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This is the real estate shop where each episode will bring you a top industry expert to share their current programs or projects that are making an impact in our communities today.

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Be sure to check us out on Spotify and Apple podcasts. Stephanie, thanks for thanks for making time to speak with Steve and I won't you start by letting the audience know about what you do and who you are and what we'll take it from there.

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Sure, thanks, Kevin. I appreciate being here. I am a managing director of Virgin nations for national equity fund, which is a national not for profit syndicator and we basically place deals with investors.

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Always affordable. I cover the mid Atlantic, which is DC, Virginia, obviously Maryland as well as Pennsylvania. So, you know, pretty big footprint for us. We're just focused on making sure that our investors get the right yields and make sure that our developers get the right price.

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And how did you get to where you are today?

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Sure, I started in community development in 06 and so I've been doing a lot of time. I started off in Boston and Bank of America as an analyst and

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was in Boston for a few years, moved out to New York, did our first few supportive housing projects out in New York, covered the Northeast from there, moved out to Los Angeles, covered the West Coast,

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did a lot of supportive housing. Obviously, this is a time where, you know, we had formerly homeless, mentally ill was a big focus for the West region. So

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also focused on a lot of red conversions. So a lot of experience there as well.

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Then I moved to DC and I covered charter schools for the bank nationally where we were focused on basically the three pillars of what we see community development banking as, which was housing, jobs, right, and then school.

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For kids in those neighborhoods. So focused on charter schools for a few years, moved back up to Boston and then

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focused on New York region, affordable housing and found myself looking for something else and ended up at National Equity Fund as of last October.

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Wow, pretty, pretty awesome. How do you feel about homeless, the homeless, because that's still a big issue, right? You mentioned Los Angeles and the Northeast.

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Yeah, it's a huge issue. I mean, even in DC, honestly, covering from the last time I was living in DC, it's kind of crazy to see the tents and

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you know how much has changed. And I think it puts in perspective, you know, how much people are living paycheck to paycheck, right? Because there's a lot more families on the streets, a lot more younger

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adults and children, which is really sad to see. And I think, you know, instead of improving, even though everybody has the intention to improve,

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you know, instead of improving, even though everybody has the intention to make affordable housing accessible, there's a need, right? And I think the challenge is always trying to figure out

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the right time to hit the market and making sure that people don't necessarily suffer from NIMBYism, which is obviously not in my backyard. So, you know, I think that's part of the challenge, but

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I wish we could do more. And I think the big thing is really the supportive component of permanent supportive housing that meets that housing product successful.

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You mean the wraparound services, right? The social care?

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Yeah, yeah, there's a lot of people with mental illness that if they don't have those services, even if you did provide housing, they're not going to stay there, right? If you're suffering from schizophrenia, why would you stay in a place you feel

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paranoid about or, you know, something that is like very significant that you need a caseworker for, but you don't have health insurance because in this country, if you don't have a job, you don't have health insurance, you can't access medical.

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So it's a really downhill spiral for folks. And I think that wraparound service is huge because not only do they get medication needed, job placement

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for where you're at or even like people coming out of jail, right? Like those services are so important to folks to basically land softly versus like, you know, pick it up and try to get it done.

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Yeah, you know, we do market studies. And one of the things we, when we interview people that are

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living without a home, they'll say, well, I don't want to go to a shelter because I have a child and, you know, there are cases where something may happen or the threat of something happening to the child.

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So we hear that for as a reason why people choose to stay on the street, which is, you know, you think about it as being kind of like odd, but, you know, if they find more comfort where they are.

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Oh, yeah, no, I mean, honestly, I was in New York recently, like for self-curve and literally just talking to someone who ran the homeless shelters and they were saying like kids would die in those shelters.

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And it's a common thing. And a lot of people don't put that out there, obviously, for obvious reasons, but I think that's an important factor to consider when you're talking about for parents feel safe and

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adults, like families, they can't stay together, right? So adult may have to be one place and then women and children have to be in a separate place.

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So, you know, when people are kind of deciding how to be safest, you know, and I think that's the big thing is basically trying to stay together.

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So living in a car is maybe even, you know, obviously, I think we should also include couch surfing for people who are staying with families and like, you know, generations and all that kind of stuff. There's a lot of hardship in families nowadays.

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You guys do a lot of work with for-profit and non-for-profit developers, Stephanie?

