The Community Development Trust (CDT) has completed a transaction that began with the purchase of approximately $50 million in loans from a California affordable housing lender in 2011.
CDT, a real estate investment trust focused on affordable housing, first acquired the loans from the California Community Reinvestment Corp. (CCRC). About 20 California properties, all low-income housing tax credit developments, were involved.
This first step in buying the loans was important because it provided CCRC with new liquidity to be able to lend to other affordable housing properties, says CDT President and CEO Joe Reilly.
However, that was never the end point. CDT had a second step in mind. During the past year, it created roughly $30 million in commercial mortgage-backed securities by credit-enhancing the loans and getting a Fannie Mae guarantee on them. The resultant mortgage-backed securities were sold in the market. The rest of the portfolio will be credit-enhanced by CDT and sold to the Methodist Pension Fund. CDT credit-enhanced the loans by taking the "top loss" position on them, meaning it will take the first hit if anything goes wrong with the loans.
The loans were solidly underwritten, and CDT would have been comfortable holding them on its books, but "the goal was not to buy the portfolio and hold it," according to Reilly. By securitizing the loans and creating liquidity, CDT now has the capital to work on other affordable housing deals.
The firm's model is helping expand the flow of much-needed capital to the industry, Reilly says.
