Webinar: Innovative Financing Fuels Affordable Housing Growth
Brett Sheehan: Well, this is good, so this is the KeyBank webinar where we're going to talk about the HollywoodHUB project.
First off, I want to say, the Hollywood Project is an affordable housing deal in the Hollywood neighborhood in Portland, Oregon. It's 224 units of affordable housing that was developed by BRIDGE Housing, and the financing was provided by KeyBank, and that's what we're here to discuss. And for those who are curious, it's called the HollywoodHUB because it's in the Hollywood neighborhood, so named after the historic Hollywood Theater in Portland, Oregon.
So, the panelists that are going to speak today is myself, I'm Brett Sheehan, and also we have Sam Adams, Kortney Brown, and Ken Lombard. Each of them will get a chance to introduce themselves in a minute, but first, I'm going to introduce myself. I'm Brett Sheehan. I'm the relationship manager at KeyBank for the Pacific Northwest, so I was the relationship manager for this specific project. And normally I do balance sheet loans, construction loans, lines of credit, things like that. My role on this project was a little bit different, but we're going to get into that.
I'm also the moderator for this panel. And I just want to say a little bit about KeyBank before we get started. So KeyBank is the about the 20th largest bank in the country, though over the last 5 years, we've been a top 5 affordable housing lender, so we like to say we punch well above our weight when it comes to affordable housing finance. , it's part of the reason I joined the bank seven years ago was so I could do these sorts of deals. , also, before we get too far into this,
we've disabled the chat function and you can submit questions using the Q&A function. I will track those, we're going to do Q&A at the end, but you can always type it in at any time. , I think that's everything I needed to do for the introductions. So now I think the next person I was going to give it to was Sam. Go ahead, Sam, introduce yourself, tell us how you're involved in this HollywoodHUB project.
Sam Adams: My name's Sam Adams. I'm with KeyBanc Capital Markets. We're the investment bank or the broker dealer on here at Key. I run the affordable housing and housing practice for the Affordable Investment Bank here. I'm based out of Columbus, Ohio, and, , I've been with, , the organization for about 9 years now, and we served as a bond underwriter on this transaction for, for BRIDGE, , part of a practice we've done about $6 billion of affordable housing bonds in the public markets since I've joined the group, , about half that or about 3 billion are on similar structures where an investment grade credit entity provided, , to directly access news.
Brett Sheehan: And Kortney, why don't you tell us about yourself and your role in this project.
Kortney Brown: Perfect, thanks, Brett. I'm Kortney Brown. I'm the West Coast equity originator for Tank. I'm based in Boise, Idaho, and I started with T in, let's say 2015. So, over the last 10 years or so, our equity platform has grown considerably. When I first started, we were purely only investing for our own CRA needs, and over the last 5 years or so we've added a syndication platform which has allowed us to increase our level of investment and do larger deals like this, like the HollywoodHUB, and enable us to follow our clients nationwide. So, I was the, we provided the tax credit equity for this project.
Brett Sheehan: Thanks, Kortney, and then Ken, why don't you tell us a little bit about yourself and then you could tell us a little bit about BRIDGE Housing.
Ken Lombard: Sure, I'm Ken Lombard. I'm the president and CEO of BRIDGE Housing. My primary responsibility is, you know, like, we all like to think about make sure the trains are leaving on time and projects like this try to provide the right level of guidance, and what can be a challenging environment for getting projects like this done. So we are excited about the project. We always maintain our excitement about our relationship with KeyBank. They've been very instrumental in assisting us on, on making this happen. Just a little bit about BRIDGE Housing, not to be mistaken for BRIDGE Investment Group, which, on both sides, we say we are friendly, but we are different. We're the largest nonprofit affordable housing, , developer and owner based on the West Coast. , we started in 1983. , we participated in the creation of more than 23,000 affordable units, , up and down the West Coast from Seattle to San Diego, and our current portfolio sits at about 14….1700 units and is valued at about $4 billion. , so we're, we're a bit different, , in a, in a lot of different ways in the sense that we were the first nonprofit affordable housing to earn an S&P rating. We're the first nonprofit developer to issue GO bonds, raising $100 million in 2020, we also secured $250 million in a revolving credit facility for Morgan Stanley and NEF. And we're currently raising an equity fund totaling about 350 million primarily to finance acquisitions. So, all of these are elements that can differentiate us from others, but as much as anything, position as well to continue to execute on our growth strategy over the next 3 years.
