Preservation of Affordable Multifamily Housing

PNC: A One-Stop Shop for Multifamily Affordable Housing Finance

Before: Flat Shoals apartments in Atlanta, Georgia.

After.

by Derek Hyra, Community Development Expert, OCC

PNC MultiFamily Capital is a division within PNC’s Real Estate Finance Group that provides a comprehensive “one-stop shop” for multifamily preservation and other rental housing finance needs. PNC arranges equity for affordable housing through its LIHTC syndication business and invests in tax credits for its own portfolio. On the debt side, PNC offers predevelopment funds for properties with tax credits awards, bridge loans, letters of credit, construction loans, and permanent financing.

Diversification through Acquisition

Over the last decade, PNC has made a number of acquisitions to obtain the necessary housing finance capacities to form an inclusive unit where all the tools needed for affordable multifamily housing are integrated. These acquisitions include Columbia Housing Corporation, which has specialized knowledge in tax credit syndication; certain assets of the TRI Capital Corporation, which specialized in FHA and Freddie Mac mortgage lending; and ARCS Commercial Mortgage, a Fannie Mae Delegated Underwriting and Servicing (DUS) multifamily lender. PNC has three primary offices specializing in the affordable multifamily businesses in San Francisco, Portland, and Louisville, each representing the key housing sector business acquisitions.

As a result of these acquisitions, PNC offers the following financing resources for multifamily affordable housing finance.

LIHTC Products

The acquisition of Columbia Housing Corporation gives PNC the necessary tools to provide equity for affordable multifamily finance through investments for its own account or on behalf of its institutional clients. Projects may include those receiving 4 percent or 9 percent LIHTCs as well as projects receiving LIHTCs in combination with historic rehabilitation tax credits. PNC also offers a construction to permanent loan program for tax credit transactions.

As a major tax credit syndicator, PNC arranges broadly diversified LIHTC multi-investor funds for institutional investors, as well as LIHTC proprietary funds for investors seeking specific portfolio characteristics that are not available in the multi-investor funds. PNC has funded more than $2 billion of tax credit equity investments, syndicated to more than 100 corporate investors as well as made substantial investments in its own portfolio.

Mortgage Financing Products

PNC is an approved lender under three multifamily loan programs, through which they offer construction and long-term financing products.

• Federal Housing Administration: As a result of PNC’s 2001 acquisition of TRI Capital Corporation, PNC acquired the capacity to originate FHA-insured multifamily loans through FHA’s Multifamily Accelerated Processing program. The FHA mortgage insurance programs allow the bank to provide credit enhancements on tax-exempt bond issues, the proceeds of which are used to fund long-term permanent loans required for affordable housing preservation projects. PNC MultiFamily Capital uses these FHA loan insurance products in heavily subsidized Section 8 or Section 236 interest rate programs for preservation projects. These transactions also involve PNC issuing a Ginnie Mae mortgage-backed security which uses the FHA-insured project mortgage as collateral. These Ginnie Mae securities are then held by a bond trustee as credit enhancement for the tax-exempt bonds.
  
  
• Fannie Mae and Freddie Mac: PNC expanded its capacity to provide conventional long-term multifamily debt through its acquisition of ARCS Commercial Mortgage earlier this year. Through this acquisition, PNC became a DUS lender, for Fannie Mae, and extended its capacity as a Program Plus lender for Freddie Mac nationwide. PNC was also recently approved as a Delegated Underwriting partner for Freddie Mac. This relatively new program expedites access to Freddie Mac loans for properties benefiting from LIHTCs.
  
  PNC also makes direct loans, outside of the FHA and the government-sponsored entity programs, and has found opportunities to securitize some of its multifamily permanent loans. The rating agencies have become more comfortable with including permanent mortgage loans associated with 9 percent LIHTC transactions in commercial mortgage-backed securities, and PNC is taking advantage of this emerging market. Additionally, if long-term financing for 4 percent LIHTC transactions is being provided through the proceeds of tax-exempt bonds, PNC can facilitate this through its Direct Bond Purchase program.

Flat Shoals Apartments

One illustrative example of when PNC used its various product lines to preserve affordable housing is the Flat Shoals development, a 228-unit apartment complex in Atlanta, Georgia. Originally built in the mid-1960s, Flat Shoals sustained fire damage to two of its buildings in early 2004. To assist in the restoration of these buildings, PNC provided a $9.8 million construction loan and a $4.1 million bridge loan and served as the tax credit syndicator responsible for bringing $6.7 million of equity into the project. PNC also provided a forward commitment from Freddie Mac for the enhancement of tax-exempt bonds during the permanent financing stage. This comprehensive financing structure enabled two developers, Bi-Coastal Development and Craig Taylor/Pro-Housing, to restore this affordable complex to its original state.

The rehabilitation of the damaged apartments took three years to complete and was done building by building in phases, so tenants were relocated for a minimal amount of time. The rental units were all one- and two-bedroom apartments, and 90 percent of the units were made available to residents with income at or below 60 percent of the area median income.

For more information on PNC, e-mail Amy Vargo, Vice President, Corporate Communications, The PNC Financial Services Group, call her at (412) 762-1535, or visit PNC.