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Oct 2, 2019

What Borrowers Should Know about Investing in Affordable/Workforce Housing

By Pat Jackson, President and CEO, Sabal Capital Partners

With an estimated 7.4 million-unit shortage of affordable housing nationwide, the need for more apartments in this category is stronger than ever. As we learned from the latest National Low Income Housing Coalition “Out of Reach” report, 71% of extremely low income renters are severely housing burdened, and only 37 affordable homes exist for every 100 extremely low-income households. In looking to address this issue and meet housing needs nationwide, ground-up construction isn’t the only option. As unmet demand for affordable housing continues to expand, the acquisition of existing multifamily properties presents a compelling opportunity for borrowers to help fill the housing gap while capitalizing on a promising investment opportunity.


Before exploring an acquisition, it’s important to understand the incomes of current tenants. The existing asset needs to have rents below market rate to allow for a manageable purchase.

Though there isn’t a widely agreed upon definition, workforce is often defined as 60-120% Area Median Income (AMI). However, in large markets such as San Francisco and New York City, AMI is closer to 140%. Affordable, on the other hand, often refers to units where tenants pay no more than 30% of their income on rent.

Acquisitions typically require at least some repositioning, so the right equity and debt structure is critical, as is the right improvement plan, since tenants will already be in place.

Property Selection

Finding the right property is the biggest challenge for borrowers. Many viable assets are off market, and the price must be discounted due to the lower rents paid by affordable and workforce tenants. Additionally, specific metrics must be met beyond rent and income for a deal to pencil.

  1. Key market fundamentals to look for include: A gentrifying area with increasing rents
  2. Location in a moderately populated area (urban or suburban)
  3. Presence of a nearby employment center
  4. Acceptance of Section 8 vouchers (a standard requirement for affordable properties)


Low-Income Housing Tax Credits (LIHTC) are one option for financing affordable properties. However, it’s important to keep in mind that these projects typically take 4-6 years to develop, have an extensive underwriting process and use a narrow definition of “affordable.”

Freddie Mac’s Targeted Affordable Housing (TAHX) Program is an alternative, ideal option for borrowers and brokers looking to finance an acquisition. The most significant benefit of the TAHX program compared to others is its more expansive definition of affordable housing. Going beyond the “affordable” definition of tenants that pay no more than one third of their income for housing, workforce and below-market multifamily can also qualify. Additional benefits include closing timelines of less than 45 days (compared to market averages of 90 days) and fees well below industry norms (at or below $25,000).

The TAHX product itself does not allow for renovation beyond simple improvements, but Sabal has filled that gap with our bridge AFR product. Our AFR program allows an owner/investor in both the affordable and workforce space the opportunity to pay off the unpaid principal balance and improve the property over a 12-month period while we work with Freddie Mac and the borrower to ensure a smooth transition to the TAHX program.