Brett Sheehan: Thanks, Sam. Hey, Debra, can you pop up the HollywoodHUB slide?
So, as Ken talked about, this is the HollywoodHUB projects in 12-story tower, 224 units, affordable housing. It's a mix of studio through 3 bedrooms, serving a variety of folks at 30 to 60% AMI finance is a combination of tax credits and other things which we're going to get into as we get a little deeper into this project. Kenneth, do you want to talk more about the project itself?
Ken Lombard: Look, we're, other than being excited about it, I think it's, it's truly innovative in a, in a lot of different ways. I mean, the work that we're doing, in leveraging our balance sheet, and our S&P rating to issue construction bonds, I mean, the biggest challenge most of us have with ground up projects is the overall cost per door, which has become prohibitive. And when you can figure out cost savings like what we're able to realize on this project, that makes it exciting. Working with, with again with KeyBank and with the, with the city of Portland, this is going to truly be an exciting project, and we think provide solutions to a number of families, in the Portland area in Hollywood neighborhoods.
Brett Sheehan: That's awesome, Ken. So, so just to, , so I've been at KeyBank for, like I said, 7 years and I live in Portland, so I'm sort of the, the hometown boy who's been tracking this project for, I want to say 8 or 9 years back when it was just a, a site that Trime owned, and then I know that BRIDGE had submitted a proposal to, to Trime, they got awarded the chance to be the developer, and then BRIDGE typically does an RFP process to find their financing team kind of once they get the whole project lined up and queued up, but I do know it took the financing team several years to take a run of this project. It's a large, complex, and expensive project and
like I said, I think I've worked with several different BRIDGE financing teams and looked at it multiple iterations of the project to get it moving forward, and then finally we did, so what happened was that BRIDGE issued an RFP. KeyBank responded to that RFP and we were as part of our selection, we said, hey, you know, there are some alternate financing techniques that we can use to sort of help you save some costs. Like every project, financing and costs were super important and this one was particularly tight, and so that was the, the, the impetus to try to come up with an alternate or creative financing solution that would save some funds. And with that, I think I'm going to let Sam talk about the specifics of what we did on the financing side.
Sam Adams: Certainly I've been informed my audio may not be coming through too clearly. So if that's the case, please let me know, but I'll certainly talk through some of the major points. , the plan here was to utilize the allocated private activity bonds for the 4% I tech transaction here, and in this case that was targeted at about $71 million. The plan was to go to market and see some of the other financing elements of the deal, but, KeyBank was also involved in the equity contributions to the deal, and you can see that the total equity raise, through Kortney and her team, was $62 million. The permanent financing on the transaction was done via a private placement through one of the investors that the bank works with.
Brett Sheehan: I'm going to jump in here real fast just to say… so part of what we did…so BRIDGE issued an RFP looking for financing, and then we responded, and we responded with what we like to call our one KeyBank solution, and that's a, that's a scenario where KeyBank offered a combination of construction financing, permanent financing, and equity. So normally that would be in a traditional vanilla tax credit project. I would provide the construction loan, we would have an agency take out with a KeyBank mortgage banker, which we don't have on this call, but so that might be a Fannie Mae permanent loan or Freddie Mac permanent loan, or private placement permanent loan, and then also, Kortney and KeyBank KCDC would provide the equity, which is why that was our initial pitch to BRIDGEs, hey, let's do this as a one key solution, we'll do construction perm and equity, but then
We got more creative and brought in Sam on the capital market side. So Debra, could you, could you show me the Sources and Uses slide? I think that might be helpful just for a minute. So, this is the overall financing stack, and Sam, I don't know if you want this or a different slide as you go into a little bit more detail.
