Capital Magnet Fund
The Community Development Financial Institutions Fund (CDFI Fund) created the Capital Magnet Fund (CMF) to spur investment in affordable housing and related economic development efforts that serve low-income families and communities across the country. In 2018, the CDFI Fund granted Beneficial State Bank $3MM from the CMF program to support the creation, acquisition/conversion, preservation, and rehabilitation of affordable housing in Oregon, Washington, and California.
THE PROJECT
The Community Development Financial Institutions Fund (CDFI Fund) is an agency of the U.S. Department of Treasury that promotes economic revitalization and community development through community investment and financial assistance to certified CDFI’s. The CDFI Fund created the Capital Magnet Fund (CMF) to spur investment in affordable housing and related economic development efforts that serve low-income families and communities across the country. The CMF award program supports the creation, acquisition/conversion, preservation, and rehabilitation of affordable housing in the places that need it most. It provides competitively awarded grants to CDFIs and qualified nonprofit housing organizations, and requires a 10:1 private investment leverage multiplier for every dollar of grant funding.
Operating under our broader multifamily lending division, Beneficial State Bank offers financing intended to further enhance affordable housing developers’ ability to compete with private capital. These can be permanent term loans or can serve as temporary financing while the developer acquires longer term funding. Long term funding could include federal subsidies or grant sources.
In 2018, Beneficial State Bank received a $3MM CMF grant to use as loan loss reserves for loans that create or preserve affordable housing. CMF-funded loan loss reserves are intended to act as credit enhancement, offering borrowers quicker access to financing than would otherwise be available. This is especially true for affordable housing developers who have urgent need for low-cost, quickly assembled financing to compete effectively with other market-rate developers.
CMF-funded loan loss reserves allow Beneficial State Bank the flexibility to issue tailored and low cost loan offerings that can be adjusted to market conditions and borrower needs. These loans, ranging in size from $500M to $1.5MM and averaging $1MM, and carry a low interest rates ranging from 1.1% to 5%.
Typically, nonprofit and affordable housing lending demonstrate lower debt service coverage ratios (an indicator of a borrower’s cash flow available to make loan payments) as a result of lower rents and thus lower monthly income.
With CMF-supported loans, we can keep the cost of financing low for nonprofits so that they, in turn, can keep rents affordable amidst the fierce competitive nature of housing development markets.
OUR IMPACT
As of Dec 31, 2019:
Our CMF award financed the preservation or creation of almost 1,395 units of affordable housing thus far. Below is an overview of the housing lending that is supported by the CMF grant.
644
housing units
in California
507
housing units
in Washington
995
housing units
in Oregon
454
affordable units
to Extremely Low Income households earning 30% AMI or less
393
affordable units
to Very Low Income households earning 50% AMI or less
385
affordable units
to households earning 60% AMI or less
136
affordable units
to Low Income households earning 80% AMI or less
To date, we have deployed $1.1MM of the total $3MM grant funding and leveraged it with $127MM of financing from other sources (including our own loan capital as well as other lenders’ loan capital). This means that for every dollar of CMF grant, we leverage $115 of private capital for dedicated, deed-restricted affordable housing.
MOVING FORWARD
With external funding for reserves, guarantees, or other forms of credit enhancement, we are more able to lend to difficult-to-finance projects. Thanks to the success of this grant deployment, we are exploring third-party credit enhancement arrangements to serve other financing needs that are deeply mission-aligned but which present underwriting challenges (e.g., microlending or small business lending).
Federal funding for CDFI’s like Beneficial State Bank is critical for financing projects that have cash flow challenges or are riskier from a credit perspective, as affordable housing often is. We also continue to participate in coalitions advocating at the federal level for continued CDFI Fund programming.
While deploying CMF-supported loans has resulted in obvious gains for housing affordability in our markets, it has also highlighted for us the limitations of supporting affordability only through dedicated, deed-restricted affordable housing. Far more renters rely on the larger housing market, the vast majority of which is non-dedicated. We must also try to support affordability in this broader market, and we continue to explore ways to do this. Examples include loan pricing incentives that reward property owners who keep their rents affordable.
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