An opening for Texas multifamily syndicators has shrunk after Freddie Mac paused a favored financing instrument.
Freddie has halted quoting new deals involving traveling Housing Finance Corporations, a funding loophole that allows developers to avoid property taxes and mitigate financial risk, the Promote reported.
Texas HFCs were designed to encourage affordable housing across multiple jurisdictions by allowing developers and multifamily syndicators access to financing and incentives not limited to their local area.
This is beneficial in states like Texas with diverse housing needs and varying local government policies. However, concerns over their effectiveness have been raised, with critics arguing that the incentives encourage multifamily syndicators to take on unrealistic projects that face a higher risk of failing.
This problem has become prominent in places like Garland, near Dallas, and Cameron County, in far South Texas. For instance, Western Wealth Capital, a Vancouver-based multifamily investor with some syndicated deals in the United States, was accused of defaulting on nearly $30 million in loans for an apartment complex in Garland.
The Texas Legislature did away with Public Facility Corporations last year, closing a similar loophole. The PFC program, introduced in 2015, was intended to incentivize developers to create more affordable housing. However, the program was misused.
Texas municipalities are finding other ways to encourage affordable housing development.
Austin adopted its Density Bonus 90 ordinance earlier this year, and it is already proving to be popular. The program allows developers to build up to 90 feet by right if they set aside 12 percent of units for tenants earning 60 percent of the area median income, or 10 percent for those earning 50 percent
Dallas voters approved the city’s biggest affordable housing bond, $82 million, earlier this year. The adaptive reuse of Dallas’ historic Cabana Hotel is underway and will include 70 affordable apartments.
— Andrew Terrell
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