Sam Adams: Kind of the last slide in this one are kind of part of the same conversation, but, but largely BRIDGE had already done most of the heavy lifting and secured an S&P credit rating, as Ken mentioned, they'd already had a very successful bond sale for a taxable corporate raise we would describe as non-project specific. But, keeping capital markets has led the nation for a number of years and working with housing authorities who are very similar to the municipal bond market, with a credit rating, utilizing the S&P credit rating to raise money directly from institutional capital investors, many of whom, would lend to governments in a normal circumstance. But in this case, given the credit strength of BRIDGE Housing we were in a position to work with BRIDGE to do what, what amounts to kind of the first of its kind transaction, for this tax credit financing instead of, borrowing from banks, which is the for private lenders, the overwhelming majority of tax credit construction financing in this country, , BRIDGE Housing was able to go with a bond offering, led by KeyBanc Capital Markets as bond underwriter and directly borrow that money from institutional investors, , provided they are similar to most construction loans, , guaranteeing the repayment of those tax exempt bonds.
And I think that really was key in the conversations we were having with the, the BRIDGE team, both at an executive and a project level. The structure we ended up utilizing here was as little difference as possible from what a normal transaction would look like. And we'll get into some of the procedural and logistical elements that were somewhat different but most importantly from BRIDGE's perspective, and please correct me if I'm speaking out a turn from BRIDGEs's perspective here, but, largely BRIDGE was already planning to guarantee repayment of the construction loan on standard terms for construction loans in the industry.
Brett Sheehan: In this case, there's, as a construction lender, there's no way I would make a $71 million loan on a project unless I had a corporate guarantor who I was confident in. BRIDGE is financially strong, I'm very comfortable making that $71 million construction loan, but in this case, it wasn't necessary.
Sam Adams: Correct. And, and largely it's a great credit. A lot of organizations would like to lend money, but the core difference, and we'll get into some of the technical elements, but the core difference is where you're borrowing the money. And the difference is banks are functionally driven off of borrowing, either borrowing, deposit bases, but kind of traditional bank capital. The municipal bond investor base is very different. They are designed to go buy and invest in tax exempt bonds and so they have a tax advantage investor base and largely what that means in this case particularly is a considerably lower interest rate available or functionally the same guarantee from BRIDGE. , and if you want to go to the next slide for one second, I can talk a little bit about the market context that largely exists now, but also has existed for some time now and largely the two lines are not exactly for this deal, but generically construction financing. The blue line is SOFR + 200, a very generic gauge of construction borrowing rates in our industry. The red line is the 3 year MMD, which is the tax-exempt index. Think of the yield curve for tax exempt debt plus 100 basis points, a very general approximation for investment grade housing entity.
And you can see the difference here. This is the cost to do the deal, in as much as we can do apples to apples terms. And one of the things I would note is if you look a few years ago, this particular structure wasn't that attractive. There wasn't a lot of reason to do it. In fact, it probably was actually minimally advantageous relative to the work it would take, you know, you might be saving 7080 basis points. But as you can see, there's a return with interest rates going up, where the tax-exempt benefit and investors who value that really provide an advantage. And so you can see that, when we went to market, the bond sale we labeled as 3.95%, you could think of that a bit as an APR. That was not the actual cost of capital, that was the cost of capital plus additional costs provided in the deal, so that we're trying to give you an apple to apples comparison for fairness sake and honesty sake, that's really summarize,
Brett Sheehan: Sam, I'm going to, I'm going to take a stab at this. So, again, I'm normally a construction lender. So I initially replied to this RFP, offered them a $71 million construction loan at approximately so + $200 which would have been right around 6%ish we think at the time the loan closed. But with this structure, BRIDGE was able to acquire $70 million of construction financing at approximately 3.95% versus the 6% that we would have done with a traditional construction loan.
Sam Adams: That's exactly right. So over 200 basis points of savings and interest rate. Yes. Yeah, the key for us is making sure
Ken Lombard: in a challenging environment like what we have right now is trying to make sure that we access all levers that are available to us to try to reduce the overall costs, impact positive in a positive way, the potential interest costs included. Look at per door costs, but sustainability has got to be part of our equation. And what I mean by sustainability is being in a position because these, these capital stacks get extremely complicated, and we're not in an environment from BRIDGE's perspective. The traditional way of getting ground up deals done is essentially to underwrite your project to a point where you can get your developer's fee.
