the proposed tax reform. This will have a direct impact on the value of low-income housing tax credit as an investment for corporations. The second area is with regard to expansion of these tax credit programs under certain proposed bipartisan bills. These would potentially create more low-income housing tax credit availability and hopefully provide for a more robust 4% tax credit via setting of the rate to a flat 4% rather than the current floating rate model.

GlobeSt.com: What is Dallas doing to produce more affordable housing?

Melton: Dallas has continued to see an affordable housing need and while the city is in need of new stock, the outlying suburbs have been more receptive to new developments as opposed to the city of Dallas itself. We have seen some acquisition/rehab deals being done in the city, but most activity is in the outlying suburbs.

GlobeSt.com: What is the current affordable lending environment and where it is headed?

Melton: The lending market is very robust for affordable housing, especially with Fannie Mae, Freddie Mac, FHA and USDA. All the entities are highly focused on providing responsive and competitive products for affordable housing developers. A lot of the new innovations in the lending space have been for affordable as the FHFA mandate for Fannie Mae and Freddie Mac focuses on green initiatives and affordable housing endeavors. It is a good time to be a developer seeking debt for affordable housing/workforce housing transactions. A key element to this is the fact that the FHFA has excluded these types of transactions from the cap requirements for Fannie Mae and Freddie Mac.

GlobeSt.com: What obstacles do developers, investors and communities face related to affordable housing?

Melton: The most prevalent issues remain neighborhood opposition unfortunately. Developers have done a great job in reaching out to communities to show the neighborhoods what new affordable housing can look like; however, the first inclination still remains opposition and fear. Another major issue is the lack of sufficient soft funds to fill the gaps often seen in affordable housing developments. This makes it much more difficult to create a sources and uses scenario that makes economic sense for a number of deals. Another issue is the lack of buildable land near employment centers for developers. The high cost of land often makes it less feasible to develop affordable housing compared to developing higher-end multifamily communities, thereby pushing affordable populace further from their workplaces and making them further disadvantaged relative to economic opportunities.

GlobeSt.com: Why is preserving properties growing in response to long-term low-income housing tax credit project completion?

Melton: We are seeing the wave of year 15 deals (deals that were originally financed with low-income housing tax credits) continue on an annual basis with the number of units hitting this milestone continuing to increase. As such, there is often a need for new financing which may or may not include low-income housing tax credits right away. Often, transactions built 15 years ago don't need a substantial amount of renovation yet so we are seeing interim financing of five to seven years with the intent of resyndicating those deals after year 20 to incorporate a substantial rehabilitation. Most of these assets are under extended-use agreements: thus are required to remain affordable for 30- to 50-plus years, thereby maintaining affordable rents while having physical needs that will have to be addressed. As such, we are seeing high levels of demand for qualifying assets in the acquisition space with new buyers entering the affordable housing market. This provides significant new liquidity and demand for these assets, most with an eye towards recapitalizing down the road.

GlobeSt.com: Are affordable projects including sustainable elements or is that too cost prohibitive?

Melton: Yes, we have seen sustainable attributes incorporated into new developments and in acquisition/rehab deals. The level of inclusion varies greatly geographically as well as due to economic impact. Many state agencies are seeking and requiring certain energy-efficient building materials and components (appliances, HVAC, watering systems, etc.) so we are seeing developers including those items in development budgets.