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Tax-exempt CMBS gains traction as affordable housing demand rises
In July, a Systima Capital Management-backed deal raised $153 million, with orders totaling more than $1.2 billion across 19 investors for a securitized 1,272-unit loan pool.
Commercial Observer reports that tax-exempt commercial mortgage-backed securities, or CMBS, are drawing renewed attention as affordable housing needs in the U.S. grow. The outlet says recent federal rule changes, increased scrutiny from ratings agencies, and engagement from top-tier banks are helping the structure move from relative obscurity into more regular issuance.
The market’s development, according to Commercial Observer, traces back to occasional tax-exempt CMBS activity in the 2000s, followed by more consistent growth in the late 2010s. It cites programs launched by Citigroup and Freddie Mac that used credit risk transfer securities backed by tax-exempt loans issued by state or local housing agencies.
Commercial Observer also highlights that tax-exempt structures can carry lower capital costs than standard taxable CMBS or traditional affordable housing loans backed by Fannie Mae or Freddie Mac. Freddie Mac’s multifamily loan program, tied to new-issue 4.0% Low-Income Housing Tax Credits, began in 2017 and expanded in late 2024 through a new registration system, the outlet said.
A recent example cited by Commercial Observer involves Systima Capital Management. In July, the firm closed a $153.0 million tax-exempt affordable housing bond deal through the Public Finance Authority, which was more than eight times oversubscribed, receiving more than $1.2 billion in orders from 19 institutional investors. The offering was backed by a pool of loans on seven properties comprising a 1,272-unit portfolio across Wisconsin, Illinois, Florida, Tennessee, and Texas participating in the LIHTC program.