And then you worry about the rest of the gap financing later. That's not an approach that's sustainable, that's not how we look at this. So, being able to sit across the table from partners who are committed to the same types of values that we have to ensure that 1015, 20 years from now, as we look at this project, we have something that is able to, , is sustainable and not where as you see a lot of the portfolios across the nonprofit world and affordable world right now that are kind of having significant problems because they have not undergone the exercise of underwriting, so that, that we do. And so having partners like KeyBank, who think like we do, you know, Portland Housing Bureau, I mean, these are all folks that are important, on being able to build a project that we, you know, we can all look back on and be proud of.
Sam Adams: I think that's exactly right. It also speaks, I think, to a lot of the investor feedback we received, which is this isn't something that any organization is in a position to do even with strong financials. There's also some element of credibility and certainly organizations like BRIDGE really bring that to the table. In this case, it helped to. We had nearly $300 million of investor orders looking to buy these bonds at the time. So it does speak to a depth of market and, and really a testament to BRIDGE and the project itself, which was well thought out both financially and on a real estate level. There was a clear vision and long term plan, not a quick strike for developer fees in any way.
And Debra, could you put up the slide.
And really quickly, just to highlight this, as we mentioned, the largest and primary reason for this was a lower interest rate. That at its core was for lack of better word reasons 1, 2, and 3. There was a considerably lower cost of capital for construction financing on, in nearly all ways similar terms to BRIDGEs, commitments, obligations and what they were, committing to as an organization and guarantor. Additionally, we don't need to get into the details, because, that the interest savings were about $2.5 million depending on how you run some comparison models. But, additionally, the structure itself within the bonds provides a new construction deal, provides some actually quite attractive benefits related to some of the transactional costs that you don't need to complete some of the structural benefits available to the sponsor or BRIDGE as a developer, and also to actually the accounting treatment, which we'll talk to you in a little more detail, good and bad, certainly complex but economically beneficial on structures like this. And so, there is some additional benefit of effectively being able to generate more equity, than a traditional drawdown construction would generate on a deal like this. But all in all, the total economics of using the structured net of costs was about $4 million, between BRIDGEs organization and then the developer entity that BRIDGEs a part of with the tax credit investment group.
And for those who are maybe fortunate enough to be too familiar with sources and uses on a new construction tax credit deal, this is from the offering docent, but we tried to show is that the time of the original construction closing in the left, that's the sources and uses for construction, so you can see a little bit of when different elements of the transaction came in, and then, , the permanent financing, effective stabilization, what the deal was going to look like on a go forward basis. So you can see there are a number of secondary debt elements in the deal that as typical affordable housing as well as tax credits. And, you know, certainly at the bottom the uses of funds is a little more straightforward, but don't need to dig into it, just to try to highlight some of the line items relative to a normal structure that were considerably beneficial.
Ken Lombard: You know, the only thing I would add is that part of this….obviously BRIDGE in our financial strength, the strength of our balance sheet, the experience that we have on ground up projects is the key, but this overall commitment to execution, because now the fund begins after we started construction that we have to deliver, and the commitment that we have as an overall firm to execution is second to none. And despite the fact that we are, you know, a nonprofit, we very much think like and behave like a for-profit firm, in which I think from an attractiveness perspective, we still stay true to our mission, but in the same breath, we're committed to delivering everything that, our partners, KeyBank included, are expecting us to deliver.
Brett Sheehan: Well, Ken, I'll have you know, I actually get to drive by this project on the, every time I go downtown, so it's…I'm seeing it right off the freeway right there. So I know it's being built, so it's, it's great to see and, and also to highlight Ken's other point - the city of Portland does have approximately $41 million in this deal, so they are a huge partner in making this happen. So, I, you know, we didn't, we didn't include them on the call because it's sort of a specialized financing discussion, but to Ken's point, you know, this never would have gotten built without the city, and also $61 million from Gun Corp from the tax credit investment side.
So, I think we'll be sending out, we could send out the slides to all the folks. I don't know if everyone who was on the call can actually read this, and I'm going to point out again that if you have questions, submit them through the Q&A button on here, and then Debra, we're going to move to the challenges slide. so that's slide number 8.
