Banks provide more than $100 billion in capital each year to low and moderate-income communities as part of their Community Reinvestment Act (CRA) investing requirements. Increasingly, they are focusing those dollars on supporting affordable housing projects.
“As a regulated institution, we are required for CRA purposes to make these types of community development investments, but we are really passionate and purposeful about impacting our communities,” says Keitt King, head of Truist Community Capital. Truist is the new entity from the recent merger of SunTrust and BB&T. “I like to think we would be doing this at Truist whether the regulators required this of us or not. We see it as good business, and an opportunity to build our communities.”
Prior to its merger with BB&T, SunTrust had announced a $60 billion community benefit plan that Truist will now be executing over the next three years. Part of that commitment includes a $3.6 billion commitment to CRA eligible investments.
Affordable housing has traditionally been a focus for banks. However, it is getting a lot more attention these days given the affordable housing crisis in the country. According to the 2019 State of America’s Housing Report published by the Joint Centers for Housing Studies of Harvard University, nearly half of all renter households (47.4 percent) are cost-burdened, paying more than 30 percent of their income for housing. In addition, the country is battling a shrinking supply of existing affordable housing. The inventory of low-income rentals contracted by 4 million units between 2011 and 2017, according to the report.
Supporting affordable housing projects is a significant part of KeyBank’s community development focus. The bank provides both debt and equity to a variety of different types of projects, such as permanent supportive housing for groups including disabled veterans and chronically homeless, as well as investing in Low Income Housing Tax Credit (LIHTC) and Section 8 housing projects.
“Having a very strong focus on community development, which includes affordable housing, really helps the bank achieve its mission of helping clients and communities thrive. It makes sense from an impact perspective, and it’s good business,” says Robert Likes, national manager, community development lending and investment, at KeyBank Real Estate Capital. KeyBank is very active in both CRA lending and investing. Through its community development lending and investment group, the bank provides more than $2.5 billion in new lending & investment each year.
Providing gap financing
Traditionally, one of the main vehicles that banks have used to invest in affordable housing are LIHTCs. The program is a bedrock in addressing affordable rental needs and will continue to be the “go to” program, notes King. However, LIHTCs can only do so much. Banks also recognize the importance of finding ways to raise flexible, private capital to create some gap financing to support affordable, naturally occurring affordable housing (NOAH) and workforce housing. That is especially at a time when construction costs have increased and continue to rise.
“We have put together a pool of capital that we are trying to strategically put out in communities to address issues like affordable housing,” says King. For example, Truist is participating in public-private partnerships, such as the Washington Housing Initiative (WHI) in Washington, D.C. The WHI is a non-tax credit solution aimed at creating some gap financing to preserve workforce housing properties in the D.C. metro. True LIHTCs projects serve renters making 60 percent AMI or less. Workforce housing is often defined as serving AMI renters making from 60 to 80 percent AMI.
Truist has also committed capital to the Charlotte Housing Opportunity Investment Fund (CHOIF), which will provide gap financing to support non-profit affordable housing developers. The city of Charlotte, N.C. issued bonds to raise money for its housing trust fund, while the private capital side is coming largely from banks and insurance companies. The fund will be managed by the non-profit group Local Initiative Support Corporation. Truist is participating in different public-private funded housing initiatives in Atlanta, Baltimore, Durham, N.C. and Nashville, Tenn., among other cities.
KeyBank is also investing in various different funds with its CRA investment dollars to help create and preserve affordable housing. “The demand far outweighs supply by millions of units across the country. So, it is a good thing to have more investors entering the market with funds that are working to preserve the naturally occurring affordable and existing affordable,” says Likes.
Community reinvestment goes beyond CRA dollars
Banks will be watching more details emerge following the December announcement by the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) that it plans to modernize the agencies’ CRA regulations, which have not been substantively updated for nearly 25 years. Among the proposed changes, the FDIC and OCC aim to:
- Update where activity counts.
- Measure CRA performance more objectively.
- Make reporting more transparent and timelier.
- Reduce CRA deserts and hot spots.
- Provide flexibility to small banks.
However, it is also important to note that, for most banks, the focus on community reinvestment goes well beyond regulatory requirements. “Across the bank and our businesses, TD Bank has a variety of business-driven and charitable giving activities collectively support our CRA activities,” says Candice Cambridge, head of community development service strategy at TD Bank.
In 2018, TD's Commercial Real Estate business extended more than $1 billion in community development financing to projects that included affordable housing developments in local communities in the form of debt and equity. TD Bank also launched The Ready Commitment in 2018 that refocused the bank's giving by targeting $1 billion (Canadian dollars) by 2030 with an emphasis on maximizing its impact in four key areas: financial security, vibrant planet, connected communities and better health.
Embedded within The Ready Commitment are many initiatives that support the bank's CRA efforts, such as partnering with community organizations on affordable housing projects. In addition, the TD Charitable Foundation provided 25 grants totaling $3.13 million in 2018 to organizations working to develop or rehabilitate affordable housing through a grant competition called Housing for Everyone. “Our lines of business and our TD Charitable Foundation also support organizations and initiatives that work to achieve our goals of helping our communities feel more confident about their financial security—again, many of which support CRA efforts,” says Cambridge.
