The comeback that began in 2010 just kept on coming. The affordable housing debt industry posted another strong year in 2011, as historically low interest rates drove refinancing and acquisition opportunities, and the New Issue Bond Program (NIBP) resuscitated the 4 percent market.

For owners, developers, and lenders alike, there was a lot to cheer about in 2011. Low-income housing tax credit (LIHTC) prices rebounded in a big way, climbing up in a year when both LIBOR and the 10-year Treasury were dropping down to rock-bottom lows.

“It was a very good year: Historically low rates, improvements in tax credit equity pricing, and the NIBP were all huge factors, ” says Tim Leonhard, managing director of affordable housing debt at Oak Grove Capital. “And there were many firms who haven't purchased affordable multifamily assets in years that came back to the market last year.”

Oak Grove more than doubled its affordable housing volume last year, a surge led by the two dozen NIBP deals the company originated. And like many agency lenders, the company continued to see a strong market for preservation loans—a wave of expiring Year 15 deals captured some of the lowest interest rates in history.

Click the play button to begin.

Hover over 'more' to view fullscreen option.

AHF's Top Lenders on Prezi

Underwriting also improved a little more as the year went on. At the beginning of 2011, most permanent loans were being underwritten at a minimum 1.20x debt-service coverage ratio (DSCR) and a maximum 30-year amortization. By the end of the year, the strongest borrowers were seeing a 1.15x DSCR and 35-year amortizations.

That trend grew stronger in early 2012, as whispers of 40-year amortizations and DSCRs under 1.15x were being heard in the nation's strongest markets. But it wasn't just permanent lenders that processed deals hand over fist last year. Construction lending also surged as many national, regional, and local banks grew healthier and re-engaged the market in earnest.

“We never stopped lending throughout the economic downturn, but a fair number of our competitors did,” says Kyle Hansen, executive vice president of U.S. Bank. “Over the last year, we saw a number of competitors return to the market, and competition increased considerably, especially in the larger cities and coastal Community Reinvestment Act (CRA) markets.”

Despite the increased competition, though, the lessons of the most recent downturn are still fresh for many. After purging their balance sheets of troubled loans, most banks aren't in any rush to push the underwriting envelope. And after a few difficult years searching for construction debt, developers are more focused on certainty of execution than shopping for an interest rate that's five basis points lower.

“As more capital returns to the market, it does put pressure on underwriting, but having just come through the downturn, borrowers and lenders alike are very focused on underwriting that will withstand the test of time,” says Hansen. “Developers are probably more focused than ever before on consistent access to capital versus every last benefit on the underwriting side.”


Another trend that characterized 2011 was the idea among a growing number of lenders that affordable housing could be a highly profitable enterprise. Many large banks, whose affordable housing strategies had been driven by compliance in the past, are stepping outside their CRA footprints to reap greater profits.

“We've been actively calling out of footprint in conjunction with our community development corporation, our internal equity source, and marketing a joint debt and equity execution,” says Hansen. “We're a healthy institution that's very interested in increasing our lending activities broadly, and if we can do that profitably out of footprint, then we're going to actively do that.”

Like U.S. Bank, JPMorgan Chase Bank also hopes to increase its community development lending operations this year— not because federal regulators say it has to, but because the bank wants to. The bank grew its affordable housing volume by more than 11 percent last year and hopes to grow another 15 percent this year.

A stream of new products has fueled that trajectory. In mid-2010, JPMorgan Chase rolled out its first construction-topermanent loan program for 9 percent LIHTC deals, and last year it began offering a similar product on taxable and tax-exempt bond deals as well.

“The business has proven out to be successful, and one that has opportunity to grow. But to grow the business, we need to move outside of our footprint states,” says Ed Sigler, head of community development real estate at JPMorgan Chase. “There are places like Boston, Minneapolis, and Nashville where we're not currently active because they're not part of our footprint, but we think they're good markets and there are good deals there.”

JPMorgan Chase is happy with its penetration in the CRA hot spots in which it lends. But those same major metros don't have an endless well of good affordable housing deals—prompting the firm's wandering eye.

“We have a decent share of the pie within our markets, and so rather than go too far down the market, it might be a better strategy from a business point of view to look outside of the market,” says Sigler.


Both U.S. Bank and JPMorgan Chase recently rolled out new bridge loan programs, and each hopes that a combination of the new program and new markets will keep their CRA lending volume— and profits—growing.