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We do. Yeah, yeah. National Equity Fund does not, you know, have a preference for one or the other, but we do have a preference for mission driven.

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So if you are for-profit, obviously, we hope that you're going to maintain the affordability of the project, right?

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We have a preservation product that a lot of developers are interested in making sure that after the 15 year compliance period that the project maintains affordability.

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And I think the important thing is even if you're going to work with a for-profit developer that they are mission driven to maintain that affordability, because, you know, I think the number one thing is that

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you're going to have to maintain that affordability because, you know, I think the number is like pretty high in terms of how many units annually are being lost after year 15.

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Exactly. But like any other investor, you guys look in the packet bags around year 15 or so and whatever happens happens at that point.

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Yeah. And that's like not, you know, that's not the intention of this, right?

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Like we don't go through all that effort for it to be done in 15 years, right?

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And you'd hope at least it has an extended use period.

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Exactly. Yeah. And it's an interesting point with the wraparound services.

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I know a lot of the QAP address it, but in Philadelphia, for instance, you know, we don't have the ability to get project based vouchers.

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So we can't really dip into that 30 percent AMI pool.

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Whereas DC, you know, if you don't have the production trust fund money, I think five or 10 percent they'll give you a voucher.

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So everybody's different, but there is a huge need.

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Are you seeing deals that are basically your typical 60 percent AMI with most of it being 60 percent AMI or you can see?

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I mean, it's a good point, Steve, that you make, like every region is so different, right?

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Like what you can play with is so critical.

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And, you know, what we're finding in today's market is that more and more developers are coming up against gaps, huge gaps.

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Right. You have to create your constructions, escalated way beyond what you budgeted.

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Your interest rates way higher so you can afford lower perm debt.

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And then today, like your yield is higher, the requirement of your investors, while your tax credit pricing is lower.

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So your your deals are so skinny that anything like even the utility costs going up, whether or not you can convert.

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And that's I mean, you know, you're playing too many things at once.

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Right. We're at the we're at the point where it's like it feels overwhelming to try to solve those problems.

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And I think it's why, in my opinion, a lot of like developers who have deep pockets can weather the storm better than some of the smaller not for profits that, you know, they've been in the neighborhood a long time.

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They've been doing their work, but it seems like their pockets aren't as deep because they're focused on the services, right?

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They're focused on making sure that people have a home over their head and all those kind of things.

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But it's it's a really difficult time to basically be doing this without the deep pockets or the the extended experience of having gone through a downturn before.

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So are you seeing deals kind of languish out, you know, for extended period of time while folks are trying to figure out the gap compared to, you know, I guess there was a time where deals kind of like closed relatively quickly.

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All deals have their problems. But since the pandemic, we've had lumber costs skyrocket, labor costs skyrocket.

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And then, you know, it's the last year interest rates skyrocket.

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And have you what type of negative effects if any have you seen on deals themselves?

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Significantly slower in closing. Right.

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And like even like from originations, like having the deal come in, us taking a look at it, multiple iterations of what that deal is going to look like.

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And I think the other thing is, you know, how long can you keep the thing? I know I know a developer in Chicago.

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I was working on a deal and he was like, we must close by the end of this month because my GC just told me if we don't, he's going to redo his price.

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And so, you know what I mean? Like there was like all these drivers and the same thing hitting the bond market.

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It impacted like whether or not we went Wednesday versus Thursday because the interest rate was different.

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Like it is a very sensitive time, I think, for developers and what they're facing.

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And I think what we try to do at an app is try to like lessen that variability that makes it difficult to kind of put your finger on whether or not you can get a thing closed.

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Now, we only have so much control. Right.

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And I think the other thing is our investors like the yield requirements going up because interest rates are going up.

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And so like, of course, they could put their money elsewhere. They can invest elsewhere.

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So why stick to us and those yield requirements negatively impact, right?

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The price that we're able to provide to our sponsors.

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And so we're very cognizant of that and making sure that, you know, call it the full breadth of products that developers ask for or need or, you know, pre-development lending.

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What is the price? Current lending. What's the price?

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Like what do things cost before you can say, yeah, you have the product, but it's not it's not viable, right?

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Because it's too expensive or it's too it's not going to make the project work.

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And I think a lot of, you know, penciling in is happening and a lot of changes are happening where, you know, places like DC where they have got financing is like critical for folks to keep moving projects forward.

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And projects are still getting done. Things are still getting built.

