‘Building to a Billion’ While Tackling the Affordable Housing Crisis

The United States has been in the throes of an affordable housing crisis. Research from the National Low Income Housing Coalition indicates that in 2023, a full-time minimum-wage worker could not afford a modest one-bedroom rental home in more than 92% of U.S. counties — and could not afford a two-bedroom rental home in any U.S. county or metropolitan area.

At KeyBank Community Development Lending & Investment (CDLI), Stacie Nekus, Head of Equity Investments & Syndications, and Celia Smoot, Head of Fund Investments, Victoria O’Brien, Head of Originations, and Christina Knuckles, Head of Syndications, are working to address this issue with their dedicated team of financing experts, getting deals across the finish line. In 2023, this all-women led national equity production team completed raising $1.2 billion for affordable housing deals around the country as part of their “Build to a Billion” equity growth initiative. Guided by their mission, they have facilitated the creation or preservation of almost 5,000 affordable housing units in 2023, with a focus on serving families and individuals at the lower end of the area median income (AMI) scale.

KeyBank’s approach to affordable housing finance
Securing the necessary financing to support affordable housing development requires a deep understanding of the complexities in this specialized yet enormous niche of the commercial real estate finance market. For KeyBank’s production team, this means working with some of the nation’s largest financial institutions to syndicate debt and equity, while also engaging with private capital providers and other new players entering the market on the investment side. “Our platform is unique in the market, and we have come up with creative fund structures and debt opportunities to provide a tailored option for like-minded investors,” said Knuckles. It also means helping developers be more creative with their capital stacks. In recent years, the team has seen the average transaction size balloon, particularly in the context of recapitalizing older, federally-funded housing developments constructed 40 or 50 years ago.

Andrews Terrace in Rochester, New York, exemplifies this kind of deal. In 2023, Key’s equity team partnered with Goldman Sachs and two large developer clients on a $335 million deal to rehabilitate and preserve the 526 units for low-income senior and disabled residents. The financing consisted of $135.6 million in 4% federal low-income housing tax credit equity and a $200 million construction loan. Additionally, KeyBank Commercial Mortgage Group closed $73.1 million in Fannie MTEB financing, and its investment banking arm, KeyBanc Capital Markets, underwrote $163 million in tax-exempt bonds for this project. Federal and state historic tax credit equity of $37.2 million will be provided by Chase Community Equity. “The Andrews Terrace transaction is a great example of the power of our integrated platform. The growth we have been able to achieve would not be possible without our strong developer partnerships and the ability to offer tax credit equity on a national basis,” said O’Brien. 

The capital investment being provided to Andrews has significant impact on the community and its residents as it preserves a much-needed affordable housing asset that sits within the historical nexus of redlining and disinvestment within downtown Rochester. Not only will the residents benefit from the building upgrades, the development complements the City of Rochester’s plan to transform projects and leverage public and private investment that support critical community infrastructure and spur economic development and job creation.

Challenges and opportunities on the horizon in 2024
As the team looks at the short- and long-term horizons, they see encouraging developments and potential challenges. Certainly, regulatory changes and interest rate fluctuations will likely have significant implications for the affordable housing finance market.

In late 2023, the federal government issued a new rule to modernize the 1977 Community Reinvestment Act, which addresses systemic inequities in access to credit. The new CRA¹ will have a ripple effect throughout the affordable housing industry, as banks and other stakeholders adjust to its provisions, which will start to be implemented in January 2025. Additionally, recent increases in insurance rates for multifamily operators — in some cases, increasing from $400 per unit to $800 or $900 per year — are also impacting operating budgets.

When it comes to interest rates, any rate cuts by the Federal Reserve in 2024 would be good news for the affordable housing sector. Interest rates affect every part of a deal’s lifecycle, and lower rates will enable the KeyBank team to finance more units. But 25- and 50-basis-point rate cuts alone are not a panacea, and it will take a more dramatic decrease in rates to have a meaningful impact on the pace of refinancings and development deals. In the meantime, financing partners and KeyBank’s dedicated equity and syndication team have proven to be nimble during periods of uncertainty, and deals are definitely getting done.

“We have structured our team to create a one-stop shop for developers and investors, providing solutions for all layers of the capital stack to these impactful projects,” said Nekus.

As a major player in the affordable market, KeyBank can see the true impact of its work across the country and up close in its headquarters city. Recently, the team facilitated a public- and private-sector collaboration with the city of Cleveland. They are working with the mayor’s office and Local Initiatives Support Corporation, an intermediary Community Development Financial Institution (CDFI), to establish a housing fund to be a capital lever as well as addressing affordable housing, single family housing, and funding to support minority housing vendors. “We’re very optimistic that this model can be replicated in many other cities around the country,” said Smoot.

A mission-driven commitment to diversity and equity
The KeyBank team’s commitment to diversity and equity is rooted in their mission to help ensure everyone has an affordable place to live, and to enrich the communities where their projects are located. Nekus and the rest of her team are well aware of the positive impact that their work can accomplish and approach each deal as “more than just a spreadsheet.”

As the rare all-women national equity production team, this group at KeyBank is also advancing diversity and equity in the affordable housing arena specifically, and the commercial real estate industry more broadly. “We’re comfortable changing the image of what people think a real estate banker looks like, and expanding the ways that we can impact and improve a community,” said Smoot.

Solving the affordable housing crisis is a complex, challenging endeavor that demands cooperation among lenders, investors, and developers. KeyBank is focused on securing financing to create and preserve the hundreds of thousands of affordable housing units desperately needed throughout the U.S. — thus helping to make sure that every community can offer its residents an affordable place to live.

To start the conversation
Connect with KeyBank’s Equity Investments & Syndications experts. We also invite you to read the 2024 commercial real estate market outlook provided by KeyBank commercial real estate leadership for a complete industry overview.

To learn more, and to see recent transactions, go to key.com/affordable.

For more insights, you can find a recent article addressing strategies to move a multifamily project over the finish line given market headwinds here.