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The affordable housing crisis continues to plague communities across the country. To make a tangible difference in the number of homes available to those who most need them, the crisis must be met with innovative solutions and concerted commitment from developers, investors, lenders and the federal government.

At Affordable Housing Finance Live 2019 in Chicago, KeyBank Real Estate Capital sat down with Mark Moorhouse, partner and senior vice president, Dominium, to discuss the company’s ambitious goals and the creativity and complexity needed to finance affordable housing projects.

Founded more than 45 years ago and headquartered in Plymouth, Minnesota, Dominium is one of the nation’s largest and most innovative affordable housing development and management companies. The company manages more than 30,000 apartments in 25 states and over $3 billion of owned properties – with plans for robust growth ahead.

Key Learning Points:

  • Delivering much-needed affordable housing to American communities will take the cooperation of developers, investors, lenders and the federal government, all driven by a shared mission. 
  • Leading affordable housing developer Dominium has worked with KeyBank to grow its footprint and finance affordable multifamily and seniors housing in new markets.
  • KeyBank and Dominium pioneered a new Freddie Mac lending product, the 7-year ARM “earnout” loan, which allows the borrower to access earnout upon closing.
  • Dominium relies on Key’s national integrated platform, agency underwriting expertise and relationship network to finance complex deals.

Achieving Mission-Driven Growth

Over the last few years, Dominium has gone from having no work with KeyBank to counting KeyBank among its largest and strongest banking relationships. During that time, the two firms have worked together to grow Dominium’s footprint across the United States, develop and renovate housing that represents good long-term, value-generating assets, and improve the communities in which they do business by bringing quality homes to families and vulnerable populations.

One of the first deals the bank financed for Dominium was a new construction affordable multifamily building in Commerce City, Colorado. The development marked entry into a new region for Dominium, and without Key’s confidence in the developer’s plan and ability to deliver on it, the deal couldn’t be accomplished. The 216 units of new affordable housing filled within 90 days, a testament to the demand and to the sustained value this building will bring to the community. Since the financing of North Range Crossings, KeyBank has closed on 20 additional developments with Dominium. This amounts to over $300 million in new construction loans since the spring of 2015.

Meeting Complexity with Specialized Financing Structures

Dominium has also turned to Key when its projects are complex or require different layers across the capital stack. For one project in the Minneapolis area near a new, light-rail line, Dominium developed a multi-generational development that comprised 262 senior affordable units and a 220-unit family housing project. The property offered great access to jobs, schools and transit, a boon to residents of the area. Yet, it was a complex, multi-step transaction that involved buying the corporate headquarters of an existing operating business and leasing the building back to that business while they began the process of relocating, which many other lenders would not be able or willing to underwrite.

Another way KeyBank has stepped up is by securing agency financing, including $186 million in Freddie Mac loans with another $71 million in Fannie Mae and Freddie Mac Loans in underwriting. The bank delivered $75 million in Freddie Mac 7-year adjustable rate mortgage (ARM) “earnout” loans, in which KeyBank provided a letter of credit to Freddie Mac for a calculated earnout so that Dominium would have access to the earnout upon closing, rather than waiting until the property met future operating hurdles. This creative solution originated by KeyBank has now become a new product offered by Freddie Mac.

The partnership with Dominium has also arranged:

  • $113 million in balance-sheet lending
  • New construction tax-exempt bond deals
  • Acquisition/Rehab tax-exempt bond deals
  • Preservation deals with earnouts
  • Lines of credit
  • Letters of credit for earnouts and commitment fees
  • Pre-development loans for new construction tax-exempt bond deals

Dominium Sees Potential – KeyBank Helps Meet It

Many in the commercial real estate sector are bracing for a recession after an expansion period of unprecedented length. Moorhouse contends that a potential slowdown’s effect on the affordable housing industry will be muted. That’s because the great demand for affordable housing will continue to drive the need for activity from developers and investors.

In fact, Dominium has set out to be the country’s preeminent private developer, owner and property manager of affordable housing by 2025, aiming to double the size of the organization over the course of a decade.

Moorhouse credits Key’s aligned values, comprehensive platform of services and continual advisory role as critical success factors to that growth: “Transactions are one-time events. As we expand into new markets and learn the rules and players of that market, we rely on Key’s expertise to understand the stakeholders and create deep connections with capital partners that are all rooted in mutual trust.”

Helping Communities Thrive

The affordable housing crisis is impacting millions of Americans across the country, from young people to working families to seniors. KeyBank is committed to meeting the need head-on by working with innovative developers such as Dominium that share our mission to help communities thrive. KeyBank and its Community Development Lending & Investment (CDLI) team provide investment for affordable housing and community development projects in urban and rural communities across all 50 states. Our clients benefit from our national, comprehensive fully integrated banking platform, and our experience and leadership as the nation’s fourth largest multifamily finance originator.

To learn more, contact: Rob Likes, Al Beaumariage, or Jeff Rodman.

Visit key.com/affordable