DENVER—This is how many aff ordable housing units Mercy Housing owns: 14,515. This is how many units Mercy has in some phase of development: 5,400. And this is how many Mercy wants to participate in over the next fi ve years: 65,000. While the fi rst two numbers are impressive, the third is the most revealing, showing the nonprofi t organization's extensive reach and bold intentions.

“It is our response to this crisis of the lack of aff ordable housing for low- and moderate-income people,” says Sister Lillian Murphy, Mercy's longtime CEO. “We've been successful for the fi rst 25 years. We've done over 35,000 units. We think we've done it well, but it's not enough. We've got to do more. We've got to make a statement. The need is so great that we've got to expand signifi cantly.”

Mercy plans to launch its 65,000- unit eff ort next year. It will include housing that the group develops or rehabilitates on its own. It will also include projects that Mercy will help fi nance through loans to other nonprofi t developers and projects on which Mercy leaders will serve as consultants.

As the weight of the number hangs in the air, Murphy lightens the moment, saying it even makes her gulp at times. Still, she is undeterred. “It's a big goal, but the problem is big,” she says.

A matter of capital

This is how many units Mercy owns: 14,515. This is how many aff ordable housing units it started in 2008: 460.

That makes the organization No. 5 on AFFORDABLE HOUSING FINANCE's Top 50 owners list and No. 23 on the developers list. The fi rm also completed 18 projects with 1,215 units last year.

Despite the growing economic challenges, this year could be just as big for the organization. Mercy Housing hopes to start as many as 13 new developments with roughly 800 units and complete four with 391 units.

If the group is able to maintain its growth in the coming years, it will be because of its willingness to evolve.

“Change is a sign of life,” says Murphy. “We're not static. We've been very conscious over the years about how the business is changing, how the funding sources are changing all around us. We have to adapt to that and fi nd new ways to do better what we've been doing for 27, 28 years now.”

Mercy has faced two main challenges in the past several years—fi nding the right talent and securing capital.

Murphy thinks the organization has solved the talent issue, with several key hires, including President Dick Banks, who joined the organization in 2006 with a resume that included overseeing a 70,000-unit portfolio of Germany's GSW fi rm. Others joining Mercy recently include Vince Dodds, CFO; Garth Jordan, senior vice president of resource development; and Julie Gould, president of national lending and development consulting. Within two years, 12 of the 14 members of the senior leadership team were new.

Mercy recognized that the industry was growing more complex, so it went out and recruited leaders from the forprofi t sector. “We can learn things from the for-profi t world,” says Murphy. “They do things in scale. They're effi cient. Yet, they can learn from us. What I've tried to do is blend the best of the for-profi t and the nonprofi t, so that we had a consistent, disciplined approach to operations that generated revenue that could allow us to do more of what we need to do.”

The result is an organization that is more focused on results than process, according to its executives. That leaves securing capital as the pressing issue.

“Our pipeline is robust, but being able to fi nance it successfully is where we are at risk,” says COO Brian Shuman, who came from one of the nation's largest real estate investment trusts, AIMCO.

Like many other aff ordable housing developers, Mercy has depended heavily on low-income housing tax credits (LIHTCs) to fi nance its rental housing projects. Unfortunately, several of the biggest LIHTC investors no longer have profi ts and have stopped buying tax credits from developers, signifi cantly reducing the amount of money available to build housing.

In general, Mercy will lean toward 9 percent LIHTC projects rather than 4 percent deals this year, larger markets more than rural areas, and bigger deals rather than smaller because that is what investors are demanding, according to Shuman.

None of Mercy's multifamily projects have been mothballed at this time, but some single-family, for-sale eff orts have been “slowed” because of the economic downturn, he says.

The company is taking several steps this year, including exploring the possibility of obtaining funding through social venture capital funds. “We need to fi gure out how to articulate the social impact of what we are doing so investors get a social and a fi nancial return on their investments,” says Murphy.

A Sister of Mercy from the Burlingame community in California, she was fi rst in her family to graduate from college. Murphy holds a master's degree in public health from the University of California at Berkeley and a bachelor's degree in social science from the University of San Francisco.

Mercy will also look at opportunities to use the federal government's new Neighborhood Stabilization Program that will provide funds to states and local governments to acquire and redevelop foreclosed properties.

In addition, Mercy continues to seek funding from longtime supporters. Catholic Health Initiatives awarded Mercy $6 million, the organization's largest single gift to improve properties in Nebraska and Iowa last year.

The organization's partnership with nine major health-care systems, including Catholic Health Initiatives, is unique, says Jack Manning, president and CEO of Boston Capital and a member of the Mercy board of trustees. Residents of Mercy's housing developments often have increased access to critical heath care through these partnerships.

“It's more than a physical place to live,” says Manning, pointing out that 16 percent of Mercy's residents are seniors and 8 percent have special needs. “It's a place to try to make an environment benefi cial to residents.”

The health-care partners serve another valuable role. They often pave the way for Mercy to enter new communities to build aff ordable housing.

In other moves, the organization increased its operating line of credit to $10 million and established a $29 million acquisition and predevelopment line with major lenders in 2008.

There will still be some belt-tightening. Wages are frozen under the latest budget proposals, but no layoff s are anticipated to Mercy's 1,200-member workforce in 2009.

A growing need

Mercy operates nationwide, with a focus on several core markets—Washington, California, Colorado, Illinois, and the Southeast, including Georgia and North and South Carolina.

Its big footprint is one of the ways it has distinguished itself, says John McIlwain, senior resident fellow for housing at the Urban Land Institute. The group also has distinguished itself in several other ways, according to observers.

“It's not only the holistic approach they take to problems in a community but the lack of fear and lack of trepidation to enter communities,” says Nicolas Retsinas, director of Harvard University's Joint Center for Housing Studies.

He points to the group's body of work, providing an array of housing and services for low-income families, seniors, and the formerly homeless. That says these are diffi cult times and diffi cult communities, and these are the times and communities that one needs to step in, Retsinas says.

One of Mercy's latest developments is a 136-unit project for low-income families in San Francisco. Forty-four units will be for chronically homeless families. In March, hopeful residents lined up over night just to get an application even though the development won't be ready until September.

There was a similar scene in Chicago, where an overwhelming number of people sought to live in a building that Mercy recently rehabbed.

This is how many more aff ordable housing units Murphy estimates are needed nationwide: 12 million. That's the biggest number and motivator of all.

“In these troubled times we're going to be fi ne,” says Murphy. “We'll get through it. We'll fi gure out a way, whatever it takes, to get more aff ordable housing done.”