McLEAN, VA–Freddie Mac has developed a new execution for affordable housing — namely unsubsidized affordable housing, also known as naturally occurring affordable housing or NOAH. This type of product is seen as being at risk of being acquired by a developer and turned into market-rate housing.
Specifically, what the GSE has done is create a legal and financial infrastructure to enable better efficiency for subordinate financing for NOAH housing. It provides a set of parameters for a gap loan that would go between the senior debt that Freddie Mac routinely provides and what the sponsor is able to provide in equity.
Called an impact gap execution, it is a way for investors to direct their funds to NOAH properties and to borrowers that will preserve the property over the long term, Corey Aber, manager, Community Mission & Impact Finance at Freddie Mac Multifamily, tells GlobeSt.com
Freddie Mac has also tailored its senior debt so it can better work with the impact gap execution, Aber adds.
“We have made it possible for a seller/ service to make two loans: the impact gap loan — which the impact investor will buy — and the senior loan that we will buy. By creating this infrastructure we are making it easier to complete that transaction.” There still needs to be an investor, Aber noted, as Freddie Mac is not providing the gap funds.
This execution came about through the GSE's work with Mercy Housing and CommonBond Communities, which were seeking to finance a property outside of the Twin Cities, Aber said. It was having the typical problem that most nonprofits do with housing finance — especially now that Low Income Housing Tax Credit pricing has become less stable — which is bridging the gap between the senior debt and equity. And because NOAHs are unsubsidized the traditional methods of LIHTCs or Section 8 financing do not work anyway. “By creating this infrastructure we have made it easier to complete the transaction,” Aber said.
For that first execution, the impact gap financing was approximately $2 million and the NOAH preservation loan was approximately $5.9 million. The NOAH loan has already been securitized.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