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And, you know, to your point, like, you know, things aren't slowing down, but who's getting it done?

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And if you pay attention, it's the big the big players have been around a long time with deep pockets.

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And sometimes that puts others in a disadvantage.

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You guys know the debt side for sure.

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In addition to the fact that the interest rates are going up, there's been a little bit of tightening when underwriting the sponsors and things of that nature, you know, network liquidity.

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Have you guys tightened up some standards for the sponsors when they come to you?

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So, you know, we're kind of the middleman, right?

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So we go by what our investor wants.

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And so it depends. It depends on the investor.

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Have they tightened up? In some cases, yes.

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Some investors are like, no, we haven't filled this need.

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We'll accept this or we'll accept that.

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We also have a Black Indigenous person of color fund, right?

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And specifically that is supposed to basically bridge the gap for people of color who can't historically get these deals because they don't have the financial wherewithal.

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They may not have the experience.

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They may have related real estate experience, but not necessarily directly like that.

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And so we have funds specifically for that.

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But what I'm finding is hard to place is because a lot of folks are saying we can't even get the QAP because the experience points are so high.

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And so, like, where do we start in terms of building that pipeline up to basically bridge the gap and see more people of color building their community?

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We've done some prior podcasts and I'm involved with an organization called The Collective for Black and Brown developers.

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And obviously, it's the access to capital is one thing, but the experience requirements are another.

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And it almost forces the minority developer to have to join the venture with bigger developers.

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And that's the path to scalability.

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But that's also the path of giving up the majority of your developer fee and all that stuff as you're trying to build these resume points.

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Yeah, it's hard, right?

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And I think the other thing is like even with the fund that we're looking at, the benefit of it is I think the biggest benefit is usually the guaranteed backstop because when I said to developers,

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I'm like, look, the end day, like, it's great to JD with people, but if they're going to keep taking your developer fee,

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how are you ever going to build your own financial wherewithal to go to a lender and say, now I have developers with 10 years experience,

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but have never done a deal by themselves because they've never been able to take the majority of the developer fee.

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And I think that like as we talk about it more and you need these for profit or even not for profit,

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really strong developers start seeing like a pushback of being like, well, if you're going to go in half,

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and these people are from these communities and you're taking and you're coming in,

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you need to be splitting that developer fee 50-50, not 70-30 or whatever it is that people can really build up unless you're going to keep them under your thumb the entire time,

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which is not helpful whatsoever, right, because then they'll keep building the experience,

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but they'll never have that financial stability to go out to a lender and say, I want this.

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So you said that program, you do some type of a guarantee, you said backstop is the term?

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Yeah, like basically, well, like NES guaranteeing the performance of this developer.

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And so like, you know, we put our balance sheet behind it and I think that's a huge deal for developers.

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But here's the everything has its positive negatives and this is my little tag that drives me a little crazy is that you have to have an award, right?

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We're a syndicator. So the challenge is the reason we're doing it, we're not doing it to the finest of our heart, right?

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We're doing it because we know that there's a gap.

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We know that there's something that we want to accomplish here.

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But if you require some of these folks who have the application already, you know, it becomes a little bit more challenging

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because some of them are like, listen, you know, I want to do this, but I don't have the experience.

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So I'm like, I have these things that have nothing in terms of financials and I have never been able to win an award by myself.

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And so even folks that we talk to, you know, HFAs, they're saying, yeah, no, we see the same people winning the awards.

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You know, like that's like consistent across the board, right?

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You're seeing the same players.

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And so even in DC, for instance, when we look at the 9% allocations and who's won them,

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I'm seeing Boston clients I know, big names all up and down the coast coming into DC because they know they can get deals done there.

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And those are opportunities lost to other folks that want to do deals.

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In my opinion, right, like how DC chooses it and how they balance the point system and, you know,

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trying to make some pathways for people to get to is up to them.

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But ultimately, this is the result.

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And I think that's a challenge no matter where you are.

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Last thing I would say, and Keren could jump in from a developer aspect and we talked about the challenges of,

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you know, interest rates and labor, things like that.

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But obviously, the second half of that is the time it takes to complete the building,

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lease it up and hitting those marks where you're not throwing yourself into a negative adjuster.

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And I don't know if you run into or how MDF has dealt with that because there have been delays,

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supply chain delays as well, then does that actually start hitting the actual equity in terms of negative adjusters?

