MichaelVi - stock.adobe.com

Plans for The Kelsey Civic Center, a 112-unit housing development for people of all abilities and incomes in San Francisco, have moved forward step by step over the past three years.

The developers, The Kelsey and Mercy Housing California, were set to close on a $52 million construction loan with Silicon Valley Bank (SVB) on March 10, the same day the bank was seized by regulators.

When it became clear that the financial closing was not going to take place as planned, the nonprofit developers had to regroup, and, by noon, they had outlined a strategy to keep their project on track, including potential replacement lenders, says Micaela Connery, co-founder and CEO of The Kelsey.

“Affordable housing developers are problem solvers in service of a mission,” she says.

The team, which was ready to start construction, is hopeful that a delay will be minimal in both time and cost.

When The Kelsey Civic Center is built, it will be home to people with and without disabilities, with the building being accessible and easier to use for people with different disabilities. Located near City Hall, the development’s ground level will house the first-of-its-kind Disability Community Cultural Center.

“Silicon Valley Bank was excited to be involved in this project, not just that it was part of their affordable housing commitment but because it’s a new model of disability-forward housing here in San Francisco,” says Connery. “It’s a powerful example of what truly accessible, inclusive, and affordable housing can be.”

Developers Assess the Future

The Kelsey Civic Center’s loan closing may not have gotten done last week, but SVB has had a role in many other affordable housing developments over the past 20 years. Its community development finance team is well known in the field, especially around the Bay Area. SVB also has a presence in Boston after acquiring Boston Private in 2021.

The bank has invested and loaned more than $2 billion to build or rehabilitate close to 10,000 affordable units since 2002, according to its website.

It’s not a stretch to say that just about every affordable housing developer in the region has worked with SVB in some capacity.

“They’ve been a really great investor and lender the last couple of decades,” says Matt Franklin, president and CEO of MidPen Housing. “We think very highly of their team. It would be a loss for California to lose a very good investor.”

His organization has four deals with SVB that are under construction or about to complete construction.

MidPen has a pending construction draw of about $2.3 million on a 108-unit development for formerly homeless in San Jose and is hopeful that will come in any day, Franklin says.

Eden Housing is another developer that has worked closely with the bank on different projects. “They’ve been a great partner for us,” says president Linda Mandolini, whose organization also has several deals under construction and another that was about to close with SVB.

The Eden team spent the weekend after the SVB collapse working on contingency plans for different scenarios, such as a construction loan draw being delayed or not being funded. The developers also have been talking with state officials to make sure the success of their projects is not jeopardized.

A challenge in California is that projects have intense readiness deadlines that they must meet. The California Debt Limit Allocation Committee and the California Tax Credit Allocation Committee have scheduled March 27 meetings to discuss taking steps related to “projects impacted by bank closures.”

In addition, other finance partners also have reached out to lend support, according to Mandolini.

Multiple industry leaders had heard that SVB employees would be on the job for at least 45 days, and the community development team is processing construction draw payments, equity commitments, and other matters as usual. Later, others were hearing that employees may end up working beyond 45 days.

A representative of the Federal Deposit Insurance Corp. declined to comment on the status of SVB’s affordable housing portfolio.

Syndicators and Financial Partners

In addition to being a lender, SVB also has been a low-income housing tax credit (LIHTC) investor. In these cases, developers will be looking to the LIHTC syndicators who administer the funds to address any issues that may emerge.

SVB has worked with a number of syndicators over the years, including CREA, Merritt Community Capital Corp., and National Equity Fund (NEF).

SVB is an investor in five funds at CREA, according to Jeff Whiting, chairman and CEO of the firm.

While he and others in the industry continue to closely monitor what’s happening, they received some reassurance when the FDIC issued a letter March 14, saying that it has established two bridge banks to assume the deposits and obligations of SVB and New York-based Signature Bank.

The FDIC further stated that the bridge bank is obligated and has the full ability to make timely payments to vendors and counterparties. At the same time, the vendors and counterparties with contracts with the bridge bank are legally obligated to continue to perform under the contracts.

