Creativity and commitment keep LIHTC deals closing amid challenges

Stacie Nekus, SVP, Team Leader of Equity Investments, KeyBank, March 2022

Creativity and commitment keep LIHTC deals closing amid challenges

As we transition out of the COVID-19 pandemic, the demand for affordable housing across the U.S. remains great, and so does the dedication from the affordable housing finance industry to meet the need. Affordable housing investors have both capital and a mandate to place it, but the complexity and cost of deals has presented challenges to developers and investors alike.

Stacie Nekus, senior vice president and team leader of Equity Investments, KeyBank Community Development Lending & Investment, has updated her comments and insights from the original story based on her panel with colleagues at the Affordable Housing Finance (AHF) Live conference where they discussed the state of the Low-Income Housing Tax Credit (LIHTC) market and the foremost issues lenders, investors and developers were facing.

Navigating delays, cost and complexity

The affordable housing marketplace has not been immune to the pandemic’s profound impacts on the supply chain and the labor force. The panelists said developers and originators experience compounding delays in getting to closing. Construction material availability and cost has affected pro forma used to secure loans and lock in rates. Labor shortages have challenged all stages of deal completion and even conversion – for example, it takes longer to get inspections, lease up and qualify tenants. Deals are also more complex, particularly for transit-oriented urban infill sites, requiring more parties at the table to gain approvals and move projects along.

Nekus said the impact on KeyBank’s affordable housing portfolio was minimized because of creativity and cooperation between deal partners and a shared commitment to getting things done for the greater good.

“During the pandemic, people reevaluated and made changes that reflected thinking about their community,” she said. “The pandemic taught us that in this industry we can all come together, to work with our developers, contractors, make sure our tenants were doing well and had access to resources to keep them in their homes.”

How ESG investment appetite can affect affordable housing

Corporate and institutional investors are increasingly focused on placing capital in investments that meet their Environmental, Social and Governance (ESG) goals. This gives affordable housing developers a chance to position their investment opportunity to new investors, as well as firms that are coming back to the space.

Often an affordable housing deal can meet multiple criteria since it has a social impact and also may remediate environmental issues or implement sustainability features during construction. During the underwriting process, developers may be called upon to explain how their projects can fit into sponsor ESG mandates.

The role of the Community Reinvestment Act and the Federal Agencies

While ESG is an emerging trend that could be a boon for affordable housing, the primary driver in the industry in the near term will continue to be the Community Reinvestment Act (CRA). For banks, deal pricing and decision-making are guided by the need to meet the CRA lending test. While the controversial 2020 Office of the Comptroller of the Currency (OCC) rule that would have changed CRA evaluation measures – and possibly disincentivized investment – was revoked, the OCC, Federal Reserve Board, and Federal Deposit Insurance Corporation (FDIC) are working together to update the CRA,1 which could create future changes for banks in the affordable housing space.

The government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac will also continue to be an integral piece of the affordable housing finance puzzle. Multifamily loan purchase caps for Fannie Mae and Freddie Mac were raised to $78 billion for each GSE in 2022, up from $70 billion. In addition, the Federal Housing Finance Authority will require that at least 50% of the GSEs’ multifamily business be mission-driven affordable housing and at least 25% of the GSEs’ multifamily business be affordable to residents at or below 60% of area median income (AMI), up from 20% in 2021.2

What underwriters are looking for from developers

Responding to the disruption of 2020 and 2021, affordable housing lenders are looking for deals with experienced and vetted sponsors and strong financials. While there’s interest in welcoming in more diverse developers, less experienced stakeholders may need to provide additional reserves, heavier contingencies and broader schedules to secure financing.

Capital providers will review developers’ total liquidity picture, including the pipeline and any potential liabilities. In addition, lenders will evaluate the other critical roles that projects need to be successful – looking at the developers’ team, including the general contractor, architect and environmental firms they plan to work with. During the underwriting process, developers should expect up-front stress tests on construction schedules, vacancy rates, and rent projections.

To address the additional scrutiny and complexity of deals, the panelists encouraged developers to work with their syndicator partner and originator early to see what creative structures might be available.

“At KeyBank we are very focused on our relationship with our developers, we want to be there for construction lending and on the perm lending side. We also want to bring the equity; we do about 25% of our equity with syndicators, the rest we do on a direct basis,” said Nekus. “Deals are so much larger than they used to be so it’s really important who you work with. We want to be in on all levels of your deal as much as possible, because then we can be there if an issue comes up.”

2022: What does the potential for increased tax credit financing mean?

The Biden administration remains focused on housing as infrastructure. In President Biden’s State of the Union address, his remarks suggest restarting discussion around legislation that could pass through budget reconciliation. If the provisions that were included in the Build Back Better spending bill came to fruition, it could add an additional $150 billion for affordable housing.3

Nekus said, “Most importantly, affordable housing and increasing the tax credits has broad bi-partisan support. Everyone recognizes the need for affordable housing in our country; and it’s widely recognized that the Low Income Housing Tax Credit program is the gold standard of public/private partnerships, and the most effective way of adding to the affordable housing pool.

Causes for optimism and goals for the future

The AHF Live panel praised their affordable housing industry peers for their resiliency, creativity and commitment to mission while facing the challenges of the pandemic, supply chain delays and labor shortages. Looking to the future, they challenged one another to bring in more diverse representation on the lender and the developer side, as well as to draw new corporate investors who are working toward ESG goals.

To understand impending changes in LIHTC financing, reach out to Stacie Nekus or your KeyBank mortgage banker.

About KeyBank Community Development Lending and Investment

KeyBank Community Development Lending and Investment (CDLI) finances projects that stabilize and revitalize communities across all 50 states. As one of the top affordable housing capital providers in the country, KeyBank’s platform brings together construction, acquisition, bridge-to-re-syndication, and preservation loans, as well as lines of credit, Agency and HUD permanent mortgage executions, and equity investments for low-income housing projects, especially Low-Income Housing Tax Credit (LIHTC) financing. KeyBank has earned 10 consecutive “Outstanding” ratings on the Community Reinvestment Act exam, from the Office of the Comptroller of the Currency, making it the first U.S. national bank among the 25 largest to do so since the Act’s passage in 1977.


Affordable Housing Finance: “Agencies Signal New Joint Effort on CRA,” July 27,2021.

2 “FHFA Raises GSEs' Multifamily Loan Cap to $156B,” October 14, 2021.


Affordable Housing Finance, “House Passes Build Back Better Bill,” November 19, 2021.

Credit products are subject to collateral and/or credit approval, terms, conditions, and availability and subject to change. Consult your own tax advisor regarding applicability of tax related information to your unique tax circumstances. is a federally registered service mark of KeyCorp. ©2021 KeyCorp. All rights reserved. Banking products and services are offered by KeyBank N.A. Member FDIC. Equal housing lender.

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