I'm going to summarize this in the way, I'm just going to remind everybody that my job as the construction lender and as the relationship manager BRIDGE, I brought the deal in-house, and then pretty quickly I didn't have a job. And, and what happened was, again, I offered Ken and BRIDGE a $71 million construction loan and say, SOFR $200 so 6, 6.5% interest. Sam came up with an alternative construction financing technique, where BRIDGEs overall cost was right around 4%. So that saved them approximately $2.5 million. So that seemed like brainless win…save $2.5 million on a $150 million deal, do that and move on. Seems very simple. Turns out it's quite a bit more complex. And so, we'll talk a little bit about some of the challenges. And one of the main challenges that this whole project sort of hinges on is the fact that I'm not involved.
I am the construction lender, and normally as a construction lender, Ken would submit draws to me, I would approve them, and I would give him money and he would build the project. In this case, I'm just going to summarize, Sam will get me if I'm wrong. BRIDGE issued $71 million of bonds into the public market, and bond investors gave BRIDGE $71 million. So, there is no construction lender. The market lent $71 million directly to BRIDGE. And so, what does that mean? Well, from a functional standpoint, normally all you developers know what you would do.
On a monthly basis, you submit draws to your construction lender, the lender goes over it, makes sure everything looks good, and then gives you the money to build it. That's not happening in this case because there's no construction lender, there's no construction loan, there's no construction loan agreement. There's that whole process is not happening. And so that just sort of blows everybody's minds because now, folks like the investor, soft lenders like the city, , the permanent lender, wanna make sure that BRIDGE is in fact going to build this project as per the architect's specifications. And normally, we, as the construction lender would send an inspector out on a monthly basis to check and verify that and also review construction draws. Now, I'm not doing that on this deal because I'm not the construction lender. That could be a problem for a lot of folks. So, what is happening is, BRIDGE is still doing monthly draws, they're being submitted, but we're not approving them. We still have a third-party engineer doing inspections on a monthly basis, those are being submitted, but we don't have approval rights on them, so it's happening… similarly, draws are being done on a monthly basis, if that's my camera or what. So that's sort of the direction we're going, or do you want to jump in on, on sort of the, the other, some of the other ways we're structuring this utilizing KCDC to sort of make this work?
Kortney Brown: Yeah, so, no, you're exactly right. So, on the equity side, we typically pair equity with our debt partners. So, we typically rely on Brett and his team, you know, to go through and handle that full draw process. But in this case, you know, we had to look at it more of an equity only type situation and how we would work through that if we had a different lender. Of course, in this case, that is BRIDGE. So, it's functionally happening just like it would otherwise, you know, we're still getting full draw packages, we're still getting those full third-party review reports we're still actively monitoring the draws on a monthly basis. It's just that there's no actual approval, right, but for the equity component, we're not also, we're actually not releasing any more equity until construction completion is happening.
So at that point in time, we will have all of those things with that installment that Brett had mentioned, you know, architect certification that it's built according to plans and specs, you know, and that was able to get, you know, we were able to get comfortable with that because ultimately, you know, we will have that understanding that the project, you know, was built according to plan.
Ken Lombard: let me jump in because I think, I think what's important, these are all critical components of how this deal has been pulled together, but when you think about it and the type of group that you're going to engage in a transaction like this, it has to be one that, like BRIDGE, is really institution ready and has the appropriate amount of discipline that, you know, we've been around for 40 years, we intend to be around for a lot longer. You don't get to not execute on projects like this. So, frankly, we are absolutely committed and have the discipline around acting in the best interests of the of the folks, the bonds, and the folks that have invested in this project, in the bonds, but it's important to, that is, BRIDGE’s reputation.
And you know whether it's our geo bonds and how we have actually conducted ourselves there, making sure we've got the right controls, the right approaches. Whether it was Brett, you coming in with the services that you would provide, that's the same level of approach and discipline that we have on how we engage in every dollar that gets spent on this project. Construction management is a key component because as we all know, a big project like this can turn into a runaway train if you don't have the right people watching it on a day-to-day basis. I mean, we are boots on the ground, we are frankly meeting as often as need be, but at a minimum weekly updates on these projects.
