In December of last year, Fannie Mae announced it was helping to finance a $289 million rental assistance demonstration (RAD) transaction with the New York City Housing Development Corporation (NYCHDC). The deal is set to finance the renovation and repair of thousands of public housing units in New York City. More than a purely altruistic effort to address the growing issue of aging public housing stock, Fannie’s leaders see the financing as a good investment with quantifiable returns and, more importantly, intangible benefits for the health of communities.
Angela Kelcher (pictured), senior director of multifamily affordable production at Fannie Mae, explained why Fannie entered into the deal and what the knock-on effects for New York City will be. She highlighted the acute need for improvements to existing public housing stock and spoke to how renovations of these 1,718 units across 16 properties will improve the lives of their residents as well as the availability of affordable housing in a city where so few affordable options exist. She highlighted, too, that with this deal comes some new opportunity for private lenders and developers.
“This RAD has provided the means for public housing authorities to access capital markets and, through that access to private and public debt and equity, they’re able to address the backlog of capital needs that continue to build in our public housing stock,” Kelcher said. “That estimate is anywhere from $26 billion to $35 billion worth of capital improvements that are needed to our public housing stock.
“I think what’s really exciting about this financing is that these units will remain permanently affordable to low-income households. At the same time, they will get the much-needed upgrade to mechanical systems, exteriors, interiors aspects of housing that the pandemic has made us more aware of in terms of the impact it has on people’s social, mental and physical well-being.”
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While Kelcher said this deal would have gone ahead whether or not there had been a pandemic, the COVID-19 situation does highlight the acute need for some of these repairs while also making them more challenging. Kelcher said that Fannie’s partners in these upgrades are taking additional steps to ensure the safety of workers and residents through the process.
The involvement of capital markets within a public housing authority (PHA) via the RAD, Kelcher explained, doesn’t mean the public housing stock will go private anytime soon.
However, RAD deals generally can be combined with LIHTC (Low Income Housing Tax Credits) to help boost the access to private sources of equity through the sale of those credits and improvements made to the housing create greater efficiency in PHA operations as they serve low-income residents.
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Against a stable and public source of financing, too, Kelcher sees opportunity for lenders and developers in these public private partnerships. Improving limited affordable housing stock, too, improves the overall supply picture at a moment of acute housing shortage as well as ensuring working-class people can live in increasingly unaffordable urban centers like Manhattan. This means lower-income dwellers have better access to education, healthcare, and other key services and more of the city’s workforce isn’t forced to leave it.
“What I’ve seen over the last several years is that there is an intersection between good business and good mission,” Kelcher said. “We can do well by doing good. The affordable asset class has certainly performed very well over time. Demand for affordable units is very high, so by entering into this segment, there are lots of good business opportunities. But it also, again, comes with the added benefit of knowing that you’re positively impacting communities, the property and these families.”