FINANCE Lender Roundtable A group of seasoned lending professionals say that evolving loan and equity programs are opening doors throughout the Lone Star State for new development. Compiled by Lynn Peisner T aking a look across the vast state of Texas, one thing is clear: Affordable housing is needed everywhere. Rural communities, major metros and every kind of city or neigh-borhood in between are all facing shortages of rental homes that lower and middle-income families and individuals can afford. Financing these high-demand projects re-quires innovative capital solutions. Lenders are responding by taking advantage of oppor-tunities that state and federal legislation offer. The expanding landscape of loan and equity programs is opening doors and allowing more developers to break ground on new projects or rehabilitate existing properties throughout Texas. These new financing options are serving as much-needed shock absorbers as developers grapple with increased construction costs. Taking the temperature of the financing envi -ronment in the state, Texas Multifamily & Afford-able Housing Business checked in with some of the region’s active lenders to discover what’s on their radar as we begin the second half of 2021. We sent questions to Ray Landry, senior vice president of Houston-based Davis-Penn Mort-gage Co.; Phil Melton, national director of af-fordable/FHA production based in Bellwether Enterprise’s Dallas office; and Hector Zuñiga, vice president and senior relationship manager with KeyBank Community Development Lend-ing and Investment. KeyBank is based in Cleve-land, but Zuñiga works out of KeyBank’s Aus -tin office. Their edited responses follow. Texas Multifamily & Affordable Housing Business: What is your firm’s lending specialty within the multifamily affordable housing space across Texas? Does your firm have a sweet spot in terms of deal size? Ray Landry: We are strictly an FHA (Federal Housing Administra-tion) multifamily lender, so our specialties are the 221(d)4 loan for new construction and sub-stantial rehabilitations, and the 223(f) loan for existing properties. We don’t have a loan mini-mum per se, but due to RAY LANDRY cost considerations, you Davis-Penn probably don’t want to Mortgage Co. go the HUD (U.S. De-partment of Housing and Urban Development) financing route for less than $2 million. Phil Melton: Bellwether Enterprise (BWE) is focused on the debt structuring and financing of affordable housing developments across the country. We have been very active in provid-ing permanent loans for 9 percent and 4 percent Low-Income Housing Tax Credit (LIHTC) pro-gram transactions in Texas, using a wide variety of debt platforms. BWE represents Fannie Mae, Freddie Mac, FHA and USDA, in addition to our proprietary direct bond purchase program that provides construction-to-permanent financing. In terms of deal sizes, we have done deals over the past few years from $1 million via USDA loans to $40 million through various bond issuances and debt options. Our sweet spot is between $15 million and $25 million. Hector Zuñiga: KeyBank’s Community Devel-opment Lending and Investment (CDLI) has an affordable housing platform that spans the loan spectrum including construction loans, pre-development loans, revolving facilities, perma-nent loans, short-term bridge loans and other types of custom-tailored products. The CDLI team also works closely with our public sector group that can underwrite and publicly offer private-activity bonds used in 4 percent LIHTC program transactions and other 501(c)(3) bonds for non-LIHTC projects owned by non-profit organizations. We also operate hand-in-hand with the commercial mortgage group to offer a number of agency loan options, including Fannie Mae, Freddie Mac and HUD products. TMAHB: As a direct lender or financial inter -mediary, can you provide some insight into the velocity or amount of deal volume generated by your firm in the affordable housing sector across Texas in 2020 and how that compared with the prior year? What’s the outlook for 2021 in terms of deal volume in your shop across the region? Landry: With interest rates remaining histori-cally low, our business continues to be steady. HUD set an all-time loan volume record last year and is on pace to shatter that this year. Melton: In 2020, we provided more than $300 million in affordable financing, including new developments, as well as financing for acquisi -tions of properties that will continue to be af-fordable under extended-use agreements. We also provided financing for acquisitions that establish long-term affordability via nonprofit and housing authority sponsorship. We were also very active in the naturally occurring af-fordable housing space. We anticipate that our 2021 volume for new developments will remain robust, similar to 2020, while our acquisition financing is antici -pated to increase substantially as COVID-19 dy-namics caused a reduction in sales activity. We have seen significant activity already in the first half of 2021. Zuñiga: KeyBank fund-ed more than $275 mil -lion in balance-sheet loans and more than $200 million in agency permanent financing across Texas in 2020, a double-digit percentage increase from 2019. This year has presented a few challenges, including the approved 4 percent floor HECTOR ZUÑIGA federal tax rate, contin-KeyBank Community ued concerns about the Development long-term employment Lending and effects of COVID and Investment significant construction cost increases. Nonetheless, KeyBank expects to arrange a higher amount of funding this fiscal year than last year. (As part of the COVID-19 relief bill passed by Congress and signed by President Donald Trump in late December 2020, a new permanent minimum 4 percent low-income housing tax credit was estab-lished. The Novogradac firm, which has assisted cli -ents in closing billions of dollars in LIHTC transac-tions, estimates that the floor rate will help finance about an additional 130,000 affordable units over 10 years.) TMAHB: Is there a particularly newsworthy or signature affordable housing transaction in Tex-as for which your firm arranged or provided fi -nancing during the past year, and if so, can you share some of the pertinent details that make the deal stand out? Zuñiga: It’s tough to single out any one project since they all accomplish one thing: provide af-fordable housing where it is urgently needed. If I had to choose one project that illustrates Key-Bank’s creativity, then I would have to point out Bridge at Turtle Creek, a 4 percent LIHTC project in Austin for which KeyBank was able to underwrite and publicly offer short-term bonds through its public sector group, provide a tax-able balance sheet construction loan and arrange a 40-year Freddie Mac forward-commitment www.REBusinessOnline.com 16 | Texas Multifamily & Affordable Housing Business | May/June 2021