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Viewpoints | May 11, 2018

The Double Bottom Line

Lauren Garren
Article By
Lauren Garren, VP Production & Sales

You may have seen the recent articles in The Wall Street Journal and Affordable Housing Finance about our transaction with Wells Fargo, KeyBank and Bridge Investment Group – where we provided attractive terms in exchange for ongoing affordable rents. This is part of our new Social Impact pilot, which uses our existing offerings in innovative ways to create and preserve affordable rental housing.

Need for impact investing

More and more we’re seeing rents raised to justify returns, leaving many residents priced out of their homes. To address this issue, we’re starting to see Borrowers looking for creative options which rely less on government programs and more on private capital to tackle the workforce housing crisis. And we’re here to support those efforts.

Risk-adjusted returns

Although maintaining rents below market value may lower returns, many borrowers find that the higher occupancy and lower renter turn-over equates to good risk-adjusted returns, while contributing to the crucial need for workforce housing. This is often referred to as “the double bottom line,” allowing borrowers to do good while doing well.

The Bridge deal

We used our Multi-Asset Commitment structure to enter into a master agreement with Bridge Investment Group. Bridge will transact up to $500 million of CME loans over a one-year period and will provide an ongoing commitment to keep the majority of rents affordable to those making less than 80% AMI. An interesting component of this deal is that we will aggregate the social impact loans and place them into a single security where Bridge will purchase the subordinate bonds. This provides the unique opportunity to address workforce housing from an investment aspect as well.

Moving forward

Since this was our first transaction, we expect to learn and fine-tune moving forward. As our initial efforts gain traction, we will market our offerings for social impact more widely.

To provide some context as you consider this option for your Borrowers, here are some key points to keep in mind:

The structure used in this deal is our Multi-Asset Commitment, where Freddie Mac agreed to purchase $500 million of CME loans over a one-year period.

  • Typically, social impact offers more favorable terms in exchange for an annual check that the majority of rents are affordable to those making less than 80% AMI. Rents are reviewed annually through the term of the loan, and a fee is assessed if affordability is not maintained.
  • Currently, we are being selective with the sponsors we choose until we have a broader offering. These sponsors need to have a strategic business plan which creates or preserves affordability. We are looking for a large commitment, and are not offering these terms for one-off loans at this time.
  • This is a highly customizable offering and varies based on borrower strategy. Available options may include an opportunity to purchase the loans’ subordinate bonds, holding spread for a one-year period and other unique options.

If you’d like to find out more – and determine if this is right for your borrower, please send me a note. I’d be happy to talk to you.

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