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Yeah, absolutely.

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I mean, we saw it during COVID, right?

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Like, for sure, there was a lot of adjustments made.

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I think for, you know, like I was working in New York during COVID and, you know,

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there was an instance where a developer at no fault of his own building was ready,

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but could not get utilities hooked up to the site.

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Took over a year.

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Okay.

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And so everything impacted.

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Like from there, it was a ripple effect of like, you know, you're not meeting this.

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You need a year of pension on your loan that costs more money.

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You need to right size your interest reserve by 1.5 million dollars, whatever it is,

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we can fund any more dollars into this deal.

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And then, I mean, the ripple effect of that, of the like not making your hurdles on time is huge.

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It's why you have the adjustments in there because they know how critical it is

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because you're promising a strong yield.

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If you don't make it, you're not making that.

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And so there's, you know, that's a, it's just an offset, but at the same time, it's a huge hit.

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It's a huge hit when that doesn't happen.

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And it's not necessarily at the fault of any one specific thing that was done.

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It's like the market is what it is and you're kind of waiting and you're doing your best

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and you're pushing and all these things.

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And lenders are just going to say, hey, this is what is our loan agreement.

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You have to really make sure you're negotiating your loan documents

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and negotiate those adjusters, making sure that timing fits.

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Because what I also find is like people are really pushing

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and being a little bit aggressive in terms of lease off or whatever the case is.

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And you almost want to make sure you have room and cushion, right?

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Because you want to make sure like, hey, if something happens,

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I don't want this negatively impacting my money.

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I want to make sure my, but time is money, the more time, more cushion you put on

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that impacts your construction interest, right?

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But you have to put more budget and reserves for construction.

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So it's a cost benefit analysis like anything else, right?

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And so I think the critical piece is really making it make sense for you.

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And, you know, I think most folks will work with you during those kind of difficult moments.

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I don't know any single deal in affordable housing that's always gone.

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You know, such things as plans, right?

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Let's tell people if it was so easy, everybody truly would be doing it.

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There's a reason why the big guys are the ones who keep getting the allocations.

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Absolutely. Absolutely.

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And I think you have to work with folks that you feel have integrity

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and feel like they will work with you, right?

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Because I think the same thing with lenders, like, you know, some lenders are like,

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nah, you're going to work out. We're not dealing with this.

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And some of the lenders are like, look, you've been doing business a long time.

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So from our perspective, we know that you'll get through this.

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We'll get you the extension, but you're going to have the right sizes.

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And so, you know, perm loans go down, things happen, like whatever the case is,

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but gaps usually get filled by a different developer fee.

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And so if you're a smaller shop, that's going to hit you differently.

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Sure. You're not going to have much of a developer fee at all.

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Exactly. For all that work.

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You go ahead, Kervin.

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I'm just thinking, when should someone approach NEF?

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Do you guys do workforce housing? What's your typical deal size?

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Yeah, I mean, you know, think of us like any affordable housing deal,

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we're open to look at. We'd like a minimum of five million.

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You know, but I look at rural deals, right? I cover Virginia.

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I cover Maryland. There's definitely a lot of rural space that, you know,

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would be about five million is what I hope because you have to think about

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who is our end investor, which is Freddie.

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And so they're thinking about, okay, well, you have duty to serve.

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You know, there are some programs that will benefit some rural type of transactions.

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But then we go up. There's not really a limit.

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It was almost like syndicating, like just thinking about what investors go together,

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trying to figure out what the right size is, phased projects, whatever the case is.

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But we do pre-development. So the earlier is always going to be better, right?

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Because if you need a pre-development loan, types of project, right,

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you want to make sure that we have all the information early on.

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We do workforce housing, preservation, like I said.

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So on the back end, there's definitely products as well.

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And, you know, like I said, if you have questions,

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it's really about to me, it's the integrity of your relationship.

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So you want to create a relationship as soon as possible with many lenders.

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I'm not saying this for any app. I'm saying like,

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it benefits you to know many people who will finance your project.

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Because if someone's not interested, there may be someone here

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that you already know that have a relationship with you.

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They don't have to vet you. They don't have to see where your liquidity net worth is.

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They know where you're at. They feel comfortable with the deals that you've done.

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They've seen your projects, right? You might not have something in the pipeline right now,

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but let me go walk through your site.

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Let me see, you know, the type of work that you do and how it's maintained.

