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Inside look: Freddie Mac’s new affordable rent program and its effect on the multifamily market

Here's how the new program addresses affordable housing and return on investment

Freddie Mac rolled out a new financial product for multifamily properties that is meant to keep rents affordable for 10 years.

In a multifamily market struggling to stem the affordable housing crisis, Amanda Nunnink, senior director of production and sales at Freddie Mac Multifamily, designed the Mezzanine Loan program to make workforce housing pencil again.

Mezzanine financing is a type of financing used to bridge the gap in a capital stack between cash-on-hand and senior loans, hence “mezzanine.”

This type of financing typically breaks down into two categories: preferred equity and true mezzanine lending, both of which come at the price of about 9% to 12% interest depending on the deal and the source.

Freddie Mac’s Mezzanine Loan Program is a true mezzanine financing program that offers a 10-year, fixed rate (7% to 8.5%) loan for the construction or rehabilitation of qualified properties in return for a guarantee that rents will remain affordable on that property for the life of the loan. 

“I don’t see any mez lender out there in the market doing what we’re doing,” Nunnink told HousingWire.

According to Kelli Carhart, vice president of production and sales at Freddie Mac Multifamily, as much as 80% of Freddie Mac’s portfolio is eligible for the Mezzanine Loan Program, and Nunnink told HousingWire that the program has been approved to issue $3 billion of mezzanine financing.

Though there is a lot of product coming to market, there are not enough units coming on line to meet demand and most of what is being delivered is Class-A. The Mezzanine Loan Program is designed to change that by making affordable housing projects financially viable, Freddie Mac said.

Nunnink told HousingWire that the social impact of the program is what draws many operators to it.

But, the real draw is that the program is making what Nunink and Freddie Mac call the “conventional borrowers” – the ones looking to maximize their returns – take notice and seriously consider affordable housing as a viable investment.

Freddie Mac, Nunnink and Carhart have been perfecting the program for over a year, testing in many markets, drumming up interest and talking to potential users of the program.

So far, they say the program has been well received and they have been hosting no less than 20 calls with interested parties per week.

Nunnink said it’s tough to say how much volume the program will generate since it is already August, but she is confident that this product fills a void in the market and will help ease the acuity of the affordable housing crisis.

“I really enjoyed working on this product because I don’t think there is anything else out there like it in terms of trying to have an impact with conventional borrowers, borrowers who don’t necessarily have social impact at the top of their mind, and I think this program, that’s our goal and we’re going to do that,” Nunnink said.

[This article has been updated to clarify data from Freddie Mac]

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