Double Bottomline

Community Development Trust’s Joseph Reilly shares insights into how the REIT is working to fill the void in U.S. affordable housing.

Reilly_JosephAs the need for affordable housing in U.S.  metropolitan areas becomes more pressing, Community Development Trust (CDT) sees a void that it can fill. The private, New York City-based REIT trust has been providing long-term financing for affordable housing since 1998 and has funded more than $1 billion since then across 42 states nationwide. The REIT recently received $125 million in funding through the Treasury’s new Community Development Financial Institution Bond Guarantee Program. Joseph Reilly, president and CEO of CDT, and community development and affordable housing industry veteran, recently talked to Poonkulali Thangavelu, MHN contributing editor, about the REIT’s strategies.

What is CDT’s role in the affordable housing finance niche?

We are a hybrid REIT, which means we provide both debt and long-term equity for affordable housing. We are based in New York, but we are truly national. We are a double bottomline organization—we focus on the preservation of affordable housing but we also provide attractive returns for our investors so that we can raise more capital and do more of our work. Since we started, CDT has been paying about $57 million in dividends to our investors over that time. The gross market value of our assets under management is currently about $750 million. Since inception we’ve provided capital for affordable housing that’s impacted about 35,000 families across the country. We’re also a community development financial institution.

How do you accomplish your goals?

Our strategies are to capitalize on the relationships that we’ve built over time, as well as look for new partnerships to put our money to work. Our goal is to acquire more units on the equity side and to acquire or originate more loans. So we have two origination teams. We have a team that focuses specifically on the equity investment side and they spend a lot of time looking at opportunities and narrowing it down to determine which ones we really want to pursue. We have a debt team that is always looking for new loan opportunities. It is a very competitive environment for both of those businesses. It is a pretty labor-intensive process right now to find good cash flowing assets, good well-performing loans as well. There is a lot of demand for this product out there. And that’s one of our biggest challenges right now.

We can do immediately funded loans with a variety of sources, including our relationship with Fannie Mae. We look to acquire portfolios from banks and CDFIs. Sometimes, those institutions are looking for liquidity or they prefer not to have as much long-term exposure. The long-term exposure is something that we’re very comfortable with. And we’re able to do forward commitments, mostly on transactions that involve low-income housing tax credits.

What are your sources of financing?

We sell stock to raise capital. We’ve done a number of capital raises over the years. On the debt side, we may acquire a loan. And we look to one of our senior investors to participate with us. It’s a leveraged model all around. On the equity side, a $10 million property might require a $2 million investment from us and an $8 million loan from somebody else. It could be Fannie, Freddie, or it could be a private loan. So we are lending at the project level there. On the loan side, if we acquire a $1 million loan, we will sell the “A” piece and hold on to the risk piece. That could encourage some investors to be interested in affordable housing.

What are your plans for the $125 million in funding that you received through the CDFI bond guarantee program?

We’ve already put to work $24 million of the $125 million. What we did was we bought loans from a CDFI in California. And we have now financed those for the long run with the CDFI bond program. And we think that there are more of those opportunities out there and we will continue to pursue those types of portfolio opportunities for the bond program. It’s a program from our perspective that allows us to carry out our mission, but it also allows the sellers of those loans to have some liquidity so that they can in turn place more loans for affordable housing.

From our perspective, long-term fixed rate financing is good for affordable housing and this is a program that allows us to carry out that mission. The term of the CDFI bond program is 30 years. It is challenging to find that long-term money for community development projects overall.

How is the Low Income Housing Tax Credit program faring right now? Has interest picked up?

It has been very effective, probably the most successful affordable housing development program ever created. There was a time when there were a number of companies that really didn’t need any tax credits because they weren’t paying any taxes. That has improved and there is no shortage of investors for just about every project that is out there regardless of where it is located.

There is enormous demand for the allocation of credits. There is enormous demand from the investors in those credits. And there is enormous demand to provide the debts for those projects as well. The price per credit will vary depending on the location. It will vary from New York to California to the Midwest. Different levels of demand prevail at different prices for those credits, but I don’t think there is any project out there that can’t find an investor at this point.

Does the need for affordable housing in major metropolitan areas present an opportunity for companies such as CDT? 

Absolutely. The demand for affordable housing continues to grow. In large, high-cost areas it is very difficult to preserve affordable housing because the economic pressure often pushes those affordable units out of affordability because there is such demand for higher rent units. So the preservation of affordable housing in high-cost markets is a very important initiative at this point, for the tenant as well as for the strength of that local economy. Local economies need housing available at various price points and really can’t afford to lose affordable housing units and have the poorest tenants traveling the farthest to get to the city. In order to flourish, local economies need housing available at various price points. So there is enormous demand and we think there are opportunities for us, in particular, because we are a long-term investor. Our objective is to invest and stay in. We are not looking like a fund that looks to invest and liquidate assets in seven years and produce a high return.

What do you think of New York City Mayor Bill de Blasio’s proposal for an affordable housing component in new developments?

I think historically mixed-income housing in New York City has worked very well. Over the years, I have worked on a variety of mixed-income developments and they have been very successful. The thought that a new development might have a requirement for a certain number of affordable units, from our perspective we think that’s a good idea. But the question is whether or not that will be enough. I’m pretty sure that San Francisco has moved in that direction, too, of requiring developers to include some affordable units in their projects.