On March 6, 2023, the Federal Reserve Bank of New York (the “NY Fed”) released a case study analyzing the results of a survey of 15 managers of private investment vehicles in multifamily affordable housing from across the United States. The survey respondents each invested a median of $169 million since 2017 and have a median 5,619 affordable housing units in their portfolios.

Expiration of Compliance Periods

The NY Fed estimates that affordability restrictions of approximately 327,565 affordable rental units nationwide will expire within the next five years, 81 percent of which were subsidized by Low Income Housing Tax Credits (“LIHTC”) and Section 8 programs. Considering the expiration of compliance periods for an increasing number of affordable housing projects, the case study explores recent and projected trends of investment opportunities in multifamily affordable housing for traditional banks and non-bank investors.

The expiration of compliance periods coincides with an increasing demand for affordable rental housing units. The NY Fed Community Development team seeks to better understand options to keep those projects affordable. At the expiration of the compliance period, owners can resyndicate LIHTC or sell the units to privately managed investment vehicles. This case study suggests it is possible the sale of LIHTC properties to private capital is emerging as the more frequent alternative to tax credit resyndication.

Anticipated Growth in New Construction

Historically, the survey respondents’ portfolios have invested primarily in the preservation of existing affordable housing units rather than financing the development of new properties. Respondents in this case study indicate, however, they anticipate a significant increase in new construction investments. In the next 12-24 months, they expect their median investments in new construction to increase from its current $27 million to $150 million.

Investment Opportunities for Social Investors

The NY Fed suggests multifamily affordable housing is an example of the convergence of Community-Reinvestment Act (CRA)-motivated banks and ESG-driven impact investors. The survey respondents’ non-bank investors represent 66% of equity capital raised, as opposed to the 33% from bank investors. This suggests non-bank impact investors who seek economic and social returns may be well-suited to provide necessary private capital investments to preserve some of the potentially expiring affordable housing stock.

Respondents also shared some of their strategies to optimize economic and social returns. Their strategies include forging public-private partnerships to exempt eligible properties from certain taxes, utilizing public subsidies to build sustainable and energy-efficient housing, or providing wrap around services for residents on site by partnering with non-profit corporations to support upward mobility for residents.

The NY Fed’s case study includes significant further clarification on regulators’ treatment of public welfare investments. Appendix B of the case study includes valuable responses from the Federal Reserve, the Office of the Comptroller of the Currency, and the FDIC regarding how banks and financial institutions can participate in such investments while complying with administrative regulations.