Rounding out the capital stack, Commercial Mortgage Affordable Team celebrates 10 years

The nationwide affordable housing crisis has been decades in the making, but in 2024, it has intensified. The National Housing Coalition estimates that there is a shortage of 7.3 million affordable housing rental homes in the U.S.; high interest rates have pushed many people back into the rental market; and homelessness rates have reached record highs, growing 6% in the past five years. To address these challenges, this affordable housing team is working closely with developers and investors to create financing solutions that will support the creation and preservation of affordable housing.

Experience is the key to the national affordable housing program’s success and its ability to push affordable housing deals across the finish line. Since inception, KeyBank has grown its Affordable Commercial Mortgage Team to 25+ professional affordable experts with demonstrated success and a passion for the mission. Each affordable housing deal is unique, and it requires a team of experts who understand the available solutions and can leverage relationships to enhance the right capital stack. As the group celebrates its 10-year anniversary, Al Beaumariage and Jeff Rodman, Co-Heads of KeyBank’s Affordable Housing Commercial Mortgage Group, talk about the team’s growth, its complete toolbelt to address the affordability crisis, and its renewed focus on affordable housing preservation.

A heavyweight program

In 2013, KeyBank took a closer look at its community lending development platform and found the group needed more off-balance-sheet tools, like Fannie Mae, Freddie Mac, and FHA, as well as private placement debt executions. That revelation transformed the department. A year later, KeyBank created a national platform with a complete suite of financing tools, and it became a growth initiative for the bank. In the past decade, the program has grown from completing a few hundred million dollars in originations annually to some $7 billion in total debt financing. “This aligns very well with KeyBank’s brand. We care about communities, and what better way to serve our communities than to finance affordable housing?” Rodman says.

In addition to growing its toolbelt and market reach, KeyBank has also deepened its bench of experts, hiring experienced affordable housing professionals in originations, closing, and underwriting. “We live, eat, and breathe affordable housing,” says Rodman. “Generalists don’t normally understand the complexities of affordable housing. One of the reasons for our success is our 100% dedication to the industry and the mission.” The team has maintained success even through challenging market conditions. In 2023, when most banks and other capital providers experienced decreases in volume, this team grew its market share and increased volume by 34%. Rodman attributes this growth to the passion that the team has for affordable housing and the full suite of products across the entire affordable housing line of business within KeyBank, which includes but is not limited to direct-to-agency/FHA financing, balance sheet lending, and Low-Income Housing Tax Credit (LIHTC) equity and bond underwriting capabilities. 

Focusing on affordable housing preservation

Affordable housing preservation is critical to combatting the housing crisis. Preservation ensures existing affordable housing remains affordable, not converted into market-rate housing. It’s a priority for the team. “If we aren't providing preservation financing for the existing stock of affordable housing, we will lose a lot of the affordable housing units that we desperately need,” says Beaumariage. Many affordable housing properties are at the end of the 15-year compliance period, giving owners the option to pursue qualified contracts that enable them to transition a property to market rate rents and eliminate the affordability requirement attached to the LIHTC financing.”

One way to combat this challenge is to provide enough affordable financing solutions that give existing owners real options. “There must be enough favorable affordable housing and financing options in the industry to compel borrowers to continue to maintain affordable housing properties,” says Beaumariage. “Otherwise, it is likely that owners will pursue the options that let the restrictions roll off over a three-year period, resulting in no affordability attached to the property at all.” When it comes to resolving the affordable housing crisis, preservation is as important as new construction. As Beaumariage says, “You have to have both.”

A robust toolbelt to finance affordable deals

Many affordable housing deals have a dense capital stack, but the KeyBank commercial mortgage group is armed with a robust toolbelt. With access to this complete suite of tools, the team can complement even the most complicated capital stacks to strategically tailor solutions for every deal that provides for the most economically efficient transaction.

For preservation deals, the team is able to leverage several options to support owners in maintaining affordability. “There are significant loan maturities coming due this year, but the owners are not necessarily interested in going back through the LIHTC program,” says Rodman. “We have multiple tools at our disposal to finance those deals.” Those options are critically important to existing affordable property owners, who need financing options to make both the deal and their investment plan work.

Beyond preservation deals, affordable housing developers always need options to navigate through the complicated capital stack. Most deals — Beaumariage estimates 95% — need more than LIHTC equity to pencil. In fact, an affordable capital stack is complicated because it competes with market rate housing for dollars, and if Borrowers agree to reduce the rents on an asset, they are agreeing to decrease the overall economic value of the property. Investors and developers need additional layers of capital to offset that difference. “It takes complementary layers of financing to satisfactorily finance affordable because of that complexity,” says Rodman. “You have to have flexibility.”

With a comprehensive suite of financing products, a deep bench of expertise, and a passion for the mission, KeyBank’s Commercial Mortgage Group's Affordable Housing platform, along with KeyBank’s Community Development Lending & Investment team, are tackling some of the most complicated affordable housing deals. As demand for affordable housing continues to climb, the team has the resources to support affordable housing creation and preservation and is doing their part to ensure the nation continues to erode the housing crisis.

To learn more and start the conversation on your next affordable project, connect with your mortgage banker, or reach out directly to Al Beaumariage and Jeff Rodman.