Financing Affordable Apartments? Explore All Available Incentives.

By Graham Dozier

The homeownership dream continues to be out of reach for many Americans and a large number are renting for longer periods of time. Demand for rentals among households with lower incomes remains especially heightened. Apartment owners serving this demographic are experiencing strong occupancy at their properties, in large part because the delivery of new unit supply has been lackluster for years. Construction costs, elevated interest rates, NIMBYism (i.e., “not in my backyard”), and inconsistency in government incentive programs that encourage new development are all reasons for this.

However, the situation isn’t all bad. Growing awareness of the country’s missing affordable housing supply, and the consequences of it, is positive. It is now a nationwide concern and, in turn, there is growing hope that incentive programs at the local, state and federal levels will emerge, ultimately helping new construction projects get off the ground. Interest in the sector from institutional grade investors, developers and owners is also increasing, which may improve supply ratios over time.

In the interim, it is important that the industry continues to serve owners and operators overseeing the country’s existing affordable apartment units and communities. Finance solutions are essential and, fortunately, available.

Financing properties today

Interest rates today are high, with the intent of taming inflation. Many are hoping the Federal Reserve will kick off a series of rate cuts this summer. However, that will depend on what happens with inflation.

Owners looking to either finance or refinance existing affordable rental communities may look to two primary sources - Fannie Mae and Freddie Mac. These government sponsored enterprises continue to support the sector as their mission is to keep affordable housing available to the Americans with lower incomes in need of homes.

Available borrower incentives

There are some finance incentives offered by Fannie Mae and Freddie Mac that borrowers should be aware of. For example, both offer incentives for sustainable multifamily properties. Borrowers optimizing energy and water efficiency within their properties may qualify and are encouraged to review all benefits and parameters with a trusted agency lender partner that can help them determine if they meet the requirements.

Fannie Mae and Freddie Mac also offer finance incentives to sponsors who agree to self-restrict some of their unit rents to specific income levels. Notably, there is a meaningful amount of traction with these incentive programs among borrowers.

Additional industry incentives worth investigating

Beyond financing, there may be other types of incentives at the local, state and federal levels for those active in affordable housing creation and preservation. Some states offer tax breaks in exchange for restricting a percentage of units to specific rental rates. Additionally, for LIHTC (Low Income Housing Tax Credit) properties, certain development related costs, such as impact and permit fees, may also be waived in some instances.

Thus, whether sourcing financing for existing properties, or looking to develop new product, there are incentives available. These tools are designed to help get deals and projects completed. Over time, the hope is there will be more coming.

Explore a range of multifamily housing loan options with Regions

Regions Real Estate Capital Markets is a trusted lender partner to Fannie Mae and Freddie Mac, providing loan services to borrowers with a range of financing needs for affordable, workforce and market-rate multifamily properties. Backed by a seasoned team of industry leaders and efficient, technology-driven origination and servicing platforms, Regions provides customized financing options. To explore our range of debt services and products, as well as additional financing options, visit Regions Real Estate Capital Markets and connect with us today.

About the author

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

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