PGIM Real Estate has structured a novel $106.8 million credit line for a portfolio of 1,200 affordable housing properties in the Southwest on behalf of an undisclosed owner and operator that wants to maintain the properties as affordable for the long term.
The credit line, which can be expanded by another $100 million as the owner bulks up the portfolio, is unusual in that it has a 30-year term and allows the borrower to swap collateral in and out of the pool, Kenji Tamaoki, executive director of agency originations at PGIM Real Estate, told Real Estate Capital USA. The nine-property portfolio is comprised of assets in Texas, New Mexico and Colorado and the sponsor hopes to expand the portfolio over the next three to five years.
“We’ve closed many facilities for market-rate owners but it’s not as common on the affordable housing side,” Tamaoki said. The loan’s 30-year term reflects the borrower’s desire to hold the properties for a longer-than-usual period. “It’s cool to have borrowers who have that long-term of a perspective. Part of the money is to address the property needs [and] the long-term stewardship.”
The borrower will use the loan to refinance existing debt and provide a cash out that will be used to fund additional acquisitions. Tamaoki said that given the facility’s unusual features, the lender required special permits and waivers to see the transaction through; and that despite his 20 years originating agency loans, the transaction was only the second credit line for an affordable housing portfolio of this size he has ever seen.
“With the credit facility, we can make a single loan of $106 million secured by this basket of properties,” Tamaoki said. Although he declined to disclose pricing or the borrower, he noted, “The credit facility gave them great pricing – pricing they would not have gotten on an individual basis.”
The big picture
The financing comes as Fannie Mae and Freddie Mac are each increasing their lending platforms, which sit alongside other federal programs like Low Income Housing Tax Credits. The Federal Housing Finance Agency’s recently announced plans to increase Fannie Mae and Freddie Mac’s Low Income Housing Tax Credit cap from $500 million to $850 million has been good news for owners of affordable housing rentals, Tamaoki added.
The agency also said in October that the multifamily loan purchases by Fannie Mae and Freddie Mac will be $78 billion each in 2022 for a total of $156 billion next year. FHFA set a $70 billion volume cap for each enterprise in 2020.
At least 50 percent of the government-sponsored entities’ business in multifamily must be mission-driven affordable housing, and at least 25 percent of the GSE’s businesses in multifamily must be affordable to residents at 60 percent of the area median income or below.