We've got a full team of folks that are engaged in this - in our accounting systems led by Delphine Sherman, who's our CFO, is really second to none. I mean, in the discipline approach. Everyone spends dollars like they're coming out of each one of our pockets, and we value, we are guardians of the BRIDGE reputation, and in doing that, we have to have the right amount of discipline because our plan….obviously, you know, between Brett, Sam, and Kortney, we'd love to, and the rest of the of the KeyBank team, we'd love to do more things. So, it's important that we take that responsibility seriously.
Sam Adams: And to add to that, I would say certainly that is one of the reasons that bond investors are willing to provide capital at such a low cost, and I think what to add to that, the irony is we were almost a victim of our own success to some degree, or BRIDGEs, I should say, as a double minus entity, they are actually more highly rated than nearly every bank in the country by S&P which creates a slightly odd dynamic where the borrower is effectively allowed to borrow money or guarantee capital on looser terms than the industry is normal with. And the difference between the legal requirements of borrowing money and the ten's point, what people are actually going to do with that money, it kind of controls, and protection and institutional knowledge and care that an organization like BRIDGE would do, on a project like this. But at that point, on our end we sell the bonds, there are very limited covenants that are imposed on BRIDGE by bond investors, but as part of a complex tax credit transaction maybe you could say you can't beat City Hall, banks, lenders. There's a system in place that works, that has worked and that helped to keep the industry nearly default free on most projects, which is certainly a credit positive for everyone involved. But it, I think as you'll see in this conversation, and most of what we ran into was logistical new problems. To some degree, great, we can raise the money, but even if you can raise it, other people are going to say, well if you build it, how do we know it's built in the same process or manner, and more importantly, how do we docent it and how do we monitor that. And so a lot of that was, BRIDGE's team was incredibly patient and thoughtful in how to approach that, so that not only would this transaction work, would it be a model that they could replicate on their future projects consistently so that they're not every project is not new, but where possible there's some scalability to a model like this for them.
Ken Lombard: Well, Sam, you brought up something that's the key as we look at how this crisis continues to be addressed from BRIDGE and other firms like ourselves that are committed to providing affordable housing. These projects can't take this long to come together. I mean, Brent brought up the fact that this has been over 9 years at least that the project's been bantered around and taking nothing away from those early conversations. You know, we have to start seeing an approach that can get projects done in a reasonable period of time so that we could start providing more supply, more affordable housing options to communities.
Sam Adams: And I think that's one element here, while it certainly wasn't never the plan, nor did we really have to entertain it. One of the benefits of large organizations like BRIDGE is having a little more flexibility, with a bond offering because there's a little less of the traditional exact rigid lines. in fact, as we were going to market the exact, maturity of the bonds, it was something that we were working with the deal team on a daily or weekly basis to optimize market conditions. But as we worked through the project, we all really looked at the cost of adding some additional maturity to the construction bonds, so that BRIDGE wouldn't be in a position of needing to go back to market if there were construction delays or factors outside of their control. And rather than shave a couple of basis points off the deal, really working to, to have a solution that that was ideal for the organization and the project at the same time. And Ken's point to avoid delays or potential concerns down the road, I think that really speaks to BRIDGE really had a very high level view to be able to see not just what we are doing today, but with all their experience, what things could look like in 3 or 4 years, as well as the broader team and, you know, Kortney and her team and mortgage banking able to bring their expertise to the deal. Everybody just working in a very collaborative scenario to not point out problems, but rather address them and figure out what the right solution was without someone just banging their fists on the table, demanding what they wanted.
Brett Sheehan: Debra, can you switch it up to slide 4?
