CLEVELAND—As reported earlier this week in GlobeSt.com, KeyBank has decided to launch a major expansion of its work in the affordable housing sector. Not only will the Cleveland-based institution expand its footprint in the sector from 12 to all 50 states, it plans on "doing more with our existing client base," Robert Likes, the head of Key's community, development, lending and investment segment, tells GlobeSt.com. He will lead the effort, which brings together six other senior-level leaders who will direct a team of more than 50 professionals across the US. 

"The demand keeps growing and we have been very successful in a 12-state footprint for many years," he adds. And aside from the healthy state of the sector, this move makes sense for KeyBank in other ways. It has a 50-state footprint for its work in all other sectors, so this expansion simply brings the affordable housing sector in line with the rest. 

But the great need for more affordable living spaces remains paramount. "There are only about 100,000 units that get added to the affordable housing stock each year," Likes says. And for several decades now, inflation-adjusted incomes have been flat but rental rates have usually maintained steady increases.

Furthermore, affordable housing developers now have greater need for the types of loan programs offered by Key. The cost of development has risen in the past few years, with owners and builders having to pay more for land, labor and materials. "Therefore, to make an affordable housing project work, you now have a much greater need to drive down the debt level," Likes says.

"I have seen a lot of our traditional market-rate developers start to ask questions about getting into the affordable housing sector," he adds. And many get focused on acquiring existing developments, some of which are decades-old at this point and need more investment to sustain cash flow. But through a combination of cash equity, tax credits and other financing tools, properties can be not just acquired but preserved as affordable. "They see the need and value to preserving the existing housing stock and know it's a great business where they can keep occupancy up."

The Low Income Housing Tax Credit program has been around since the 1980s, he points out, long enough to generate a real track record, and the sector has consistently had a very low foreclosure rate. "This is a good, long-term durable investment with unlimited demand that provides decent cash flow." 

The bank also plans to launch innovative programs in the field of affordable housing. This year it joined with The Kresge Foundation, the Robert Wood Johnson Foundation and Goldman Sachs to committ more than $70 million to start the Strong Families Fund, which will finance construction or renovation of 600 to 700 affordable-housing units in the next three years and support on-site access to social services for a decade. For its first project, the fund will help rehabilitate 112 units of affordable, family housing at the Deborah Strong Housing complex, located in Ypsilanti, MI.

The expansion of the bank's work in this arena has already begun. By the end of this year, Likes expects it will complete between $800 million and $1 billion in capital solutions for the affordable housing sector, or about double what it did last year.