“We view that as very positive,” Whiting says. “From our perspective, we look at what the FDIC and the Federal Reserve did as they showed a willingness and a capability to utilize their tools to stabilize not just Silicon Valley Bank but also Signature Bank. That needs to be recognized.”

Like others, he says SVB has been a valuable partner and will continue to be viewed as such as the situation unfolds.

“The reason that you have good partners is because there’s going to be good times, and there’s going to be bad times,” he says. “It’s easy to be a great partner in good times. It’s more meaningful to be a great partner in bad times.”

Ari Beliak, president and CEO of Merritt Community Capital, also points to the resilience of the affordable housing industry, which has withstood the loss of other investors as well as market changes.

This may be a time that multi-investor funds shine, he says, noting that these funds are structured from both a legal and economic perspective to be diversified and to protect investors if one doesn’t fund.

It’s more complicated if a single investor in a proprietary fund runs into trouble and cannot fund, according to Beliak.

Merritt structures its funds so that it can take immediate action if there is an investor who does not fund, in addition to structuring funds with an economic incentive, he says.

In general, LIHTC multi-investors funds are often set up to allow syndicators to bring in a new or replacement investor, according to industry leaders.

In a March 13 statement, NEF president and CEO Matt Reilein said his company is continuing to monitor SVB’s receivership and the broader banking market.

“In the short term, we hope the FDIC recognizes the importance of honoring both SVB’s debt and equity commitments in a timely fashion, as the affordable properties under construction need to remain on track to provide individuals and families a much-needed place to call home,” he said. “Longer term, we look forward to working with the industry to fill the gaps left by SVB’s departure and will continue to serve as an unwavering advocate, loan syndicator, and asset/fund manager committed to creating and preserving safe, stable, and affordable housing across the country.”

Housing Trust Silicon Valley is a Community Development Financial Institution that has worked with SVB. While expressing their appreciation for the bank, CEO Noni Ramos and board chair Joe Anzalone also said the trust’s work continues.

“While we will not know the full impact of the closure of Silicon Valley Bank for some time to come, we will remain steadfast in our tradition of building and leveraging our unique public-private financing partnerships creating affordable housing solutions throughout the greater Bay Area,” they said in a statement.

Issues to Watch

The loss of SVB will be felt in multiple ways.

“They did such good work,” Beliak says. “They are such good people, and they’ve been extraordinarily effective.”

He notes that SVB signed an $11.2 billion community benefits agreement two years ago to boost affordable housing, assist small businesses, and make charitable contributions. Beliak hopes the FDIC will require any purchaser to honor that commitment.

Looking beyond the existing LIHTC funds, the collapse of SVB means one fewer LIHTC investor for future deals. This comes on the heels of Union Bank, another key affordable housing partner in California, recently being acquired by U.S. Bank.

Both Franklin and Mandolini cite a shrinking pool of LIHTC investors, which could thwart competition and opportunities.

“It would be terrible for banking and for our sector to not have some diversity of investment and to not have localized investment,” Mandolini says.

There may also be a tightening on the lending side, says CREA’s Whiting.

“However, I think affordable housing is unique in the context that we don’t have enough of it right now,” he says. “If a bank is going to make construction and perm loans, affordable housing is a great area to get in, whereas market-rate, commercial office, retail, industrial warehousing, those are probably going to feel a bigger impact, which obviously impacts the overall economy. But I think in the affordable housing space it’s a little too soon to see where the banks end up on what they can and can’t do on loans.”

Whiting sees bank regulators adapting and working to create stability in the days after SVB’s collapse.

“That to me is the most positive takeaway from all of this, which is nothing is ever going to be perfect and we can second guess everybody all day long, but the swiftness and willingness to use their tools needs to be applauded,” he says.

In San Francisco, optimism also remains around the development of The Kelsey Civic Center.

“This is an example of developers and project managers saying this is the most recent step in a challenging process, and we’ll figure it out,” Connery says.