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Centerline on Even Keel in ’08

BY JERRY ASCIERTO

AFFORDABLE HOUSING FINANCE • FEBRUARY 2008

Centerline Capital Group ranked ninth on AFFORDABLE HOUSING FINANCE’s 2006 rankings of affordable housing lenders. But based on all the Freddie Mac volume it’s processing, the company is poised to climb up the ranks on next year’s list.

In September 2007, the company was the first lender in Freddie Mac’s Targeted Affordable Housing program to graduate to fully delegated status, and that in part helped it to achieve a record year in Freddie Mac volume.

Its graduation to fully delegated status was very timely. In the fall, many agency lenders experienced a sharp spike in business as conduit lenders disappeared from the competitive landscape.

The company had targeted about $150 million to $200 million in Freddie Mac production in 2007, but said that figure should rise to nearly $300 million when the final tally is complete.

“We had a record year with Freddie Mac on both 4 percent and 9 percent financing on the debt side,” said Andrew Weil, executive managing director and head of Centerline’s affordable housing program. “The best place to get financing in this market has clearly been the government-sponsored enterprises (GSEs), and so really the timing couldn’t have been any better.”

The company, which is also a Fannie Mae Delegated Underwriting and Servicing lender, said it plans to put more emphasis on its GSE lending platforms in 2008. The company also plans to emphasize its direct purchase program for tax-exempt bond transactions.

Stabilizing presence

Equity also will be an important part of Centerline’s Affordable Housing Group’s 2008 plans. The company is one of the largest low-income housing tax credit (LIHTC) syndicators in the business and has continued to serve as a stable source of equity in a market where many big investors, including Fannie Mae and Freddie Mac, have backed off. In the second quarter, it closed LIHTC investment funds totaling $405 million. In September, it closed a $108 million fund, and in December, a $71.9 million fund.

The September fund closed at a time when the LIHTC equity market began declining and the amount of capital available to developers wasn’t as high as it had been in the previous year. “It was very satisfying to close those funds in a difficult environment,” said Justin Ginsberg, senior managing director of Centerline’s Affordable Housing Group.

The company expects its syndication business to stay the same in 2008, a welcome status quo in a market that has seen LIHTC prices dip to 85 cents in some markets. “We’ve been over $1 billion for four years in a row, and we see ourselves continuing to raise an amount in excess of that in 2008,” Ginsberg said.

But as yields to investors go up and prices to developers go down in the tax credit market, deals will be more difficult to pencil out in 2008, the company warned. “Until cap rates start to come up and acquisition pricing and land pricing start to drop, the transactions will be tough to make work,” Ginsberg said.

2007 highlight

In 2007, the company saw a lot of activity in the Gulf Opportunity Zone, which includes Louisiana, Mississippi, and Alabama, as those states continued to rebuild after Hurricane Katrina. Louisiana particularly saw a lot of activity, as the state forward-allocated much of its 2008 LIHTC authority to keep development rolling.

For example, in June 2007, Centerline provided $56.1 million in both debt and equity financing for two affordable housing developments in the Tulane Avenue corridor of New Orleans, the 228-unit Preserve and the 183-unit Crescent Club. Of the 411 units, 40 percent will be affordable to those earning up to 60 percent of the area median income.

Centerline provided $36.9 million in equity through the syndication of housing tax credits and $19.2 million in a Freddie Mac permanent loan for the two developments.

Reliable execution

The company isn’t planning any big changes for 2008. “We’re just going to stick to the core business of being the largest syndicator of tax credit equity, and we’ll continue to look at doing some private-activity bond financing, as well as utilize our relationships with the agencies,” said Ginsberg.

The company touts its ease of execution and its ability to offer a full complement of financing options to affordable housing developers, including private-placement bonds, GSE financing, and equity.

“Our track record in executing and raising capital will make it a much more reliable execution for developers in a market environment where capital is much more difficult to find,” Weil said.