Affordable Housing Crisis Has Spread Beyond Just Gateway Markets, Says Financing Expert

Gensler, Forge Development Partners, San Francisco

By Meghan Hall

Keith Kiecker Production Manager, Affordable Housing Finance, at Sabal Capital Partners, LLC. Image Credit: Sabal Capital Partners

In major gateway markets such as the San Francisco Bay Area and Seattle, the conversation around affordable housing is always pivotal. However, the topic of affordable housing is now becoming necessary in secondary markets who are now experiencing rapid growth  and development. The Registry spoke with Keith Kiecker Production Manager, Affordable Housing Finance, at Sabal Capital Partners, LLC to better understand how the conversation around affordable housing has evolved throughout the country.

Keith, tell me a little bit about your role as Production Manager at Sabal. Over the course of your career, how have you seen the life-cycle of affordable, senior and workforce housing evolve?

The production manager role is rather expansive. My focus is not focused only on originating loans but on creating trusted relationships with my clients through a solution-oriented approach. I see myself as an advisor or consultant, putting my 18 years in the affordable housing industry in development, investment and lending to use for the good of my client. Over the course of my career, affordable housing has certainly been pushed to the forefront of national dialogue. It’s a mainstream issue, and you can no longer pick up a newspaper or magazine without finding prominent stories about it.

Have you found this evolution as primarily positive or negative?

This evolution has been mostly positive. The affordable housing industry traditionally was rather inflexible in its use of capital, but this evolution has brought in several new sources of capital and expanded the definition of affordable housing to include workforce housing.  

On the negative side, it has been challenging to increase housing supply for the lower income segment in this higher cost environment. It costs a lot to build apartments right now, and with rents at lower rates, it’s even more difficult. As a result, there’s a huge gap between supply and demand, leading to a more acute housing crisis.

What regions of the United States are particularly ripe for affordable housing development? How do those markets lend themselves to the creation of affordable housing?

All regions of the U.S. are affected by this issue and need more affordable supply. If identifying the regions most grossly underserved relative to income levels, the two coasts stand out. However, the issue should never be characterized as purely coastal because all major MSAs are seriously affected. This is truly a national crisis. If you look at cities like Detroit, Austin, Cleveland, Charlotte and so many others, all are grappling with how to house the considerable influx of workers following expanding industries and employment opportunities in their cities.

Are these regions where affordable housing is in high demand? Why or why not?

Yes, for example if you look at the western U.S., you notice it has extremely high demand, as evidenced by slowing new construction, the 7.4 million unit shortage in affordable housing nationwide and the out migration of people from California, due to extremely high rents and for-sale home prices.

Conversely, what regions are facing the sharpest shortages of affordable, workplace and senior housing? What variables are contributing to the lack of supply?

I want to stress this is a national, macro-level issue plaguing all markets. However, if looking at some specific markets, regional trends surface. Based on statistics alone, the western region has the largest shortage of affordable, workforce and senior housing due to the cost of land, cost of construction and zoning requirements that limit development in the most affluent areas. In the northeast, the sharp increase in the cost of living is the biggest driver for affordable housing demand in that region. The outmigration from New York City and California, due to high cost of living and taxes, drives demand in the regions these where people are moving. These regions include Arizona, Nevada and New Mexico in the west, and Pennsylvania and New Jersey in the east. These states are currently struggling to put the resources and infrastructure in place and playing catch up.  

Do you see these market conditions changing anytime in the future? Why or why not?

Unfortunately, no. We believe all indications point to this being a decade, or more, long issue, and that we will see supply and demand mismatched during that timeframe. The issue is simply too large for a quick fix. However, incremental improvements can be made, such as with debt programs designed specifically to finance existing affordable and workforce apartments. Programs like these have the power to both maintain and increase supply in numerous markets affected.

Why is it so important that smaller, affordable rental properties are preserved across the United States? What challenges do these property owners face in maintaining affordable housing opportunities that larger developments/land owners do not?

Smaller apartment properties actually comprise almost half of the country’s supply. These smaller assets play an important role as they serve communities and specific income levels. These smaller properties do face particular challenges, however. Building them from the ground up isn’t always feasible on a per unit cost basis in today’s climate. However, where challenges exist on the development side, there is opportunity in the rehabilitation and refinance of existing smaller multifamily communities. These assets usually require small balance debt solutions, and better options are becoming available, both on the agency and non-agency side.

What financing structures and debt solutions can make it easier for property owners to make affordable housing accessible?

I think several of the agencies and banks have done a great job of addressing the needs of owners and their properties with effective debt solutions geared toward the challenges that come with affordable housing. Freddie Mac’s Targeted Affordable Housing Express program is a great example, as the fees are around $20,000 to $25,000 with streamlined loan documents and an abbreviated list of required project documents. Fannie Mae also offers effective debt solutions nationwide in this sector. Of course, there are also non-agency finance vehicles for borrowers helping to fill the need. Lenders serving this space tend to be specialized in smaller loans and must be able to operate very efficiently to succeed. At Sabal, we have engineered our processes and our business model to provide numerous debt solutions to borrowers in this space, with a heightened level of service and ease.

Over the next several years, where do you think the multifamily and affordable housing industry is headed? Should we keep an eye one any emerging legislation or financing mechanisms that could improve the viability of affordable housing in the United States?

Interestingly, the conversation surrounding the shortfall of affordable housing units for extremely low income and workforce has spawned several increases in budget allocations for housing, a change in zoning regulations nationwide and the development of new forms of capital to renovate and reposition existing multifamily projects as workforce housing. Expect to see finance solutions expand further. The dialogue at the municipal level is also important and starting to happen. We should keep an eye on all developments as the problem is expected to persist for quite some time.

How do you believe opportunity zones will benefit affordable housing initiatives? How long do you think it will take for the impact of opportunity zones to become clear?

Opportunity zones are a hot topic and present an opportunity to revitalize existing projects and the communities they fall in. In our role as a lender for affordable and workforce properties, we aren’t as focused on opportunity zones as an equity player might be. As a lender, we instead hone in on good real estate and affordable properties. If an opportunity happens to fall within an opportunity zone and it is feasible, we are ok with that, but our primary goal is to provide valuable debt solutions to our borrowers.

We will however be watching to see what happens with opportunity zones from an investment perspective.

Is there anything else you would like to ask that The Registry did not mention?

We think that solving the affordable housing crisis is a long-term issue that needs to be addressed with both public and private solutions. We have a supply and demand issue; it’s as simple as that. Given wage growth, we don’t see this being resolved fully anytime soon. To the degree we need to affect new product, while cost and rent levels remain disparate, it will require governmental involvement. There are a lot of long-term dynamics at play, and public and private capital will have to come together to resolve this crisis.

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