Financing Supportive Housing for Veterans
- Jul 30, 2013
Canandaigua, N.Y.—KeyBank recently provided $5 million in Low Income Housing Credit to finance a supportive housing development for veterans called Cadence Square in Canandaigua, N.Y. MHN speaks to Kevin Nowak, national equity investment manager for Key Community Development Corp., a part of KeyBank, about this transaction, as well as the importance of enhanced-use leases.
MHN: Describe the Cadence Square development.
Nowak: The Cadence Square development is comprised of 33 units of supportive housing, and it’s located on Veterans Administration Medical Campus. It was the first project to utilize enhanced-use leases. These are leases that are for properties that are on VA campuses that allow for the VA to recapitalize and reposition buildings into projects such as supportive housing. This is the first of its kind, so we got to work out some interesting details around that. We’re excited to be part of a project that not only fulfills our mission on financing supportive housing, but also helps our veterans to satisfy the housing needs for them and combines those housing needs with the supportive services available in VA campuses. [This allowed us to] really work through this creative way to reposition VA assets through the use of private capital.
MHN: Did you find using enhanced-use leases a success?
Nowak: Absolutely! I would consider it a success. When we look at the federal government today, we hear in the news a lot about the financial problems and cutbacks. So, for decades, the model in public housing has been to use public dollars to finance new construction, rehabilitation, etc. Now the federal government has begun to look for ways to fill the gaps they have in their budgets. And, particularly with VA, they’ve begun to look at these enhanced-use leases that really allow for private capital to come in and finance the rehabilitation of the property.
MHN: Does KeyBank often get involved in supportive housing for veterans, or is this the first time for this type of project?
Nowak: Specifically in partnership with a non-profit that’s doing work on a VA campus, yes, that’s the first time we’ve done that. But permanent supportive housing tends to have a disproportionate percentage of veterans when you look at the homeless population.
MHN: What are some challenges you faced when financing this project?
Nowak: Permanent supportive housing is one of the more complex types of transactions that investors will work on when financing supportive housing. The reason that it’s complex is because you have a high level of project costs and a limited amount of capital available between your investment capital and the number of soft sources that are often a part of these transactions, as well as the subsidies that are typically utilized for these projects. In the era of dwindling resources, it can become a challenge when you’re looking at subsidies and whether the subsidies will be around for the 15-year investment period. The availability of soft-debt sources, whether at the state or local level, is often dwindling—not just for this particular type of development, but for all developments. The difference here is that often, supportive housing projects are more dependent on utilization of those resources.
MHN: Does KeyBank plan to finance any similar developments? What do you have in your pipeline?
Nowak: Oh, yes, definitely. Cadence Square was one example of what we do in supportive housing. Also, recently in the state of New York we closed on a project called 845 Broadway, which is in Schenectady. It involved the rehabilitation of a four-story, historic industrial building that’s being repurposed into a 155-unit supportive housing project. We did that project in partnership with the YMCA and the Galesi Group.
MHN: Is there anything you’d like to add about the Cadence Square Project?
Nowak: When looking at this project we should focus on that enhanced-use lease. I think the model in the future for public housing will be often times repositioning it through private capital because that way we bring private capital to the table that will free up other resources from the federal, state and local governments to focus on other priorities.