Bridging the Gap in Workforce Housing


Bridge loans are attractive for a number of reasons. Today, however, there’s a new concept for multifamily owners to contemplate. Bridge financing should be considered a key tool for financing improvements to existing properties because they meet all requirements for longer-term Government Sponsored Enterprise (GSE) financing at substantially reduced rates. In particular, developers can seek this form of dual financing—bridge to agency—as part of a long-term strategy when they seek to develop or rehab workforce housing.

This new trend typically has developers using a short-term bridge loan to complete the many needed upgrades and improvements on a Class B or C+ property. The ultimate goal is to obtain favorable long-term financing from one of the GSEs (the “agencies”). As part of their overall mandate, both Fannie Mae (FNMA) and Freddie Mac (FMCC) have a commitment to support the expansion and preservation of workforce housing.

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In fact, given the enormous shortage of workforce housing across America, both agencies offer attractive financing incentives for borrowers backing this type of housing—with rates ranging anywhere from 20 to 30 basis points below their standard interest rates. Furthermore, because of their mandate to support and encourage more workforce housing, agencies are continuously looking for opportunities to finance such properties. At Hunt Mortgage Group, we are working with our clients to show them how they too might qualify for such financing—and why it might be more attractive than market rate housing.

First, let’s explore what constitutes “workforce housing.” The term is typically used by municipalities with housing policies that favor more affordable housing for working class individuals and their families. Workforce housing is intended to be affordable—relative to household income that is sufficient to secure quality housing in reasonable proximity to the workplace. Such households might include individuals such as teachers, fire fighters and police officers. Technically, workforce housing can refer to any form of housing, including ownership of single or multifamily homes. The general guidelines used by both agencies are that rents for workforce housing should be affordable to tenants with an income at or below 100 percent of the median for the area in which the properties are located. In certain markets, like New York City or San Francisco, the rent levels are adjusted to accommodate for the high cost of living.

For Fannie Mae and Freddie Mac, workforce housing is an important part of their mission as GSEs. Furthermore, for the agencies, this form of housing is less costly for them to finance because it uses less of the dollar volume cap set by their regulators. These two factors make financing workforce housing highly attractive.

Some real estate investors and developers may not consider workforce housing an attractive investment option. Conventional wisdom is to upgrade a property and raise the rents to the highest levels possible to maximize return on investment. However, in certain cases it might be more advantageous to upgrade a property and finance it long term with a lower cost of funds (for example, a Hunt bridge loan with an agency workforce housing loan at the reduced rate) and raise the rents within the guidelines of the workforce housing affordability metrics.

Hunt recommends that borrowers consider six factors when looking for a bridge loan to execute this type of workforce housing investment:

One: Select a lender that can execute bridge to agency financing. This is more strategic, simplifies the process and saves on time and ultimately costs.  

Two: Go with a firm that has in-depth knowledge of the agency policies so they can help you refine your business plans to maximize the most attractive rates and achieve the highest profitability.

Three: Work with a primary lender, not a broker, for bridge financing. It’s faster and often less expensive.

Four: If possible, get nonrecourse financing.

Five: If you are looking for just a bridge loan, consider a nonbank option. At most banks, if you simply want a bridge loan, you will be required to develop a “banking relationship” with multiple accounts or a set amount in deposits.

Six: Identify a firm with a consultative approach. You want an institution that can provide the funds but also help you beyond the bridge transaction with your long-term financing and overall growth strategy.

Michael Becktel is a managing director at Hunt Mortgage Group. He can be reached via email at and by phone at 212-521-6437.