PNC MultiFamily Capital is on a roll. The company, which purchased ARCS Commercial Mortgage in mid-2007, jumped to No. 7 on this year's Top Lender list, up from No. 14 last year.

And the company is poised to continue its ascent. PNC acquired National City Corp., which owns Red Mortgage Capital, in October 2008 for $5.2 billion. The acquisition of Red, this year's No. 17 lender, would give another boost to PNC's affordable housing expertise, further lifting the company up the Top 10. The company could not comment, as the acquisition had not closed as of press time.

The ARCS acquisition not only gave PNC access to Fannie Mae's affordable housing products, it also expanded the company's geographic reach. For years, PNC had sought to break into the New York City affordable housing market, and ARCS has a strong presence in the area.

It appears to be paying off. At the end of 2008, PNC made its first low-income housing tax credit (LIHTC) investment in the city, providing $4.5 million in equity to the Tapestry, a 185-unit mixedincome development in Harlem, N.Y.

“We'd like to do a lot more in New York and have targeted the area for expansion,” says Don Giffen, CEO of PNC MultiFamily Capital.

In 2008, PNC saw 30 percent growth in its agency debt business, which includes Freddie Mac, Fannie Mae, and the Federal Housing Administration (FHA), and it expects the agencies to continue their domination in 2009.

PNC's FHA loan volume was down in 2008, but it might bump up again in 2009. The lack of construction capital on the market, combined with raised lender spreads from Fannie and Freddie, is causing developers to revisit FHA. “In the last six months we have seen increased interest in the FHA product line,” says Giffen.

In 2008, PNC became the third lender to graduate to fully delegated status under Freddie Mac's Targeted Affordable Housing program. Freddie Mac announced in the fall that all of its affordable housing deals must be done through the program, a delegated risk-share model that the company continues to develop. By graduating to fully delegated status, companies can originate Freddie Mac affordable housing loans more quickly and with more certainty than under the former “prior approval” process.

The 30 percent increase in government- sponsored enterprise (GSE) deals in 2008 has been across the board—both in bond credit enhancements and permanent loans for 9 percent deals. But 4 percent deals will be far more challenged next year than 9 percent deals, as capital providers give mixed signals and investor interest turns to the less leveraged 9 percent side of the business.

“If you look at the GSEs' response to the bond market, it's been a bit unpredictable, not only in terms of their interest in it, but also in terms of the cost structure,” says Giffen. “And investor capital is not as attracted to the bond finance transactions as it is to 9 percent transactions.”

The company expects 2009 to be a tough year for developers. The best deals will proceed in 2009, though the overall level of affordable housing production will undoubtedly drop. “The feasibility of affordable projects has been severely impacted by the precipitous drop in credit pricing at the same time that spreads have widened on the debt financing side,” says Giffen. “Projects are getting squeezed from both sides.”

As it stands, the imbalance between the demand for tax credits and the supply being allocated by state housing finance agencies is conspicuous. “In the absence of legislation that would make tax credit investments more attractive, then 2009 is likely to be more of the same,” says Giffen.