We’re happy to team up to discuss a couple of our conventional options for rent preservation that have been popular with our sponsors. This is a huge focus for us and something that we’re both passionate about. By preserving rents at workforce housing properties, we’re helping to provide stable and affordable housing to tenants with modest-to-low incomes — while preventing housing displacement and improving the quality of life in communities.

We’re excited to highlight our Workforce Housing Preservation or “Prez” for short. This fills a huge need to incorporate the concept of preservation into our conventional loan products. That said, since it does have similarities to our Tenant Advancement Commitment (TAC) product, we want to discuss how these two options differ and help you identify which makes the most sense for your sponsor.

What differentiates Workforce Housing Preservation from TAC?

Both options target sponsors who want to promote affordable housing by agreeing to restrict a portion of their property rents at mission levels. However, the biggest difference is that the TAC is a commitment with a minimum UPB threshold, while Prez is a feature we can include in individual conventional loan transactions. We’ve found that the TAC has been a good fit for our sponsors who are routinely doing this across their portfolio, often providing resident services and credit-building initiatives as well. Prez is available to any sponsor who is willing to restrict some of the rents at their property and has been a great entry point for our sponsors who are just getting into rent preservation.

Let’s dig a little deeper.

The TAC is typically a 12-month purchase commitment (minimum $100 million commitment size) for individual loans to a single sponsor one-off securitized business under an umbrella Master Financing Commitment. It includes enhanced pricing and credit benefits built into the commitment in exchange for the sponsor self-restricting rents anywhere from 20% to 50% of their units at 80% of area median income (AMI) – keep in mind that this increases to 100% and 120%, respectively, for Cost-Burdened and Very Cost-Burdened markets.

In addition to rent preservation, many of our sponsors provide targeted resident social services (especially in non-gateway, secondary and/or tertiary markets) that are successfully integrated into the sponsor’s business model, supporting resident health and wellness, youth and adult education, and/or economic stability. A few examples include credit-building programs, financial empowerment education, English as a Second Language, after-school tutoring, resume/career building, and access to health services. The ideal sponsor tends to be well-versed in rent preservation and is aligned with our mission of preserving workforce housing.

Similarly, Prez offers enhanced pricing and credit benefits in exchange for sponsor-initiated rent preservation, but within the context of an individual loan, or pool, request. Prez is ideal for borrowers who want to provide a private-sector approach to help solve the affordable housing shortage. Like the TAC, there is a programmatic minimum of 20% of the units at a property that need to be restricted at 80% of AMI (or higher in Cost-Burdened and Very Cost-Burdened markets). For this option, we typically see strong sponsors who may not routinely implement self-restrictions across their portfolio but are looking to explore the concept through our conventional loan offerings.

Comparison of terms:

Both Workforce Housing Preservation and the TAC receive competitive pricing with full mission-pricing benefits and will be individually priced at the time of quote. With that being said, we’d like to point out a few differences between the two.

Both:

  • Minimum 20% of units restricted at mission levels
  • Favorable pricing and credit terms
  • Minimum term of 7 years
  • Preservation period is the lesser of the term of the loan or 10 years.*
    • *Flexibility may be available in the last year of the loan term.
  • Rent restrictions will be governed by the Freddie Mac Loan Agreement
  • Annual borrower certification of straightforward rent monitoring, ensuring continued affordability; no income tests required

Prez: 

  • Eligible loan terms: fixed rate only
  • Quoted through the Freddie Mac Conventional production teams

TAC:

  • An additional pricing discount and further enhanced credit terms may be applied to properties where 50% or more of the units are self-restricted
  • Fixed or floating interest rate loans available
  • 5-year term may be provided on an exception basis
  • Credit terms set for all loans being financed under the TAC for a 12-month period
  • Quoted through the Freddie Mac Structured Transactions production team

Just two of many tools to further our mission.

We encourage you to review the Tenant Advancement Commitment and the Workforce Housing Preservation fact sheet for more details on these two great options.

Both of these rent preservation tools are part of our Conventional business, but we have many more products supporting affordability in our suite of Targeted Affordable Housing offerings. Check them all out — and reach out to your Freddie Mac contact with any questions.