Affordable Housing Investors Find Challenges Securing Capital

Affordable housing has quickly become a top investment asset class, and for good reason. The multifamily niche has attractive supply-demand dynamics, long-term profitability and proven resilience during market dislocations—even the current one. However, affordable deals can be challenging from a capital markets perspective, and in the current environment, they are not any easier.

“Affordable deals are not easier in this market. It is harder to get credit than it used to be or you require more equity, so your overall return is going to be muted somewhat versus pre-pandemic when you could get more leverage based on cash flow,” Pat Jackson, founder and CEO of Sabal Capital Partners, tells GlobeSt.com. “A lot of the affordable housing deals are often small balance with smaller investors that are often not as liquid, that has also been muted somewhat. When you have uncertainty of any kind in the market, it is going to mute investments.”

Jackson says that all forms of capital are taking a conservative approach, even Fannie Mae and Freddie Mac. “Everyone is taking a very cautious look at everything right now. That starts with the agencies,” he says. “This is their sweet spot; this is their mission. They are taking a very conservative, defensive stance on the performance of the asset.”

The challenging market dynamics, however, don’t reflect the quality of the asset class or the potential opportunities. Jackson is bullish on affordable housing. “It doesn’t take away from supply-demand dynamics or the long-term outlook on affordable housing in terms of being a good return. It does speak to how difficult it is to get a deal done right now, whether you are the equity or whether you are the lender,” he says.

Although there have been new entrants into the space, experienced affordable housing inventors are best able to navigate these challenges. “There are deals for those that have the appetite for it, who have the liquidity to meet the capital requirements to get a loan and frankly, to weather it out a little bit,” says Jackson.

Despite the challenges securing capital, there are still a lot of investors chasing deals. “There is a lot of money looking for deals, so that helps. People are looking to put money to work and this is a highly viable asset class that has proven to be durable during this cycle,” says Jackson. “Prices are off a little bit, and that would suggest that it is not as robust of a buyer pool as it has been. That is driven as much by the financing that you can get than anything.”