Commentary

Stephanie Wiggins

Financing Multifamily Housing in a Changing Economic Environment
Stephanie H. Wiggins
Executive Vice President and Chief Investment Officer
8/1/13

How does the AFL-CIO Housing Investment Trust (HIT) continue to originate multifamily investments for its portfolio at a time when interest rates are rising and many projects can’t overcome the hurdles they face on the way to the closing table?

Put simply, challenging economic times are when the HIT shines the brightest. When the market is volatile, the HIT’s expertise and relationships set us apart from many investors in the multifamily sector.

Developers and mortgage banking clients are calling frequently because of our track record for structuring complex financial transactions and identifying sources to fill gaps to make their projects viable in an increasingly difficult environment. The HIT continues to work proactively with our investment networks to identify multifamily investments for our portfolio – investments that will produce competitive returns over the long term while generating union construction jobs and affordable housing.

An important part of our strategy goes beyond the “buying off the screen” mentality of most investors. We employ a highly skilled staff of real estate professionals who have worked through decades of market cycles and know how to get deals closed and how to adapt to the ever-changing marketplace. The HIT has a long and successful history working with financing programs at the U.S. Department of Housing and Urban Development (HUD) and the Government-Sponsored Enterprises (GSEs).

Currently, both HUD and the GSEs are experiencing a reduction in market share due to increased competition from other financing sources. In response, the HIT has expanded its work with state and city housing finance agencies (HFAs) that have multifamily projects in need of financing. The HIT recently completed two multifamily transactions with MassHousing for $116 million, bringing our total investments with that state HFA to $390 million for 12 projects since 2010. We are currently in discussions with the HFAs of several other states including California, Illinois, New Jersey, Missouri, Minnesota, and Wisconsin on housing projects in their pipelines.

Helping to finance HFA projects in these states will add valuable assets to our portfolio, create more union construction jobs and provide much-needed, affordable housing for communities. Moreover, we continue to work with the GSEs and Federal Housing Administration (FHA) programs whenever possible to help preserve housing affordability for low-income residents and working families in strong union markets. As the shortage of affordable housing continues to grow, the rehabilitation and preservation of existing affordable housing stock will become a critical resource for low-income families and seniors.

All of these agencies have programs to insure or guarantee investments or whose issuance is rated highly, which helps the HIT to maintain the high credit quality of its investment portfolio.

We expect HUD financing to continue to make up the bulk of the HIT’s business. With our long-time FHA experience and our ability to offer attractive loan terms – such as split rates for construction and permanent loans, and rate buy-downs – we expect to take part in financing larger, higher profile deals in very strong markets where HUD’s offices are focused.

This HIT investing is a win-win scenario. Union construction jobs will be created and the supply of affordable housing will grow in locations where it is needed, all while adding value to the HIT portfolio.