Sixth District CRCs Adapt to a Changing Environment: Community Development Deals Have Become So Complex in Recent Years That It Is Common Practice to Involve Several Funding Sources and Numerous Public and Private Partners in a Project
Cruz-Taura, Ana, Partners in Community and Economic Development
It is difficult to recall the time when Low Income Housing Tax credits were considered "creative and innovative." Then many banks were reluctant to finance affordable-housing deals on a go-alone basis. Multi-bank community development organizations or consortia emerged just 15 years ago as a new financing vehicle to attract bank participation in these deals by offering a mechanism that allowed banks to pool their funds and share risk.
One such consortium is the community reinvestment corporation (CRC) model pioneered by The Development Fund, a nonprofit organization based in San Francisco. CRCs have significantly benefited the financial industry by providing a greater understanding of these projects, so that over time this business has become second nature for most banks. Given hanks' growing familiarity with community development lending, what is the role for CRCs in today's Financial environment?
A look at the conception of CRCs
Since 1989, The Development Fund has partnered with financial institutions throughout the country to create CRCs to meet long-term community development debt financing needs. Restricted by technical limitations, lending limits, or both, financial institutions often cannot fund community development projects independently. These nonprofit mortgage banking consortia allow hanks to lend through a pool of funds, and thus reduce their individual exposure to risk. Well-managed CRCs also allow banks to realize a reasonable rate of retinal and provide access to a staff with a high level of technical expertise.
Florida CRCs account for two of the ten created by The Development Fund: the Central Florida Community Reinvestment Corporation established in 1990 in Orlando, Florida, and The Tampa Bay Community Reinvestment Corporation created in 1993 in Tampa, Florida. Both organizations are finding ways to respond to the changing funding environment. During the last five years both decided to extend their market area to the entire state of Florida as well as broaden their mission to include economic development. To reflect this change in geography and mission, they changed their names to Florida Community Partners and Neighborhood Lending Partners, Inc., respectively.
Meeting the credit needs of large projects
The original purpose of the CRCs was to address the specific need for permanent financing of large community development projects. Initially, while banks were willing to finance the construction of affordable multifamily developments, permanent financing was more difficult to obtain at competitive terms and rates. This was especially tree for development projects that incorporated Low Income Housing Tax Credits and other layers of funding necessary to make rents affordable for lower income households.
In addition to structuring financing, CRCs package loans for sale in the secondary market. This serves to create a stable source of liquidity and income, allowing them to further leverage the loan pool to support the continued production of affordable housing units.
The success of CRCs has provided participating banks with valuable experience about how to undertake safe, sound community development deals. Their steady progress along the community development learning curve and the appeal of a profitable new market prompted many linger institutions to establish in-house programs to finance affordable multifamily projects.
Development projects in the Florida market grew large enough to accommodate the entry of new lenders and eventually a richly competitive environment took shape in which all participants--developers mid lenders alike improved their performance and capacity to maintain an edge. This success suggests that the CRC structure could prove effective in supporting New Market Tax Credit projects that target economic development. Their history will provide a sound reference on best practices in private-public partnerships that promote healthy development financing. …