Commercial Investment Real Estate March/April 2018 | Page 41

3. Identify a lender with affordable housing experience. Find a lender that is familiar with the affordable housing finance process and the options available for debt structuring, ensuring the maximum financial wherewithal and generating the greatest return. To advance quickly, an expert lender also will advise on tax preservation programs, recapitalizing options, flexible prepayment, and bridge to re-syndication options. low-income housing tax credit is structured in one of three ways: • HUD 221(d)(4) new construction or sub-rehab programs; • Freddie Mac’s tax-exempt loan program; and/or • Fannie Mae’s MBS as tax-exempt bond collateral — fixed rate (M.TEB) program. Typically, HUD offers the most competitive interest rates and loan proceeds along with fully amortizing, nonrecourse loans of 40 years, plus a two-year, interest-only construction period. However, HUD programs often take more than six months to close a deal. On the other hand, Fannie Mae and Freddie Mac programs typically can be closed within 90 days. The choice of agency should be based on the elements of the loan terms most favorable to the developer or investor, such as lower interest rates, net proceeds, length of term, and timing. 6. Stay abreast of Tax Credit Equity program basics and details. 4. Conduct a market analysis. This will determine the demand and the depth of income- qualified residents and help commercial real estate profes- sionals locate the most advantageous place to develop afford- able property. The key to feasibility is the gap between market and affordable rents — ideally at least a 10-percent gap. However, the higher the gap percentage, the higher the market absorption rate. Increased absorption rates signal faster and more complete lease-up potential for a given property. Also, stay aware of other developments under proposal or construction in order to avoid oversaturated areas, which can reduce the gap between market and afford- able properties. Keep current with revisions, because the developer or investor may extract savings or other financial benefits for the affordable housing project. Dynamic Potential The affordable housing sector brings tremendous opportunity for growth, along with its own distinct set of challenges and considerations. The capitalization of affordable housing involves a com- plex layering of debt and equity. As a result, the most direct path to success resides in assembling an expert team to help navigate the process and quickly turn the efforts into ROI. 5. Set the project timeframe. Timing and considerations concerning the project timeframe are key indicators of the type of financing or debt option the project will require. Typically, much of the debt for new construction and/or sub-rehab affordable housing using bonds and 4 percent CCIM.COM Heather Olson, CCIM, is assistant vice president at Walker & Dunlop in Atlanta. Contact her at [email protected]. Frank Baldasare is managing director at Walker & Dunlop in Atlanta. Contact him at [email protected]. March | April 2018 39