Ten to twenty years after their original development many affordable multifamily properties face two common shortcomings: an inability to fulfill their long-term affordability commitments without additional public subsidies and insufficient funds for proper maintenance and avoidance of blight. The propensity for blight, leaves public funders with bad choices: accept blight or throw good money after bad. Because most affordable multifamily housing is located in lower-income neighborhoods, current financing practices concentrate this blight risk in vulnerable neighborhoods.
…One part of the solution (for affordable multifamily) is to exchange the industry standard 30-40 year loan for a 15-20 year loan; using this approach, the property is free (or nearly free) of first mortgage debt at the time of the first capital needs shock (around year 15-20). If the property is then refinanced with another 15-20 year loan, it will again be free (or nearly free) of first mortgage debt at the time of the second capital needs shock (around year 30).
The second part of the solution is for public funders to require – at the time a property is proposed for financing or refinancing — a more careful analysis of long-term reserve adequacy, taking into account likely refinancing proceeds. This analysis may well lead to a requirement that the owner increase the initial reserve deposit and/or annual reserve deposit during initial underwriting, or to a requirement that the owner increase the annual reserve deposit after the property is leased-up and stabilized. The effect of such requirements is to keep needed cash in the property rather than allowing it to be distributed out to the owner…
Read about the Blight Preventer Loan in their full report.