Multifamily Minute: Perspective from Lument’s Chad Musgrove

Chad Musgrove is Associate Director with Lument, a subsidiary of ORIX Corporation USA. He has a decade of experience in real estate and financial services consulting. He began his Lument tenure in the firm’s New York headquarters in 2011, then relocated to Miami to expand the firm’s commercial lending footprint in Florida and the southeast. He currently oversees structured financing of Conventional Agency and Small Balance production for Lument in Miami. He has structured more than $1 billion in loans for the New York and Miami teams.

Chad Musgrove

While preparing for the holiday season and year end, one would be remiss not to remember to #GiveThanks for all that we have to be grateful for despite the challenges we’ve faced throughout the year(s). With many socio-economic inadequacies coming to the forefront in 2020, we can all agree that housing and healthcare were two leading challenges. In a world still struggling to normalize post-covid, I’m reminded of the situation when e-commerce started to change the face of industrial real estate in 2018. “Rightsizing” was often the word used.

The role of the GSEs has been to provide liquidity for the multifamily market without hindering participation of the private capital markets. I don’t think I’m the first to say this nor do I think I’ll be the last, but we are seeing the GSEs begin to “rightsize” and shift their focus towards making a concerted effort to alleviate the affordability crisis.

It is well documented that affordable housing supply issues are exacerbated in communities of color and under-invested/underserved communities. Historically, the GSEs have aimed to address housing challenges at a macro level.  As the market evolves and the landscape becomes ever more complex, the agency’s strategy more noticeably recognizes the opportunity to achieve positive outcomes from a grassroots approach.

Tilting at Affordable Housing

FHFA released its 2022 Scorecard, which puts housing affordability at the top of the list. There are three key areas of focus:

  1. Develop strategies to support sustainable homeownership and affordable rental housing with a focus on improving the availability of small-balance purchase and refinance mortgages.
  2. Identify strategies and activities to facilitate greater affordable housing supply within the limits of charter authorities and submit recommendations to FHFA.
  3. Update the current pricing framework to increase support for core mission borrowers, while ensuring a level playing field for small and large sellers, fostering capital accumulation, and achieving viable returns on capital.

Why are these so important? Fifty percent of the GSEs’ business will be mission-driven and focused on promoting “sustainable and equitable access to affordable housing.”

Small balance multifamily is primarily operated by “mom and pop” operators that usually own one or two single-family rentals or multifamily properties, usually between five and 50 units. These assets more often than not provide housing to low and middle-income renters. Those same investor/owners towed a heavy line carrying mortgages during the pandemic when renters either were unable or refused to pay their rents.

Many affordable housing programs are much more recent that the average person might know, and while the Low Income Housing Tax Credit program is by far the largest federal program encouraging affordable housing development, it only came into existence in 1986. Many people reading this had children before its birth. The Federal Housing Finance Agency has also taken the stance that it wants to discuss how to increase affordable housing stock. Innovation is a necessity for ensuring progress.

Lastly, many transactions hinge on not only deal structure but also on pricing. In today’s marketplace where cap rates continue to compress, competitive pricing is an important component that is needed to make deals work. The Agencies have made it clear that best pricing will be awarded to those deals supporting its mission mandates.

Further GSE Developments of Interest

Freddie Mac created its Housing Solutions team in 2020 with an emphasis on addressing limited access to credit, housing inequalities, creation and preservation of affordable housing supply and advancement of homeownership education on the micro-level. Freddie Mac is taking a holistic approach to the inadequacy of affordable housing by thinking about how communities–especially communities of color–are formed. It realizes many communities are often built by developers who do not relate to the actual tenants that its product houses and serves, and therefore they may not have a strong commitment to understand how to not only provide safe and healthy housing but also revitalize the local, under-invested community as a whole.

Fannie Mae introduced its SIA (Sponsor Initiated Affordability) incentives in the form of lower borrowing costs in March 2021, aimed at borrowers who agree to keep a percentage of units affordable to residents earning less than 80 percent AMI. It will be documented via an affordability agreement requiring annual certification. These SIA loans are in direct alignment with Fannie Mae’s Sustainable Bond Framework, which demonstrates Fannie Mae’s commitment to adhering to international standards in its issuance of green, social, and sustainable bonds.

The bottom line: If you haven’t done so already, get ready to enrich your ESG/DEI strategic plans, scale up your team, and prepare to expand relationships to create a more inclusiveness and equity for all in attainable workforce and affordable multifamily real estate.

Closing Thoughts

Economic tailwinds will continue to bolster these efforts, and affordability issues will persist as wages generally do not keep up with rising costs.

  • Vacancies are at record lows while rents are seeing record highs.
  • Advancement in technology continues to push into just about every employment sector, including real estate, which is generally resistant to reinventing the wheel. Both the ability and demand by employees to work remotely continues to cause a shift in renter migration patterns, putting strain on the affordability of those winning cities.
  • The Sunbelt and the South continue to be winners while renters are still dealing with affordability issues prompting them to escape expensive coastal markets such as New York and California.
  • Build-for-rent/single-family rental markets continue to mature, seeing large capital inflows from institutional investors; this will continue to push home ownership out of reach for many locals.
  • There is a new generation of renters that are going to need economic solutions that are no longer supported by current products/programs.
  • The $2 trillion Build Back Better Act passed the U.S. House of Representatives with a $150 billion allocation to affordable housing.

(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 or NewsLink Editorial Manager Michael Tucker at