Funding for affordable housing is needed more than ever as demand continues to rise. Private sector banks and institutional investors see this as an opportunity to revitalize neighborhoods and generate profits. KeyBank sees this as an opportunity to balance its margin with its mission.
Rob Likes is the National Manager, Community Development Capital / National Affordable Housing Platform, at KeyBank Real Estate Capital. Robert Likes has over 25 years of experience in the real estate banking industry and is the National Manager for KeyBank Real Estate Capital’s National Affordable Housing Platform. He leads a Team of 60 people in the origination of debt, equity, and perm products in the multi-family and affordable housing industry, and leads the Team in the management of a portfolio in excess of $2 Billion. He is a graduate from Brigham Young University in Business Management Finance with additional emphasis in Accounting and Economics. He also completed the certificate program in Management for Execution from Cornell University. He is actively involved in numerous real estate industry organizations.
Why is there a housing shortage in the lower end market and how is it being addressed?
The capital markets collapse in 2008 caused construction of new multifamily units to come to a screeching halt. Both market rate and affordable multifamily construction starts were affected and construction volume didn’t begin to recover until the 2010 -2011 period, albeit at a lesser pace. During the same period, population growth continued, foreclosure rates soared to an all-time high, and more people found themselves in need of affordable housing. The demand for multifamily units has consistently outpaced supply, creating a gap, causing multifamily rental rates to increase dramatically.
At this time, many families owe more than 50% of their income to rent each month, and statistics tell us that as rental rates have continued to grow, incomes have gone flat. It’s not economically or socially advantageous to continue raising the cost of rent because it leaves people with less income for important items like food, health care, education, and transportation.
Government support through the Low Income Housing Tax Credit (LIHTC) has continued, but it is not enough to meet this increased demand. This becomes an opportunity for the private sector to develop unique solutions and increase its investment in affordable housing by taking on and leveraging the LIHTC. The LIHTC was created in 1986 to build a public and private partnership to serve the market. It’s been an important vehicle for financing affordable housing over the last thirty years and it is still in demand. This credit is kept alive under Section 42 of the tax code, and with it, much stabilization and revitalization of neighborhoods can occur. It’s the primary vehicle for state housing finance agencies to spur development of affordable housing and now local mayors and municipalities are leveraging local subsidies to work in conjunction with the LIHTC program to find additional ways to finance new projects.
How does the Low Incoming Housing Credit help revitalize neighborhoods and communities?
When housing shortages arise, it affects everyone in the community even those who have homes. Having a place to call home provides a sense of security. It forms the basis for a strong family foundation. It helps kids feel secure and enables everyone in the family the chance to be a part of society.
That is why there is a high level of demand in both urban and rural settings. The demands go beyond housing. Issues like job creation, improved child wellness, health and safety, institutional care and services, and the ability to be close to transportation are all centered on the local housing markets and affordable housing plays a large part of it.
When families are able to secure affordable housing, they have more discretionary income left over for other important items, as I mentioned. In addition, having discretionary income allows families to participate in and revitalize the local economy and neighborhood.
Can you share a few examples of how KeyBank has helped create affordable housing in various markets in the U.S.?
Absolutely. I can think of many specific examples to share. Here are a few:
In Seattle Washington, we worked with developers to finance and construct a building called 12th Avenue Arts. The complex, which opened in 2014, brings together theater, office, affordable housing, retail, restaurant space, and parking for the Seattle Police Department. Key provided approximately $20 million in loans and both $5.5 million in New Markets Tax Credit and $5.5 million in Low Income Housing Tax Credit investments.
In Buffalo, New York, KeyBank provided $16.3 million in financing for the Mass Ave Community Homes, an affordable multifamily residential development. The project provides 46 units and amenities for families with incomes ranging from 40 to 80 percent of the area median income. The properties deliver better housing for low- to moderate-income families in the Buffalo area, creating a stabilizing effect on the community.
We also provided $8.4 million in LIHTC equity investment and a $5.8 million construction loan to the development of Nativity House, in Tacoma, Washington. This permanent supportive housing development consists of 50 units for chronically homeless men and women and was built in conjunction with an adjacent shelter and hospitality kitchen. It offers integrated services to those in need and the opportunity for shelter users to transition to permanent housing.
Housing affordability is not high on the national agenda, why has Key decided to enter this market?
This issue is getting higher on the national agenda as we deal with the issues I mentioned. It is a country-wide problem that nearly every community is trying to address.
Key has been involved in affordable housing and community development for decades. Our programs were historically built around our banking footprint in thirteen states and right now our plan is to expand our affordable housing lending and investing solutions to all fifty states. Lack of housing is a critical issue affecting millions of Americans daily and we are proud to be part of the solution.
What is the difference between the housing credit and the old public housing model?
There is a big difference. The old model of public housing was based on federal cash outlays. The new model is based on private capital funding and maintaining new properties and leveraging the available housing credit.
Because we have been doing this for decades now, we have invested in over 100,000 apartment units. We’ve built partnerships with institutional investors and developers all across the country to make this happen. With the LIHTC program, investment in a development increases, which means the debt financing can be driven down. The resulting savings to the developer can be passed onto tenants, so rental unit costs for a tenant will be lower. There are additional credits that developers can apply for in Year 15 of the tax credit period so that they can reinvest in those same projects, renew the rental units, and maintain good quality and conditions. These credits help in the preservation and uniformity of communities. When you drive through a neighborhood, you would not know the rental units have been created with affordable housing credits. The owners take pride in their investments.
This differs greatly from what we see in the public housing sector. Unfortunately, the existing public housing infrastructure is aging rapidly and there is little funding to fix it. There are, however, opportunities through conversion to bring public housing to the private sector and for the properties to be rehabilitated.
Is the housing credit a state or federal program?
In general, we are talking about a federal program specifically targeted for multi-family rental properties. In addition, most states that have a state income tax tend to have a credit offering as well and this credit applies to building and preserving affordable rental housing.
How has the need for affordable housing opened opportunities for your company and how does this help communities?
With demand at an all-time high, there is plenty of opportunity for banks and shareholders to make a difference. Agencies like Fannie and Freddie, as well as HUD help by adding more liquidity to the market for affordable housing.
KeyBank has built a full platform for launching affordable housing initiatives that address debt, equity, and permanent financing solutions. We’ve been helping revitalize communities for quite some time. If we can assist in providing benefits to local communities then, in the end, we also benefit as a bank. This helps our company align with our purpose of helping our clients and communities thrive as we balance mission and margin.