Unlike many of its competitors, U.S. Bank relies on its own balance sheet to originate loans.

It provides a one-stop financing shop, including permanent loans for 9 percent low-income housing tax credit (LIHTC) deals, bond credit enhancements, and bridge and construction financing; additionally, it's a significant investor in LIHTCs. “We've always taken the posture that Fannie and Freddie were competitors of ours,” says Gerry Thole, a senior vice president focused on affordable housing at U.S. Bank. “We always thought we were cementing a client better by doing the construction and bridge loan and permanent loan ourselves.”

The Minneapolis-based company has a 24-state footprint concentrated in the Midwest, West, and South—its only East Coast presence is in Florida and Georgia. But it has financed affordable housing deals nationwide, following its top developer clients into many markets where it has no branches, further underscoring its relationship-first approach.

The company's philosophy has helped to keep its balance sheet strong by focusing only on the most established developers who are able to execute deals throughout all market cycles.

“We've been a more conservative organization historically, relative to the risk that we're willing to take,” says Kyle Hansen, an executive vice president who oversees the bank's affordable multifamily housing group. “We count ourselves very fortunate to be in a profitable, financially healthy situation.”

In November, U.S. Bank acquired two Southern California-based lenders, Downey Savings & Loan Association and PFF Bancorp, which originated some affordable housing multifamily debt, helping to expand the company's presence.

The company jumped to No. 4 on this year's Top Lenders list after processing more than $1 billion in affordable housing debt in 2007, the fourth consecutive year it reached that milestone. U.S. Bank's debt volume declined in 2008 and, as of press time, wasn't likely to be more than $1 billion. But given the dislocation in the equity and debt markets, the company was pleased with the year it had on the affordable housing side.

In 2009, however, the company expects fewer viable affordable housing deals, as LIHTC equity pricing continues to drop and developers return unused credits to state housing finance agencies.

“When tax credit pricing dropped, many of our clients said that if they had 10 deals on the table to start the year, six or seven of them were gone automatically,” says Thole. “And finding soft money to make up that much difference in the tax credit volume is nearly impossible.”

Construction lending made up the bulk of the company's 2007 and 2008 volumes—in 2007, that figure was about $859 million. U.S. Bank anticipates doing less construction lending in 2009, but not for a lack of capital. Unlike many banks, which are reducing construction lending due to balance-sheet concerns, U.S. Bank's ability and appetite for construction lending remains unchanged and will be dictated by the market.

Thole hopes that when the LIHTC market recovers, it will be a slow, reasonable ascent, avoiding the yo-yo dynamics of a boom-and-bust cycle. Since the bank is an active tax credit investor as well as an affordable housing lender, it feels the impact on both sides of a transaction.

“We were unhappy when the price was $1.05, just as we're unhappy when the price is $0.70,” says Thole. “Hopefully we can go back to where we were 10 or 15 years ago, when $0.80 or $0.85 made both sides happy.”

Adds Thole, “Demand for our product has never been higher, occupancies have never been higher. And the clients we had when times were really good are still our clients today.”