The Wall Street Journal: Freddie Mac to lower finance costs for owners who cap rent rises

The Wall Street Journal, August 7, 2018: Freddie Mac to lower finance costs for owners who cap rent rises

Freddie Mac , the country’s largest backer of apartment loans, is rolling out a new program that will offer lower-cost financing to owners who agree to cap rent increases for the life of their loans.

The initiative acts similar to rent control—which has been gaining traction in many parts of the country—by keeping units in private hands and controlling the rate of rent increases. But it comes with less political baggage because it is voluntary.

“Maybe there’s a way we can help change incentives,” said David Brickman, an executive vice president at Freddie Mac and head of its multifamily division. “We can provide an economic basis for private, profit-oriented developers to pursue a strategy where they didn’t raise rents by quite as much.”

The program, which is set to be announced Tuesday and begin immediately, will be available all over the country. Mr. Brickman said he hopes hundreds of properties will take advantage of it.

The initiative comes at a potentially appealing time for real-estate investors who are facing a slowing rental market. Freddie Mac will provide mezzanine debt—which is more risky but pays a higher interest rate than senior debt—at below market cost.

While rent increases have naturally slowed over the past year or so, the initiative protects tenants from steep hikes when the market accelerates again. Operators who receive the low-cost loans must have at least 50% of the units affordable to households making the local median income or below. Borrowers must then agree to limit rent growth on 80% of units.

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