Affordable housing lenders and investors in California said the fallout from the collapse of Silicon Valley Bank has been muted to date, but cautioned that the lender’s role would be tough to fill.
SVB was a major lender in affordable housing, and its failure leaves a void, said Ari Beliak, president and CEO of Merritt Community Capital Corp., a nonprofit investment firm based in Oakland.
“Silicon Valley Bank was a great actor within the affordable housing industry and had a great staff that was able to execute highly complex transactions,” Beliak said. “When you remove one of the big players from the field, it makes it harder.” California’s affordable housing lenders are at capacity for how many loans they can service, Beliak said.
“There’s a finite number of institutions, and a finite number of people — literally the people who are doing this work and can get this work done,” he said. Beliak predicted that affordable housing projects at the margins — developments in rural areas, or those backed by less experienced developers — will be most at risk of falling through the cracks.
“There’s a flight to what’s easy,” he said.
Loans from major banks are still going through, industry officials said. Jamboree Housing Corp., a major affordable housing developer, was closing two loans on Wednesday, said Michael Massie, Jamboree’s chief real estate development officer. The lenders were JPMorgan Chase & Co. and Bank of America Corp.
“We’re in the process of closing two deals [Wednesday],” he said. “So we’re very cognizant of what’s going on. We don’t see this really as a wider, macro problem.”
JPMorgan’s loan will fund a new multifamily building in West Sacramento. The Bank of America debt will go toward a supportive housing project with WISEPlace, a women’s shelter in Santa Ana, Massie said.
The social media-fueled run on SVB, which resulted in federal receivership, comes as state and local leaders grapple with an increasingly dire housing crisis in California.
Other industry insiders said they are confident the damage from SVB’s collapse has been contained.
“SVB was a major lender and investor in affordable housing, but its troubles had nothing to do with its activities in affordable housing,” said Buzz Roberts, president and CEO of the National Association of Affordable Housing Lenders. “Affordable housing loan performance has been very, very strong.”
SVB’s successor, the federally created bridge bank led by veteran banking executive Timothy Mayopoulos, is continuing to service existing loans with longtime staff, Roberts said.
“The affordable housing team at SVB continues in place,” Roberts said. “Construction loans and permanent loans are continuing to close and be funded. We’re very pleased that there hasn’t been the disruption that one might have feared.”
It remains to be seen whether SVB’s loans will be acquired by another bank in whole, or broken into pieces and sold to multiple buyers.
“There could be some temporary disruptions, but we don’t see a long-term impact,” Roberts said.
Massie, the developer, said borrowers who were in the process of closing loans with SVB could likely find another lender to step in.
“The [loans] that haven’t closed, it’s just a matter of going out and finding a new lender,” Massie said. “Not great in this environment, but not insurmountable.”
The impact of the banking turmoil has been limited, said Seth Merewitz, a partner at Best Best and Krieger LLP in Los Angeles and Sacramento who leads the public-private partnership group. “Anecdotally, we haven’t really felt any implications at this point,” he said.
In fact, he said, interest rate increases have had a greater impact on affordable housing development. On Wednesday, the Fed raised interest rates another quarter-point to fight inflation.
“Certainly, interest rates going up make it more difficult for projects to pencil [economically],” Merewitz said. “Ultimately, people can handle higher rates, but uncertainty is very unsettling. A year ago we were doing deals at much lower interest rates.”
Escalating construction and land costs have also prompted some developers to take out additional debt, said Roberts. “Those other factors have both led to some delays in projects and caused some developers to have to seek additional funds to overcome those other challenges,” he said.
Nationally, banking turmoil may cause lenders to hold back, impacting the pace of residential construction, Fannie Mae chief economist Doug Duncan said earlier this week. That could exacerbate the housing crisis by denting future supply.
“There is a risk that banks will tighten construction loan lending standards in an effort to manage liquidity, which could put a damper on future starts,” Duncan said in a prepared statement.
Apart from SVB’s failure, affordable housing has been a booming sector in California, with local, state and federal money pouring into the industry to address rampant homelessness and a dearth of housing. For investors and lenders, the supply-constrained industry has offered an alternative to the troubled commercial real estate landscape.
“Housing is an area that is very much in favor now,” Merewitz said.