How One Bank Is Working To Solve The Affordable Housing Crisis
America has reached a tipping point when it comes to affordable housing. There is a need for 7.2 million more affordable housing units for extremely low income families, the majority of whom currently spend more than half of their income on rent.
The federal Community Reinvestment Act of 1977 encourages financial institutions to help meet the credit needs of the communities in which they do business. This includes low-income areas where the need for affordable housing is especially high. As a result, banks across the country have been involved in funding the effort for more affordable housing, but for some banks, the call to do more for these communities goes beyond the CRA — it’s part of their mission.
“We're certainly a very purpose-driven company, and we talk a lot about building and inspiring better lives and communities,” Head of Truist Community Capital Keitt King said. “We go beyond the regulatory compliance-driven nature as to why we're in the affordable housing space. It ties in directly to our purpose as an organization.”
King said that Truist works to not only create new affordable housing, but also to preserve affordable units throughout the cities where it operates. The regulatory process that surrounds these deals is rife with tax complexities and red tape from subordinate financing; the deals can be further complicated by the real estate hurdles developers go through in terms of permitting, local approvals and more, he said. All of this can make building much-needed housing even more difficult.
TCC LIHTC Team Lead Nora Vlahoyiannis said that Truist works to help developers overcome these hurdles. Vlahoyiannis, King, TCC Debt Team Lead Eric Rosen and TCC Funds and Alternative Investments Team Lead Ryan Ammann broke down some of the key barriers standing in the way of creating the affordable housing the country needs, and how they are working to help communities and developers overcome them.
Rosen said the first step for affordable housing, whether new developments or preservation/renovation projects, is securing the property. However, the high demand for affordable housing developments and the speed at which these properties move once they are available can make this step tricky for developers, especially considering the time it takes to structure the multiple layers of senior and gap financing for deals.
“Truist is able to fill this gap in a traditional sense, and under certain conditions, by providing pre-development financing to our clients,” Rosen said.
Ammann said the company participates in a number of untraditional public/private-type funds, including ones established in Durham, North Carolina, that provide capital to developers and community development organizations to secure these properties while they are structured and/or repositioned for the long term.
“This has even allowed for our clients and partners to be ahead of the curve in some instances to secure properties before they come on the market,” he added.
Gaps In Deal Sources
Another hurdle that affordable housing developers need to overcome is gaps in their financing.
Vlahoyiannis said, however, that the team has been seeing more programs in communities across the mid-Atlantic and Southeast led by cities, counties and community organizations that provide subordinate gap financing to facilitate increased affordable housing development.
“These programs tend to focus on Low Income Housing Tax Credit deals, especially the 4% tax-exempt bond deals,” Vlahoyiannis said. “Truist has been a lender or investor into a variety of fund structures, in markets like Atlanta and Charlotte, for these programs that can assist a deal in becoming viable by filling a gap and enabling it to secure a credit and/or bond allocation.”
She added that this is a crucial component between the senior permanent financing and the tax credit equity in the deal structure.
Preservation Of Existing Units/Naturally Occurring Affordable Housing
Challenges lie not only in creating new affordable housing, but in preserving existing units as well. This is no small task in communities where there is a strong demand for rental housing and existing units are being renovated to serve the higher end of the market.
Ammann said that Truist participates in debt/equity funds that support the acquisition and permanent financing of quality housing to prevent it from being lost from a community’s affordable housing stock.
“In addition, through our affiliate, Grandbridge Real Estate Capital, we are also able to provide long-term senior financing with the government-sponsored enterprises that have affordable housing mandates,” King said.
He added that by preserving and maintaining a community’s existing affordable housing, Truist can help ensure that new affordable units that are developed go toward filling the country’s massive need for this type of housing, rather than toward replacing units that have been turned into market-rate homes.
“The key to success in any of these projects is having partners with the right mix of experience, leadership and financial capacity,” King said. “We’re proud that Truist Community Capital has been able to cultivate a portfolio of clients and partners that reflect those key attributes.”
This article was produced in collaboration between Truist and Studio B. Bisnow news staff was not involved in the production of this content.
Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to firstname.lastname@example.org.