Kairos lines up $175m Fannie Mae credit facility

Berkadia on tap as originator as California manager targets mixed income and other affordable housing asset types.

Kairos Investment Management has secured a $175 million credit facility from Fannie Mae to fuel the value-based real estate investment manager’s affordable housing expansion.

The Orange County, California-based firm secured the facility at the end of 2022 before the financing markets became more difficult to navigate and outlined its full scope on April 24, Real Estate Capital USA can first confirm. Berkadia, the New York-based joint venture between Berkshire Hathaway and Jefferies Financial Group, originated the facility and will service it for each subsequent transaction.

Jonathan Needell, chief investment officer at Kairos, told REC USA the firm will be prioritizing the preservation of affordable housing assets and completing environmental improvements on such assets with the credit facility. Target assets also include market rate, senior housing and manufactured housing properties. Mixed-use income assets cleared by the updated Federal Housing Finance Agency terms are also key to Kairos’ strategy.

The 20-year facility offers fixed- and floating-rate tranches and different maturity horizons, which will allow for better interest rate management. Additionally, the facility will allow the firm to add or subtract assets to the collateral pool without running into prepayment penalties.

Geographically, Kairos is targeting assets in growth markets anywhere between the states of Washington and North Carolina, resulting in a varied shape of the ‘SMILE’ markets. Needell said Kairos is not aiming for the Northeast US because some of the bigger cities across the region are not growing as much compared to others in the firm’s target range.

Addressing the well-documented affordable housing shortage has been a priority for Fannie Mae, Freddie Mac and select lenders using agencies and internal lines of credit to get deals done. Data from the Harvard Joint Center for Housing Studies shows the US is facing an estimated 4 million housing unit shortage.

“Our goal in supporting affordable housing and investing in it is also partially to prove that you can do it as a proper investment and therefore, more people should put more money into it, which helps the shortage or preserves more units, but also shows that mixed income properties are very helpful in this regard,” Needell said.

By investing in mixed income housing opportunities in particular, Needell noted Kairos can avoid exacerbating economic segregation issues in US neighborhoods around education and municipality services like firefighters.

“One of the benefits you get from mixed income properties is more societal resources are distributed properly,” he added.