M&T Bank and Michael Berman, CEO/President of M&T Realty Capital Corporation (MTRCC), recently hosted the fifth virtual panel discussion in our ongoing series, Managing Through Challenging Times. The event, titled “Sustained Affordable Housing Investments in Our Communities,” focused on the complex challenges and many opportunities in this sector that has become particularly important during COVID-19.

The panel featured:

  • Steve G. Johnson, Vice President of Small Balance Loans and Targeted Affordable Sales & Investments, Freddie Mac Multifamily
  • Jeffrey Rodman, Senior Managing Director and Program Manager, M&T Realty Capital Corporation’s Affordable Housing Platform
  • Barbara Simmons, Group Vice President, M&T Bank Baltimore and Chesapeake Commercial Real Estate
  • Stephen P. Wilson, President & Principal, Stratford Capital Group

Moderator Berman opened the discussion by introducing the panel and pointing out the sudden impact the pandemic has had on Americans in need of affordable housing. According to a recent report from the National Low-Income Housing Coalition, no U.S. state has an adequate supply of affordable housing. Moreover, a full-time worker earning a minimum wage cannot afford rent on an average two-bedroom apartment anywhere in the country. Calling this “a crisis,” Berman added that the situation disproportionately affects families of color, as well as vulnerable citizens, including disabled people, senior citizens and military veterans.

Berman noted that M&T Bank is uniquely positioned to work with partners and clients to help solve this problem, providing both financing and deep expertise in the complexities of affordable housing. “[Our] foundational mission is to be community centric,” he added. “Throughout the footprint in the last three years, we have invested over $3.5 billion dollars in debt and equity in our communities for affordable housing.” M&T Bank and MTRCC also recently announced the leadership team that will drive a new cross organizational Affordable Housing Platform.

Jeffrey Rodman and Barbara Simmons observed that during the challenges brought on by COVID-19, many lenders have become more conservative. On the other hand, M&T Bank and MTRCC are seeking to lend aggressively. Simmons explained that given the regulatory requirements faced by most banks, M&T Bank “has to be deliberate” in how it invests balance-sheet capital in affordable housing and manages related tax credits, which are the lynchpin of driving investment in this sector. Simultaneously, the bank is innovating creative ways to expand access to capital and address this social necessity.

One recent advance is the creation of a partnership between MTRCC and Freddie Mac. In July, MTRCC became an approved Freddie Mac Multifamily Targeted Affordable Housing (TAH) Optigo Lender. The program provides financing in underserved areas for multifamily properties that are affordable to families with low and very low incomes.

Freddie Mac’s Steve Johnson, noting that he was “incredibly excited” to have MTRCC join the platform, provided an overview of the government-sponsored enterprise’s experience during the pandemic. While business ground to a halt in the spring, Freddie Mac Multifamily quickly pivoted. Employing strategies such as debt-service reserves and an index lock, the organization kept capital flowing. The GSE adapted to be able to more effectively evaluate factors such as subsidies and reserves at each project – specific to the affordable housing sector – that are important to value in transactions.

As of September, Johnson said, deal flow had returned to normal levels with “significant demand” from borrowers. He added that Freddie Mac Multifamily is on pace to meet or exceed its affordable housing goals of 37.5% of overall funded volume.

Considering challenges and opportunities

Another important topic discussed was the outlook for equity investing based on government-issued low-income housing tax credits (LIHTC). LIHTCs are an important (and complicated) driver of affordable rental units in the U.S. Private investors are incentivized to allocate equity investments to affordable housing projects in exchange for these tax credits.

This year has seen some of the traditional equity investors, namely large banks and insurance companies, “pressing the brakes a bit,” according to Stratford Capital Group’s Stephen P. Wilson. Deals in the pipeline are closing, but overall investors are being more cautious, and pricing will be depressed. However, Wilson has seen more industrial companies moving into the sector, which bodes well for the future. “Having a broad and diverse investor base is healthy for everybody,” he said. “That’s happening and it’s helping the industry. I think it will be a good long-term development.”

Another topic to watch is the future of state and local tax-exempt bonds sold to investors to fund affordable housing. Wilson noted that roughly $10 billion in tax exempt bonds go unused annually in the U.S. Reforming this system to convert any unused bond volume into an exchangeable 9% tax credit at the state level would boost investment, he added.

Wilson and Berman also discussed the issue of collections in this uncertain environment. All stakeholders are watching collection trends very closely and analyzing the data carefully vis-a-vis working their deals. With the future of another round of federal economic stimulus unclear and the CDC’s national moratorium on evictions expiring December 31 (as of this writing), this subject will continue to be top of mind moving forward.

Shovels in the ground

The panelists also highlighted two affordable housing construction projects on which they collaborated in a coordinated and creative fashion.

One is Ovation at Arrowbrook Centre, part of a new master-planned, mixed-use community in Herndon, Virginia, that includes multifamily affordable housing alongside townhomes, condominiums, retail and office space. Rentals in Ovation are designed for families with incomes ranging from 30% to 60% below the area’s median income (AMI).

