Bank of America’s Maria Barry On Keeping Affordable Housing Doable

Higher interest rates driving up mortgage costs for much of the last two years has increased the need for more affordable rental housing. The financing of these critical projects — which also has to navigate the effects of heftier rates — has meant more partners in many cases to get over the hump.

Maria Barry, community development banking (CDB) national executive at Bank of America (BAC), has embraced the challenges confronting affordable housing lending amid these higher borrowing costs. Her CDB team originated $7.1 billion in debt and equity financing in 2023 alone and financed 11,000 affordable housing units then despite interest rates reaching their highest levels in 22 years.

“Affordable housing has definitely become a top agenda item for every state and city, and it continues to be a really important topic on Capitol Hill,” said Barry, who has led Bank of America’s CDB team since 2009. “We’re trying to work in partnership with everyone we can to create as much housing as possible.”

The $7.1 billion Barry’s CDB unit supplied in 2023 was not far off from a record $7.85 billion produced in 2022 despite the Federal Reserve beginning its aggressive interest rate increases in March of that year. The 2022 success marked the sixth straight year of record growth for Barry’s group.

The Providence, R.I-based Barry spoke with Commercial Observer on Aug. 13 about expectations for lending volume in 2024, what lower interest rates would mean for spurring more affordable housing deals, the increasing layers of the capital stacks needed to close transactions, and how supply chain conditions are affecting construction timelines. 

The interview has been edited for length and clarity. 

Commercial Observer: How is 2024 shaping up for your team compared to 2023, when you provided $7.1 billion in debt and equity deals to finance 11,000 housing units? 

Maria Barry: We are on track to have pretty much the same amount of volume as last year this year. Our pipeline is really strong, and we’re actually a little bit ahead of last year with our closings.

As we speak today there are high expectations that the Fed is going to reduce interest rates at its September meeting. How will a drop in interest rates affect affordable housing lending?

I look at it as an evolution. Construction costs have continued to rise post-COVID,  insurance costs have been rising, and interest rates are rising. So costs just continue to go up for the creation of housing. The cost to create an affordable housing unit is very much comparable to a market-rate unit. You’re not going to have high-end finishes and appliances, but you’re going to have that structure, which is a fixed cost that you can’t really bring down in a meaningful way. 

Now that interest rates appear to be coming down a bit, that will be helpful because that will bring the cost of the construction loan down a bit and, more importantly, that will help with the permanent loan. The cost of the permanent loan will be less, so that will help close gaps in budgets, and, for deals that are close right now, that will help get them over the finish line. If interest rates do come down and there’s less cost in the project, then the subsidy money that was needed to fill those gaps can be used for another project. Hopefully, that just creates more opportunity and helps get more deals over the finish line.

What have the higher interest rates in the last couple years done in terms of adding increased complexity to financing affordable housing deals?

Affordable housing has always been pretty complicated with lots of layers of financing, and that has not changed. But, because of the increasing costs, there has been a need to continue to bring in as many different sources of subsidy as you can. We just closed on a deal recently in Rhode Island that had close to 20 sources of subsidy in it. There’s a lot of costs associated with each subsidy as well because there’s legal costs and other costs, so the more we can box the subsidies and have larger pieces in there, the more helpful for the deal and getting things done faster. 

We’ve definitely seen some deals that have had even more subsidy in them to get them over the finish line, but the good news is we’ve always had quite a few subsidies in our deals, so the team has the expertise and the wherewithal to close the deals and do a great job. 

The one thing, though, along those lines that’s interesting is we are seeing deals after closing get more subsidies as well. It used to be that you closed the deal, your capital stack was set, and you didn’t really change at all. But now we are seeing additional subsidies after the deals close. It could’ve been that there was a need for something more, or something unexpected, or, in a lot of cases, the additional subsidies are needed to help pay for the services — which have also gotten more expensive and yet are so important to those vibrant communities.  

I would say it is a bit unusual as we didn’t really see much of that historically. It’s more work because you have to reopen the file, but it does, in a lot of cases, make the deals stronger, whether it’s the infrastructure or the support for the residents.

A couple years ago there were a lot of supply chain challenges that were adding increased headwinds to affordable housing deals and construction. How is that dynamic looking now in late 2024? 

There were so many supply chain issues and unexpected ones where you didn’t know what was going to be the next supply chain challenge. The good news is some of that has moderated, and what we’re seeing is our clients ordering early on almost everything to avoid those delays.

Switchgear continues to be a challenge and that’s been one of those that carried over from COVID. But, for the most part, by ordering early, that’s helped a lot. Planning ahead has become critical and our clients are doing a great job with that, so we’re seeing less and less impact on the developments.

In early 2023 you rolled out an initiative in partnership with Enterprise Community Partners to preserve up to 3,000 affordable housing units for middle-income households. How is that program progressing? 

It’s going well. We’re really grateful to be working with Enterprise on this as they have a lot of experience in this space as well, and we have a mutual commitment to trying to create more middle-income housing. Right after we launched the initiative, we definitely had some headwinds with rates rising and costs going up. At one point in the beginning I think we thought maybe this could be both preservation and construction and potentially new construction, but preservation is definitely the focus now because of the cost. 

We’re seeing some unique opportunities with states that are putting in certain exemptions that will help keep the deals affordable so that we combine all of our resources. I’d say we’re at about 25 percent of our goal there, so I would say it’s been a good start. But it’s taken us a while to overcome some of the headwinds of the economy. We’re still committed to this, and it’s a focus for us.

How much more of a role are public-private partnerships playing in closing affordable deals now? 

Public-private partnerships have always been so important with affordable housing. Without it, we could not build this housing. We are definitely seeing our public partners working with our developer clients, coming to the table with subsidies and resources to help get deals done, trying to be creative whenever they can. There were times post-COVID where they really had to think about allocating future tax credits or creating another subsidy source to fill gaps, so that partnership is as strong as ever and, without it, these projects would absolutely not get done. We’re seeing the states and the cities really thinking about how to come to the table and help our developers pull together these projects. 

One city that’s been focused on trying to address affordable housing is New York City. What is your outlook for New York City affordable housing deals after New York State recently approved the new 485x tax break program to replace 421a?

From talking to our team in New York, they’re really excited about the commitment and there’s a lot of energy around this. The City of Yes initiative is out there now, and there’s a record-breaking $2 billion allocation for public and affordable housing in the recent city budget, which is very encouraging. Introducing the 485x is great as it’s similar to a 421a but with a couple of minor differences in that 25 percent of the units need to be affordable — up from 20 percent — and a requirement for prevailing wages. 

I think people are just trying to figure out how to make the numbers all work, but having that level of commitment, that allocation in the budget, and then having another program is really exciting for New York. 

As we enter late 2024, what markets are you most focused on for deals heading into 2025?

We have a national footprint and we work closely with our developer clients, so we follow our clients to the various markets they work in. We are focusing mostly on major cities or other markets where the bank has a strong presence. We also deliver for the bank’s Community Reinvestment Act needs so that’s also a focus for us, but they work together because where the bank has a big presence there’s usually a big Community Reinvestment Act need so it’s easy to marry the two. Our focus is pretty broad given our national footprint, so we have an opportunity to make a difference in a lot of places. 

Andrew Coen can be reached at acoen@commercialobserver.com.