July 29, 2020
The COVID-19 pandemic and resulting economic turndown has highlighted the importance of the affordable housing sector as well as the pressures on supply, said industry experts on Berkadia’s recent webinar.
“As we all saw, the stay-at-home orders in response to COVID-19 were a stark reminder of how vital safe, decent, and affordable housing is to the stability or our communities” said David Leopold, SVP and Head of Affordable Housing at Berkadia. The panelists discussed investment activity, development opportunities, the state of construction, and the renewed commitment to affordable housing at local, state, and federal levels.
In the near term, a temporary lull in LIHTC investment due to corporations’ uncertainty regarding their tax obligations isn’t expected to last past 2021, said Michael J. Novogradac, Managing Partner at Novogradac.
However, there has not been a lull in the development and rehabilitation of affordable housing, according to Milton Pratt, EVP of Development at The Michaels Organization. Pratt attributed that partly to advocacy that persuaded governors to recognize affordable construction as essential activity and therefore exempt from statewide shutdowns.
“They realized they can’t shut down production of affordable housing at this time,” he said. Pratt acknowledged the fundamental need for affordable housing prior to the pandemic and noted that the need is growing. Novogradac noted that over the past few months, individual states have also stepped in with tax incentives of their own.
Along with pursuing ground-up development, The Michaels Organization has been seeking out asset classes outside of multifamily, such as hotels and retail, for the adaptive reuse of affordable housing developments. “The properties’ original purpose may no longer represent the highest and best use.” Novogradac concurred, saying, “Adaptive reuse is something we’re seeing more often.”
Both Novogradac and Pratt said rent collections have been strong in the affordable sector during the pandemic. “We’re very pleasantly surprised” by the levels of collections, Pratt said. He added, though, that it remains to be seen what happens when CARES Act subsidies for renters stop coming in.
Despite the current and ongoing challenges, affordable is clearly here to stay. Observed Leopold, “I believe affordable housing is well positioned to lead commercial real estate as we come out of the downturn.”
Leopold moderated the hour-long discussion, which began with a presentation by Berkadia’s Hilary Provinse, EVP and Head of Mortgage Banking. View the webinar here.
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