Affordable Housing Finance -

How One Bank is Adapting to Shifts in Affordable Housing

The stakes have never been higher for mission-focused institutions like M&T Bank.

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Attendees to the AHF Live conference late last year left with an assortment of takeaways. Notable among them is: Align yourself with financing partners that represent agility, speed, and resourcefulness during a time of interest rate instability.

It’s easy to see why. High interest rates, construction costs, and operating expenses have slowed affordable housing production and preservation. Many younger industry pros unaccustomed to the headwinds may be asking, “How do we get through this?” More than ever, lending and equity partners must step up and serve as trusted project backstops and advisers.

Take banks, for example. Most banks comply with the credit and financial service standards set by the Community Reinvestment Act of 1977 (CRA). Some banks go beyond those requirements to do even more to serve their communities.

Then there’s M&T Bank.

For 42 years running, this super regional institution has earned the CRA’s top rating—Outstanding—reflecting its steadfast commitment to its 13-state, Northeast and mid-Atlantic regional markets. Now the nation’s 11th-largest bank has taken this responsibility to the next level by supercharging its long-standing dedication to affordable housing (ranked among the top 25 affordable housing lenders nationwide).

Innovation and Change

“It’s a shock how fast rates soared coming out of the pandemic. That, coupled with rising development costs created a perfect storm for many affordable housing owners and operators. Every deal is now a challenge,” observes Sean Cullen, managing director and affordable housing platform manager at the bank’s subsidiary, M&T Realty Capital Corporation.

“The role of banks has to change,” affirms Lopa Kolluri, head of affordable housing lending at M&T Bank and former principal deputy assistant secretary at the Department of Housing and Urban Development and head of the Federal Housing Administration.

She cites how a changing production and preservation environment constrains traditional financing methods. “Banks must be more agile, even more resilient,” Kolluri explains. “Small nonprofit developers, for example, may not always have perfect balance sheets. But they do great work in the communities they serve. They’re the unsung heroes of affordable housing. It’s a big focus as we move forward.”

Vertical Structure

To that end, Kolluri and Cullen describe the bank’s new vertical financing strategy, an approach that combines elements of several bank departments into a more nimble, responsive affordable housing solutions team. This team can provide solutions that can include construction lending, bridge lending, pre-development loans, permanent lending and tax credit investments. The new entity is designed to help owners and developers rapidly react to changing market conditions across a full spectrum of affordable property types, including:

Section 8 Housing Assistance Payment Contract Properties
Tax-Exempt Bonds / 4% LIHTC
9% LIHTC
RAD Properties
Workforce Housing
Naturally Occurring Affordable Housing (NOAH) Properties.

“We’re here to make deals work,” advises Cullen. “That means critically examining a variety of scenarios to help deals pencil-out.” Bridge loans also play a key role. Cash buyers can snap up NOAH properties for market-rate conversion. A bridge loan allows a mission-focused player to fairly compete for these projects. The affordable housing developer gains time to form a long-term financing strategy.”

More Good News

Excitement is building around a variety of initiatives designed to help supercharge development activity throughout the Bank’s service area. Kolluri and Cullen advise mission-focused developers to stay tuned for news on innovative lender partnerships and public/private arrangements that help advance: