How can we help solve the affordable rental housing crisis? This question is on our minds every day at Freddie Mac Multifamily.
I work in a unique area called Structured Transactions and our team is charged with creating innovative ways to solve our customers’ needs. One solution is our Revolving Credit Facility. It helps customers manage their portfolios with flexible funding options. This solution works well when repositioning assets, performing light Value-Add and rehabilitation projects — including Green improvements — and purchasing future assets.
The following case study demonstrates how our Revolving Credit Facility can help create and maintain essential affordable housing.
Historically, Real Estate Investment Trusts (REITs) have not focused on affordable housing. However, Redwood-Kairos Real Estate Partners is a REIT passionate about advancing social and environmental programs for economic benefit in the multifamily housing space, commonly known as impact investing. They’ve invested in over 11,000 units since opening their doors in 2006. They believe that high occupancy and reduced credit losses outweigh and outperform the approach of “squeezing every dollar” out of rents. To that end, Redwood-Kairos has implemented a “private” 80/20 program in which the Borrower voluntarily commits to reducing rents on 20 percent of their conventional units.
Redwood-Kairos, located in Rancho Santa Margarita, CA, is an employee-owned company with an entrepreneurial spirit. As with most of their funds, the fund in this deal, Kimpact Evergreen Real Estate Investment Fund, will voluntarily commit 20 percent of its conventional units for affordable properties; there will be no mandates from the Land Use Regulation Agreement or any other regulatory agreements.
It is Freddie Mac’s mission and passion to find new ways to help expand housing for hard-working Americans. We are always looking for ways to support companies like Redwood-Kairos that have taken the initiative to preserve affordable housing. Working with Redwood-Kairos seemed like a perfect match.
To fund Kimpact Evergreen, we presented our Revolving Credit Facility product with help from Berkeley Point Capital, the Seller/Servicer. The Facility offered them a 5-year term with the option of two one-year extensions. The deal opened with $100 million and has the ability to expand an additional $50 million. Properties entering the Facility are, on average, 25 to 50 percent affordable.
Redwood-Kairos plans to realize cost savings following renovations through higher occupancy levels and lower turnover. The company’s risk-management strategy is two-fold. They invest in properties that are geographically dispersed, and they acquire properties that are of comparable size to their existing holdings. Since Redwood-Kairos has a long-term strategy, they plan to refinance assets from the Facility with a Freddie Mac Multifamily securitized product.
The key to a successful deal is having a great relationship with the Seller/Servicer. In this case, Berkeley Point Capital shared Redwood-Kairos' unique approach to affordable housing as well as our commitment to supporting creative methods to increase housing for working families. Berkeley Point was instrumental in making sure this arrangement went through without a hitch.
This deal breaks new ground in affordable housing solutions. We are pleased to be able to open the door to more affordable housing opportunities through innovative financing like our Revolving Credit Facility.
Have a comment or question? Email us to let us know what's on your mind.