Affordable housing finance continues to be a huge challenge. To keep their projects financially viable, developers are getting creative while working closer with both public agencies and private lenders.
In 2024, Citi Community Capital, the community lending division of Citi, financed $7 billion in affordable housing—supporting the creation or preservation of almost 36,000 apartments across 34 states, including housing for families, seniors, veterans and formerly homeless individuals. How did they do it?
We asked Head Jeremy Johnson to share details about the financing tools that proved most effective, and also touch on how deals are being structured in today’s economic environment.
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What were the main factors that led to Citi financing $7 billion in affordable housing last year—up from $6.5 billion in 2023?
Johnson: CCC’s clients continue to be extremely resourceful in bringing financing sources that balance development budgets, and while costs and interest rates remained very high, the rate of inflation stabilized at the end of 2023 through 2024, enabling our developer clients to adapt to those higher costs and execute more effectively on their development plans.
In addition, CCC’s banking team works very closely with developer clients on collaborative financing solutions that enable certain new construction and acquisition rehab developments to move forward, driving incremental financing volumes.
What types of financing structures made up the bulk of that $7 billion volume?
Johnson: CCC’s primary lending product is a proprietary construction-to-permanent balance sheet loan, which provides a single financing solution for developer clients. With that financing structure, Citi is the construction lender and the permanent lender with a forward permanent loan that is funded upon stabilization of the affordable multifamily development and that has a fixed rate of interest established at the time the construction financing if closed.
One development you recently financed is Logan Fountain, a $214 million project that transformed a vacant parcel in Brooklyn into affordable apartments, with supportive and transitional units for the homeless. Can you provide details about Citi’s role in this deal?
Johnson: Logan Fountain is a unique project, providing both 175 income- and rent-restricted apartments, and 169 apartments for families experiencing homelessness in the same building. This East New York project required two separate but coordinated financing structures given the capital source dynamics of each component.
Taking a leadership role, Citi structured and privately placed $97.7 million of debt to finance the entire capital cost of the shelter housing component, which was secured by a long-term contract from the City’s Department of Homeless Services. Additionally, Citi issued a $67 million letter of credit to finance the affordable housing component. Citi serves as construction disbursement agent for the entire project and all the capital sources that were required.
In your view, what role do public programs play in making affordable housing financing deals pencil out?
Johnson: Without public programs, it would be impossible in most geographies in the U.S. to create multifamily housing units with any level of affordability. The public programs—namely LIHTC and governmental subordinate debt programs—provide crucial, subsidized subordinate capital in exchange for affordable rent restrictions that could not otherwise be achieved in conventional capital markets.
How are you seeing capital stacks evolve in today’s climate, especially in high-cost markets?
Johnson: Subordinate sources have always been critical to developing and preserving affordable multifamily housing units. In today’s climate, governmental gap financing plays an ever-greater role, as have state tax credits and local and state property tax exemption programs, which have also helped to encourage multifamily housing affordability.
How have interest rate fluctuations and inflationary pressures impacted your underwriting and risk evaluation approach?
Johnson: From a market underwriting perspective, higher interest rates increase soft costs during construction, which must be sourced through additional capital. Additionally, all else equal, higher interest rates result in a higher fixed rate for the permanent loan, thus reducing the underwritten permanent loan proceeds. In short, higher interest rates result in the need for increased incremental subordinate sources to construct or preserve the same number of new affordable units.
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What trends are you seeing in terms of financing demand for specific product types?
Johnson: As wages generally have not kept pace with increases in rents, the demand for affordable housing across the full spectrum of multifamily housing developments continues to accelerate. Thus, CCC sees high demand for traditional LIHTC affordable housing, as well as supportive housing, age-restricted affordable housing, project-based Section 8, mixed-income, as well as naturally occurring affordable housing.
Are there any trends in developer or investor behavior that you’re keeping a close eye on?
Johnson: Certain private sources of capital have become more prevalent in affordable housing development budgets—sources that have typically only been relevant in conventional multifamily housing developments. In certain cases, those more conventional subordinate sources have been critical to establishing a balanced development budget enabling the affordable housing development to proceed.
Looking ahead, what are your priorities as you continue to support housing affordability at scale?
Johnson: We will continue to work closely with developer clients and other stakeholders to be as creative and commercial as possible in providing financing and other capital solutions to enable developer clients the ability to create and preserve affordable housing units for individuals and families that desperately need safe, sound and affordable housing.
While traditional affordable housing financing will continue to be core to our current and future lending platform, innovative financing and capital solutions will be critical to expanding CCC’s reach and to enabling the industry to continue increasing the supply of affordable multifamily housing.
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