Brett Sheehan: There we go. No, there we go. Excellent. So, I think we're kind of getting close to the end of what we want to talk about. And again, if folks have questions, please submit those to the Q&A. I do want to say that, that kind of, the concept of KeyBank, we think of ourselves as, as bespoke lenders, which is to say, sit down with our client and figure out what's the right product for that client for that project today. And that's never the same twice. Everything we do has got to be custom-made. That's just the nature of affordable housing. So, this particular project, a $150 million new construction deal in Hollywood District, we would, I've done another deal with BRIDGE, and it was in Beaverton. Different project, different financing, different everything, and that made sense at the time. And so, I think that's important - to be able to provide a variety of tools to be able to build a project. Sometimes it's a construction loan, sometimes it's using bonds, sometimes it's using lift financing, what the different products that are available, and then customizing those in partnership with our developer to make the right thing happen. And that's really, I think what's super important on these kinds of deals is, as a developer, I think you really need to reach out to your financing team early to talk about what's going on in the market - what are alternatives, how do you price it, all that sort of stuff is really important and I can't overemphasize the need to talk to your financing team earlier. If you come to me and say, hey, I got a deal, it's going to close in 90 days, I can get it done. It's going to be hard, and it's not going to have a lot of choices. You're going to get back to my model, you're going to get an off the rack suit, and it's going to be exactly off the rack, no customs, and we're going to get it done in 90 days. But if we have 180 days or 120 days or whatever, we have time to, to really work with we're going to get you something that's really going to be a better fit, and that's that. I really want to highlight that. Sam, Kortney, did either of you want to sort of give us a little last pitch and then Ken I'll give you the final word. Sam and Kortney first.
Sam Adams: I can totally reiterate what you were saying, Brett, and I always describe it a little bit like cooking when speaking with people that, if we don't have a lot of time, you're cooking dinner with whatever you have in your kitchen. It doesn't mean you're going to make a bad meal; you're still going to feed everyone. But if you have enough time to plan ahead of what you want to cook and you have time to go to the grocery store, or as in look at all the options, you usually end up with a much better result at the end of the day. And so, on larger projects that given their size typically are going to have a little more of a lead time and a little more typically, innovation, can have a considerably larger result on some of those deals.
It's not always committing to one of those as much as ensuring you understand the pros and the cons of looking at something that might be new or newer to either use as an organization to the region, you're in, and I think BRIDGE did a great job here. They already had a very solid familiarity with a lot of what we're working on, there was just a slightly different combination of using the credit rating on this deal. But, certainly having that early engagement, openness to hear a new idea, not committing to it right away, just understanding what it's going to be, at least in this case, certainly led to, you know, a significantly positive outcome. And I think that's just good guidance for those who might be in a similar position to just to understand all the options available and the good and the bad. Not the sales pitch but the actual product or process that would be used in such a case versus maybe what they're more comfortable. Kortney, hand over to you as well for your thoughts on the equity side.
Kortney Brown: Perfect. No, I mean, I would echo exactly what you guys have stated. Certainly, the more time is better, especially, you know, the equity market has been pretty sensitive lately. So, the more time we have to reach out to other investors to really figure out who is going to be the best fit for what project, and deals are getting bigger. So the equity app is larger and it is certainly harder to take down some of the bigger projects, but again, the more time we have to figure out what, what that looks like and what the best, you know, ultimate financing solution is, the more effective we can be in, you know, helping you get that project done.
Brett Sheehan: And did you have a final word?
Ken Lombard: Sure, I think that what folks, should be the takeaway here, is that
there is a team that has pulled together, that has a certain unwillingness to accept the status quo and to take an innovative approach to addressing how these projects can come together. And not just the willingness to kind of accept what's typically been done and how these projects come together. Frankly, it has gotten mixed results and look, we've got the entire BRIDGE team, you know, Sierra Atilano runs our development team and our asset management team. Noah Rhodes, and Brett, you mentioned him, he's been working hard and fast on this project, and everyone comes in, comes to the table with, OK, how can we make this better?
And that's what has to happen overall across the industry, and those that are committed to continue to provide ground up development projects like this.
Brett Sheehan: Good. Debra, I don't remember if we go till 11:45 or 11:50, but we do have a few questions. So, one question, and I think this is directed towards Sam. Sam, is there kind of a minimum deal size that you would need to make this sort of a financing structure makes sense?
