GSEs may continue to dominate multifamily financing, although tools change

The markets for tax-exempt bonds and 4-percent low-income housing tax credits (LIHTCs) are showing signs of increased activity, particularly in major metropolitan areas.

Typically, 9-percent LIHTCs receive more focus, but they are currently experiencing a decrease in yields and an increase in prices, causing investors to seek alternatives, Apartment Finance Today reports. In contrast, 4-percent and bond deals are being priced more favorably. A significant portion of the LIHTC activity is focusing on the Federal Housing Administration, as it expends more resources on affordable housing transactions.

At the same time, private debt financing is increasing, although Fannie Mae and Freddie Mac continue to account for their large share of activity. Freddie has a few advantages, such as a less restrictive policy when evaluating banks' qualifications to provide letters of credit on construction bond deals.

The GSE's new head of production, John Cannon, recently told AFT that Freddie will likely remain involved in Class A deals, although he does not expect it to dominate that market in the future. Cannon anticipates more liquidity and private activity returning to the market.

Rental property management companies may be affected by continued limits on private financing. Cannon indicated that the GSEs might have a market share similar to last year's, which was quite large, as the private financing providers are still adapting and picking up momentum.