Rodman and Simmons explained that M&T/MTRCC are underwriting $8MM of the total $38 million in LIHTC equity funding. The deal is particularly interesting because the lenders had to be very creative to avoid undermining the terms of the tax credits, which included both 9% and 4% LIHTCs. Nine-percent credits are often set aside for new construction, while 4% credits are generally available for new projects financed with tax-exempt bonds or rehabilitation projects. “We actually end up having to [make] multiple loans, two or more loans on one project…so as not to impair the tax credits,” Simmons added. M&T/MTRCC also underwriting roughly $74 million in the form of construction lending and a bridge loan to cover the gap between the LIHTCs and the point when a portion of the subordinated community debt is funded.

“It’s a transformative project. There is so much public support for it,” Stratford Capital Group’s Wilson. “You can just look simply at the way the project is going to play out and what it’s going to do for that area.”

The panelists also discussed the Port Covington Rye Street apartment complex along Baltimore’s waterfront. The 254-unit project is part of a 250-plus-acre site that currently is the largest Planned Unit Development (PUD) urban revitalization project in the U.S.

The project is described as an 80/20 deal, in which 80% of the units are rented at market rate, while 20% are set aside for affordable housing. Simmons explained that M&T/MTRCC is a co-lender at 60%, or $44MM, of approximately $74 million in construction funding. That will enable a smooth transition to a Freddie Mac Funded Forward Commitment 9% LIHTC. M&T Bank is also providing $6 million in an LIHTC equity investment.

“This [project] has significant incentives provided by the city of Baltimore. It’s also in an opportunity zone, so that’s really why this one is different,” Freddie Mac’s Johnson added. “This will probably be the first one of scale done in the state of Maryland in quite some time. There’s going to be a very long waiting list for those roughly 54 units that are affordable, and those are probably going to lease up within a weekend. There’s never really a concern about the lease-up with affordable units. I think the market rate component will be successful as well, because [what we are] doing here is truly transformative.”

Final thoughts

As Wilson pointed out, the key stakeholders in the affordable housing sector are operating to solve a massive societal challenge with finite resources. Specifically, many deals are driven by the availability of LIHTCs, which are allocated to states on a per-capita basis. This requires lenders, equity syndicators, developers and other constituents to be highly collaborative and innovative to make the greatest impact with these limited resources. The leaders in this space are doing exactly that by combining their commitment to achieving strong financial returns with their passion for improving the communities where they live and work.

“Our objective, every day is to immerse ourselves on a very, very, very local level with our clients and all of the community members and residents,” M&T Bank’s Simmons said. “If we can coordinate our platform of [LIHTC] equity, balance sheet lending, the MTRCC/Freddie Mac partnership and…the M&T community-first way, our possibilities are endless.”

For more information on our affordable housing initiative, contact Jeff Rodman, Senior Managing Director and Program Manager, M&T Realty Capital Corporation’s Affordable Housing Platform, at (972) 624-9765 or visit bank.mtb.com/realtycapitalcorporation. To view the replay of other webinars within our award-winning M&T Bank Managing Through Challenging Times series, visit mtb.com/managing.

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New Affordable Housing Leadership Team

M&T Bank and M&T Realty Capital Corporation (MTRCC) recently announced its team to lead a new cross-organizational Affordable Housing Platform. This new group is focused on expanding affordable housing opportunities in local communities and growing the bank’s annual affordable housing originations, which have averaged $1.2 billion annually since 2016. The national team includes deep expertise in highly specialized, targeted affordable housing programs, construction lending, community reinvestment, not-for-profit banking, investment banking and bond placement.

Leading the MTRCC Affordable Housing Platform are:

  • Jeffrey Rodman, Program Manager and Senior Managing Director
  • Robert Kaplan, Senior Managing Director, Group Vice President
  • Joanie Wilson, Director of Affordable Housing Underwriting
  • Monty Childs, Managing Director, Loan Originations

The new Affordable Housing Platform at M&T will continue to address the unique needs of companies in the sector through a variety of capital offerings such as equity, pre-development, construction and bridge financing, as well as assisting developers and syndicators with transformational transactions to support mergers and acquisitions, growth, and liquidity strategies.

This group will collaborate closely with the M&T Bank Commercial Real Estate, M&T Investment Banking, and M&T Not-for-Profit divisions to support clients working to fill the pressing need for affordable housing across the United States, particularly in the diverse communities they serve.

Equal Housing Lender.

“Optigo®” is a registered trademarks of Freddie Mac.

©2020 M&T Realty Capital Corporation. NMLS #1024366. M&T Realty Capital Corporation is a wholly-owned subsidiary of M&T Bank, Member FDIC. All rights reserved.




The opinions expressed within this webinar and subsequent article are those of the panelists and not those of M&T Bank, nor does M&T Bank necessarily endorse those opinions or suggestions for your own organization.

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This content is for informational purposes only. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought.

© 2020 M&T Bank Corporation NMLS #381076 and its subsidiaries. All Rights Reserved.


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