Sam Adams: On a practical level, certainly. I wouldn't say there's technically a minimum size. I think there's two elements if it's a bit of a one-off, so to speak, that you're not planning to, it's going to mention that they have not yet, but likely would enter the market with some regularity at some time. I'd say it's lower. There's a bit of a heavier lift in the first deal but if you're going to do one deal, you would probably want to see a construction borrowing amount, at least in excess of $20 or $25 million I think to really, at least on a tax rate deal, to make it worthwhile. You probably could be down, for many housing authorities we've done deals that have regularly access the market around the 10- or $15 million-dollar range. And so, once you've done one, the kind of the cost of doing another one is much more limited and so that really just measuring it against alternatives to ensure that it is in fact going to save you money in the long run and not look novel - but have a relatively similar result at the end of the day. But over 25 million, generally, at least in the current market, that the numbers are likely to move, move the needle enough to be worth considering, and I'd say when you get over $40 or $50 million, you would be leaving a lot of money on the table for a project with anything like this, if you had those kind of tools at your disposal.
Brett Sheehan: And so that sort of segues to the next point, which is, in this instance, BRIDGE came to us with an S&P rating. Now, if you're interested in this, you need to get an S&P rating. Can you spend a little time talking about what that process is like?
Sam Adams: Sure, and that that might be a webinar unto itself, but I would have two strong recommendations. My team and I think it helps more of, mainly in the housing authority space. To be honest, most of the nonprofits, given their size, sophistication, are able to secure rating almost entirely independently, probably with just a little advice from folks like myself. But certainly, can reach out, we can walk through the process. S&P is also a fantastic resource, but beyond reaching out to somebody like us who's helped a number of entities, reach out to someone, you know, maybe not Ken personally, but I'm sure he can direct you to some people on his team. I believe there's 6 rated nonprofits in the country publicly at the time by S&P. And so, certainly we're happy to provide those names. Just shoot me an email, we can get those out to you, because it's all, it is public that they're, rated. And so certainly speaking to peers about that as well. And for housing authorities, certainly the other housing authorities as well, there's very, very small nuances that are different in the rating process, well, and the process itself.
Ken Lombard: Getting the S&P rating is one thing, maintaining the S&P rating and being able to continue to be upgraded as we were able to do is all about your execution. And I continue to bring that up as an important part of what every group that's involved in providing affordable housing and in particular if you're a nonprofit, you've got to, you gotta put that at the top of the list in terms of the discipline that you have within your organization.
Brett Sheehan: Well, I don't see any other questions, but Ken, I really think that's an important point that you bring up, which is to say that there is a housing crisis in America that we're all aware of, and there's not enough money to solve it. And as a result, we need to be excellent stewards of every penny that is directed towards affordable housing to get as many units on the ground as possible. And really discipline, creativity, commitments, leverage, all of those things are all needed to help solve the housing crisis that we face. And this is why I came to KeyBank to do this. I know this is why I love to partner with BRIDGE and just sort of trying to make the world a better place. This particular HollywoodHUB project, like I said, here in my hometown, excellent visibility right off the freeway. I'm going to see it, I see it. It's a great project. I'm super proud to be involved in it. KeyBank is very proud to be involved in that HollywoodHUB project and just super proud to be partnering with BRIDGE on this, previous projects, future projects. That's really it. I think, I don't know if there's anything else. Otherwise, I think we're going to call it a webinar unless anyone else wants to.
Ken Lombard: Another huge thank you to the KeyBank team from BRIDGE. I mean, our relationship's important to us and you've been an instrumental part of our overall success. So thanks to everyone.
Go behind the scenes with BRIDGE Housing Corporation, a leading nonprofit developer, owner, and manager of high-quality affordable housing on the West Coast. In this exclusive webinar, we explore how KeyBank and KeyBanc Capital Markets’ early engagement, tailored capital solutions, and strategic alignment with BRIDGE Housing’s credit profile led to groundbreaking results and millions in savings for HollywoodHUB, one of Oregon’s largest affordable housing projects.
This 224-unit project showcases a creative collaboration between Key, BRIDGE Housing Corporation, and other stakeholders to deliver a sustainable and affordable housing solution.
Topics Discussed:
- Overview of the HollywoodHUB project and its significance in Portland's affordable housing landscape.
- Innovative financing structure using tax-exempt bonds and private activity bonds, resulting in significant interest rate savings.
- Challenges associated with the new financing structure, such as alternative monitoring and verification processes.
- Importance of institutional readiness, discipline, and execution in successfully implementing an innovative financing structure.