‘Real Money’ Is Out There If You Look

Illinois Sen. Everett Dirksen, perhaps the last great Congressional orator, didn’t like spending the peoples’ money. To make his point he once said: “A billion here, a billion there, pretty soon it begins to add up to real money.”

That quip has become synonymous with government overspending. When it comes to multifamily housing, though, most providers don’t think Uncle Sam spends enough. But it turns out there is an appreciable amount of federal money going into apartment development that people just don’t know about.

Indeed, you can stick a shovel in the ground just about anywhere and you’ll find the federal government involved in multifamily and home lending. What we’re talking about here is the Community Development Financial Institutions Fund, a program better known for incentivizing business lending.

But the main CDFI fund operates several smaller, targeted programs, including a Capital Magnets Fund that financed almost a quarter of a billion dollars worth of multifamily housing during the six-year period from 2016 to 2021.

According to the Fund’s website, recipients used $246.6 million in CMF funds to finance or support 37,650 rental units. Indeed, the multifamily sector handily outpaced the fund’s home ownership component, which came to just 5,500 units and $37.2 million in disbursements.

The Opportunity Finance Network, a financial intermediary that has a coalition of 400 CDFI’s throughout the country, has reported significant real estate activity along with business lending by its members. The OFN touts its own intermediary multi-family and home mortgage programs in addition to aiding business lending.

OFN lending

The Opportunity Finance Network, a coalition of more than 1,400 CDFIs throughout the country, has reported significant real estate activity along with business lending. The OFN touts its own multifamily and home mortgage programs in addition to its business lending.

“Through 2022, OFN member CDFIs have helped support the development or rehabilitation of nearly 2.4 million affordable housing units nationwide. And CDFIs nationwide have financed $2 billion annually in mortgages,” the Network claims. The investments help develop affordable and desirable rental homes throughout the nation as well as in Puerto Rico and the U.S. Virgin Islands.

Here are a few examples of apartment deals using OFN money:

  • The Florida Community Loan Fund provided financing for the Fort Lauderdale Community Development Corp. in both 2015 and 2020 to sustain and rehabilitate 37 multifamily affordable rentals and a single-family affordable home. 
  • CDFI Pathway Lending of Nashville helped Catfish Moving Co. to find office and multifamily space in the Music City.
  • In Maine, the Caleb Group turned to the Genesis Community Loan Fund, a local CDFI, for a $1 million construction loan in January 2019 to purchase and preserve multifamily units. In this case, the deal involved Norway Savings and was supported by a Federal Home Loan Bank of Boston grant and an investment from Bath Savings Institution.

Looking to the future

The Citizen Potawatomi Community Development Corp. in Shawnee, Okla., hasn’t done any CDFI multifamily transactions just yet. But Executive Director Cindy Logsdon says that “doesn’t mean we couldn’t in the future.”

Her fund has looked into one deal that had retail on the first floor and rental housing on the upper floors before ultimately passing on it.

But Citizens Potawatomi has used CDFI Bond Guaranty money to build an industrial park. According to Logsdon: “if several large manufacturers came into the industrial park, they could create 1,000 jobs,” creating an opportunity for multifamily. After all, business lending is the CDFI’s forte and in recent years it has expanded into residential mortgages.

Similarly, Uncle Sam’s New Markets Tax Credit Program was designed to emulate, on the business side, the Low Income Housing Tax Credit, which has financed multifamily housing for more than 30 years and is earmarked in the current budget for a significant increase in funding.

Even with its business orientation, the NMTC has still managed to fund more than $28 billion of real estate since its inception in 2000. And while rental housing doesn’t qualify directly for an NMTC award, savvy developers and lawyers have found a workaround that makes it an essential tool for mixed-use multifamily. They do so by using the tax credit to finance the retail component on the lower levels and build apartments above, utilizing separate financing structures to do so.

One such development, the Sibley Building in Rochester, N.Y., has 10 different condominium-style regimes, including three housing-related ones for senior, market rate and workforce/affordable housing. While this particular deal didn’t use the NMTC to develop the retail in the million square feet of space in the building, there are plenty that have.

For example, the Corporation for Supportive Housing of New York City received a $50 million allocation in a NMTC round a couple of years back. Its plans were to invest in homes that served low-income, high-health-need people who were homeless or at risk of homelessness or who resided in supportive housing.

Tapping the NMTC

CSH has received a number of NMTC allocations over the years. One transaction actually tapped funds from both the NMTC and the low-income housing tax credit for its Blackburn Building in Portland, Ore.

The project had a $15 NMTC million allocation to Central City Concern for a 51,000-square-foot health facility. The LIHTC component went towards 124 units of single-room occupancy and studio units.

On the Native American multifamily side, Native CDFIs are starting to tap both federal programs. The Native American Bank of Denver (which is also a Native CDFI) received a $50 NMTC million allocation in 2023 and McKinley Asset Growth Management of Alaska, also a Native CDFI, has received more than $100 million in several allocations.

While neither of the NMTC and LIHTC tax credits are in the billion dollar range, taken collectively, they have a lot of heft. And a billion here and a billion there… well, you know the rest.

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