Looking At Affordable Housing With Berkadia’s David Leopold

David Leopold, Senior Vice President and Head of Affordable Housing at Berkadia, manages all facets of Berkadia Affordable Housing, an integrated business that includes mortgage banking, investment and sales advisory services and tax credit syndication. He joined Berkadia in 2019 to lead integration of Berkadia’s Affordable Housing platform. Under his leadership, Berkadia Affordable Housing’s 2021 production volume totaled $5.1 billion across 343 transactions, more than 100 percent year-over-year growth across all three business lines.  In 2021, Berkadia Affordable Housing ranked as the No. 1 Freddie Mac Affordable Housing lender.

Prior to joining Berkadia, Leopold spent five years with Freddie Mac Multifamily as Vice President of Affordable Sales and Investments. He grew Freddie Mac’s Affordable production from $2.2 billion in 2014 to about $9 billion in 2019 while maintaining zero delinquencies. He also led Freddie Mac’s reentry into the Low-Income Housing Tax Credit equity investment business in 2018. Prior to Freddie Mac, he was a Tax Credit Equity Executive for Bank of America Merrill Lynch, leading the nation’s second-largest tax credit equity investor from 2009-2015. His background also includes municipal bond finance, structured finance and securitization, public private partnerships and tax-efficient impact investing.

Leopold served on the MBA Affordable Rental Housing Council in 2021.

MBA NEWSLINK: Why are more investors looking to the affordable housing space?

DAVID LEOPOLD: While there has been great need for affordable housing in the past, today, there is an even greater need as many Americans are still grappling with financial instability caused by the COVID-19 pandemic. With this high demand, we’ve seen increasing investor appetite in the affordable housing space.

According to our 2022 Outlook Powerhouse Poll, 89 percent of investment sales advisors and mortgage bankers agreed that investors are more interested in affordable housing now than they were the year before.   

Investors view affordable housing as a vehicle for safe investments with potential for strong, competitive returns. Federal programs such as the Low-Income Housing Tax Credit program have made it possible for investors to consider investment opportunities that can truly serve underrepresented communities and make a lasting impact on neighborhoods while also strengthening their investment portfolio. Our clients can see that the long-term need for affordable housing will last well past COVID-19 and we recognize that this work is essential to the well-being of underrepresented communities now and for future generations.

NEWSLINK: What types of affordable properties are seeing the most demand? Why?

LEOPOLD: Acquisitions of affordable housing properties as well as rehabilitations of existing affordable housing properties are seeing the greatest investor demand. In fact, according to Berkadia’s Powerhouse Poll, the majority of professionals agree that these properties will continue to be most favorable to investors over the next two years.

It can be difficult to develop affordable housing, especially with ongoing supply chain disruptions, increasing construction costs and labor shortages. These factors drive investors to seek out acquisitions of properties or rehabilitations of existing properties as opposed to ground-up construction projects where considerable amounts of construction and labor are necessary.

In terms of location, shifts in renter demographics caused by COVID-19 resulted in residents moving away from major urban centers. In turn, this shift created higher demand for affordable housing in secondary markets, such as those in the Southeast region of the U.S.

NEWSLINK: How did the Federal Housing Finance Agency’s changes on affordability requirements impact the affordable housing industry?

​​LEOPOLD: The FHFA increasing both Fannie Mae and Freddie Mac’s 2022 cap rates by $8 billion, as well as the requirement of at least 50 percent of multifamily business be mission-driven affordable housing and at least 25 percent of the multifamily business be affordable to residents at or below 60 percent of area median income, is a testament to the agency’s strong and growing commitment to affordable housing and traditionally underrepresented communities.  

The requirement draws more attention to the affordable housing space and gives equal weight to both affordability and safety. Further, FHFA’s changes on affordability requirements incentivize the GSEs to delegate a greater percentage of their resources to affordable housing, resulting in more affordable properties being acquired, rehabilitated and built in the areas of the country that need it most.

While these changes implemented by FHFA are taking strides to combat the affordable housing crisis, there is certainly more work to be done. According to our Powerhouse Poll, 48.9 percent of professionals surveyed agreed that modifying tax credit policy would improve the current affordable housing crisis. Providing greater incentives would draw more investors to the space, resulting in a greater amount of affordable housing properties.

For example, the Sponsor-Initiated Affordability program by Fannie Mae aims to preserve workforce housing and naturally occurring affordable housing by encouraging property owners to enter a voluntary agreement to restrict resident rent and incomes. In entering the agreement, property owners receive benefits such as flexible and competitive loan terms, certainty of execution and the support of a socially responsible investor community. Enacting similar programs to the SIA program can aid in combating the affordable housing crisis while also yielding strong returns.

NEWSLINK: We’ve seen the importance of Environmental, Social and Governance initiatives increase dramatically. Will this trend continue in the coming years, or are we experiencing the height of this trend?

LEOPOLD: In recent years, there has been a growing focus on environmental and social impact in the commercial real estate industry, and the pandemic has highlighted the need for greater awareness of social considerations in investment decision making. The environment in which a person lives can be a significant social determinant of health, impacting their overall quality of life. Environmental, Social and Governance investing is critical to promoting positive social impact and affordable housing is a large part of that.

ESG investments not only provide residents with safe housing and improvements to their living conditions, but they also help investors meet ESG goals. For example, the environmental component of ESG involves instituting sustainable initiatives that reduce the environmental footprint of a property, lower utility costs and improve operational performance. Implementing such initiatives allow investors to meet ESG metrics while also maximizing value and return, which will drive demand in the space for years to come.

It is becoming increasingly important that ESG investments no longer act as standalone goals, but rather, are broadly adopted into future business planning decisions. We’re just now seeing the early stages of this becoming a priority and expect this to remain so in the years to come.

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to NewsLink Editor Mike Sorohan at msorohan@mba.org or NewsLink Editorial Manager Michael Tucker at mtucker@mba.org.)