While each bank had a strong year, they were outpaced by other major banks in 2011. Wells Fargo had a very strong year, jumping two spots in this year's ranking to come a close second, followed by Bank of America in third. But Citi Community Capital continued its reign atop the pack in AFFORDABLE HOUSING FINANCE's sixth annual Top Lenders rankings.

Citi has claimed the top spot in five of the last six years, with 2009 being the exception. The mega-bank registered nearly half of its $2.1 billion volume in construction lending last year, while growing its bond credit enhancement business from $647.5 million in 2010 to $940 million.

“It was a very good year for us,” says Steven Fayne, Citi's managing director. “We worked hard in the New York metro and did a tremendous amount of business in California again.”

While Citi saw its usual steady volume in the major coastal markets, the company targeted the mid-Atlantic area as a priority in 2011. “We put a big emphasis on that region, especially around the D.C. metro area,” says Fayne. “We started and ended the year with very good production in that area.”

It wasn't just CRA-motivated banks that are eyeing the sector as a profit center: This year's rankings also saw more private lenders register healthy gains. Oak Grove Capital jumped from No. 12 to No. 7, and Red Mortgage Capital advanced from No. 20 to No. 11 this year. But the winner of this year's “most improved” award goes to CWCapital, who catapulted 15 spaces up the rankings to No. 10.

The jump reflects CWCapital's increasing commitment to the affordable housing industry. Last year, the lender started an affordable housing platform and launched a LIHTC syndication business, hiring Andrew Weil and Justin Ginsberg away from Centerline Capital Group to run the program, which offers all three agency executions.

Centerline Capital Group is also reupping its focus on the affordable housing market. Last year, the firm hired Phil Melton, previously the head of Federal Housing Administration (FHA) production for Grandbridge Real Estate Capital, to run its affordable debt origination business. Centerline also restarted its private-placement bond program and hired Jim Gillespie, previously managing director of bond expert Red Stone Partners, to help grow its affordable housing debt efforts.

All of Centerline's production was through Fannie Mae last year, but that won't be the case going forward. The firm has started an in-house FHA group, and after allowing its Freddie Mac license to lapse, Centerline is rejoining Freddie's Targeted Affordable Housing Network this year.

The company has high aspirations, looking to do about $125 million in FHA, $250 million in Fannie Mae, about $75 million in Freddie Mac, and maybe $200 million on the private-placement market. Centerline hopes to tap into its historic expertise on the LIHTC equity side of the market to drive production.

“We're making a very concerted effort to drive the affordable housing debt business,” says Melton. “This is a strong client base that exists within Centerline, and so being able to capitalize on that and to market through them is a pretty strong story.”

Click the play button to begin.

Use your mouse wheel to zoom in and out once the image has loaded.

AHF Top 25 Lenders on Prezi

Love Funding is also on the rise. The FHA lender more than tripled its affordable housing production last year, to $154 million, a record year for the firm. Part of that success was the FHA's own desire to process more affordable housing deals— in a more timely fashion.

“A tax credit deal will definitely get priority now,” says Jonathan Camps, Love Funding's managing director of production. “The Department of Housing and Urban Development (HUD) really wants to show developers and syndicators out there that they can really make it work.”

While the FHA's processing timelines are notorious, the agency began prioritizing LIHTC deals last year and entered 2012 with momentum. At the end of 2011, HUD issued new rules around which loans need to go through national and regional loan committees, essentially narrowing the list down to ease the bottleneck.

“It's a huge help,” says Camps. “You have this huge slew of deals that all of the sudden don't need to do it, and we've already seen processing speed up quite a bit. It's had a real trickle-down effect.”

And a bigger help will be arriving soon—the FHA is ready to enact its Tax Credit Pilot Program, which would put LIHTC deals in the fast lane for approval, above and beyond any conventional, market-rate loan.


Last year was the continuation of a comeback, and 2012 has all the makings of a banner year.

While the spotlight has been affixed to the largest CRA markets, this may be the year that secondary and tertiary markets get their share of attention. In the affordable housing world, all roads lead back to the LIHTC market, and as yields continue to shrink in the nation's strongest metros, financiers are finding better opportunities off the beaten path.

“Equity prices seem to have stabilized in the very high-demand CRA markets, and now secondary and tertiary markets are benefiting from the fact that yielddriven investors are telling syndicators to find deals somewhere else,” says Sigler. “For awhile, there was a big distinction in price between one market to another, and that's starting to narrow.”