Today, there is an absolute shortage of 3.7 million units of housing for extremely low income (ELI) renters.1 According to HUD’s website, approximately 109,000 Low Income Housing Tax Credit units on average were placed in service annually between 1995 to 2016. At this rate, it will take 34 years to build the number of units needed for ELI renters. Clearly it will require capital in significant scale to address this problem with greater urgency. We are excited to announce that IMPACT has partnered with Freddie Mac on a new effort to spur further investment in affordable housing.
Relying on an existing Freddie Mac security structure, the newly created Private Placement PC Swap execution was closed in April with IMPACT—the first investment manager to utilize it. This landmark transaction continues a history of innovation between IMPACT and Freddie Mac that includes partnering on the first two Q-Series transactions in 2014 and 2015 as part of a Commercial Mortgage Backed Securities (CMBS) transaction. IMPACT was an early pioneer of using CMBS to bring institutional capital in scale to affordable housing.
A few details will help to illustrate the transaction potential: IMPACT sold Freddie Mac 77 affordable housing mortgages with a principal balance of $141 million. In return, we received 77 Participation Certificates (PCs) in which 100% of the principal and interest of the PCs is guaranteed by Freddie Mac. These PCs carry lower risk and greater liquidity than the underlying mortgage loans—which are intended to increase our ability to raise capital in support of IMPACT’s mission to make investments which provide positive impact to underserved communities.
This transaction will provide additional flexibility to IMPACT in providing institutional investors access to investments that we believe will represent stable income, long-duration assets with additional liquidity and high credit quality. Additionally, by working with Freddie Mac, IMPACT will be able to expand the universe of potential investors in affordable housing. IMPACT continues to be a market leader in providing innovative investment options that provide portfolio diversification and asset-liability matching characteristics.
Freddie Mac originated the program as a response to the well-documented shortage of affordable housing that is currently impacting nearly every city and state. To gauge just how vital action is at this time, let’s take a closer look at the loans IMPACT sold to Freddie Mac:
-The loans finance rental properties totaling 5,800 units that serve low- to very-low income residents in 29 states.
-Nearly 60% of the rental units are home to the most needy recipients, those making 50% or less of the area median income (AMI).
-These projects are all modern, high quality facilities, financed by 9% Low-Income Tax Credit (LIHTC) loans.
Since 1998, IMPACT has originated over $2 billion in investments for America’s communities by providing investment opportunities for institutional investors. We’re gratified once again to join with Freddie Mac to help address the deepening housing affordable crisis in America. Interested in learning more? Please contact IMPACT by emailing mlohmeier@impactcapital.net.
1 "The Gap - A Shortage of Affordable Homes," National Low Income Housing Coalition March 2018
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