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And that will make other lenders feel more comfortable, right?

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So I think the sooner the better to just create relationships with folks

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is what I always recommend to people.

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What's the pre-development amount typically?

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I like two, two and a half.

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I think the average pre-development, you know, it depends on what you need,

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but like 500 a million and the max is like two, two and a half.

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It depends on how big you are too, right?

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Your financial wherewithal will determine like how big they can go.

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Because I think we've gone up to four million,

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but that goes up to the board to get, you know, approval.

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And the folks have a pretty strong financial statement.

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Yeah, so you're collateralizing probably the, certainly the guarantor,

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I imagine for the pre-development loan.

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You also take a position on the property or how do you...

245
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Yeah, the guarantor. Yeah.

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So it really is, it comes down to the guarantor strength for the pre-development funds.

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Yeah.

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And then like when you're, when we're underwriting like a new sponsor

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that we haven't worked with before, right?

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We're looking at financials, we're looking at your REO,

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we're looking at your previous projects, almost like a resume, right?

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With like your pipeline and kind of what you have and then what you've done.

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So think about like selling yourself, right?

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Like this is what we've been doing.

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This is how I know my neighborhood.

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This is where, you know, even when you're an established developer,

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like a Boston developer going to DC, what experience do you have at DC?

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Are you partnering with somebody in DC?

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Like those are the type of questions people are going to automatically want to know.

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So they feel like you have the support necessary to be successful in a different market

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because to Steve's point, they're not all the same and they don't all function the same.

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And I think that's going to be a different kind of challenge for people.

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Everyone's trying to figure out Stephanie, like where the market is going to go.

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How is, for those that just getting into affordable housing,

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and you've been in the industry, been in the game for a while,

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how does affordable housing fear during recessions generally?

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Well, honestly, in 08, like we were busy, which is, you know,

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it goes to show you where our government lands, like legislatively, right?

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They're focused on making sure like when things seem down,

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that they're doubling down on the ability for people to have affordable access to affordable housing.

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Now, whether or not that happens is a different thing, but deals don't necessarily slow down.

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It's just because in a downturn, more people need affordable housing.

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So it's hard, right?

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Like you're almost like trying to balance that part of there are more people in the streets.

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There's more people homeless.

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There's more people like paycheck to paycheck or, you know, laid off.

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And, you know, it'll be interesting to see with the tech industry what's going on.

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But with interest rates, it seems like it's leveling out.

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Like I know, you know, I think that they think that Fed is going to slow down a little bit on the increases.

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Inflation, I don't know.

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It'll be interesting.

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I mean, like I said, if I could predict and be the economist, I'd be making different types of money, Kevin.

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And you guys, you guys play in the charter school space as well?

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We don't play in the charter school space, Kevin.

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But, you know, I have some friends still in the space.

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Like if there's, you know, this is why it's always good to know people and then kind of check your network.

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So CDT is still doing charter schools.

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There's a lot of there's a lot of lenders that have kind of backed away.

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Bank of America is not even doing charter schools anymore.

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So, you know, trying to find the CDFI lender that is still doing charter schools, right?

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And kind of making sure that you have some diversity in that in that pool of relationships.

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I know a lot of these, you know, similar companies, NEF have like faith-based lending or faith-based programs.

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You guys have something similar?

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Not that I'm aware of.

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I think our next iteration of like what we're focused on is like the healthcare space.

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We keep seeing like stuff where, you know, healthcare providers want stuff for potentially their nurses or like, you know,

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the workforce housing is like encroaching on healthcare workers and like making sure that affordable housing is within like a reasonable time frame to get to work.

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So we're seeing like this this desire to create a fund like maybe UnitedHealthcare or like, you know,

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some healthcare providers and insurance providers that potentially would differentiate our investor pool from the typical banks.

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That's how CBS has something.

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And I mean, Amazon being in the world is kind of, you know, all that money.

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So there's a lot of different there's a lot of different sources that are coming in.

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And I think that's exciting for developers to think about, you know, it's not just your typical.

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We're doing in Philadelphia.

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That's kind of what we're doing.

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There's a demand.

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We're right.

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We're in the opportunity zone near Temple Hospital and medical school and they want their nurses and employees to live in that community.

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So we're looking at affordable for sale housing, but everything is more like 80% to 120% AMI, which of course is above, you know, tax credit equity stuff.

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But the missing middle was the big conversation that's going on too.

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And I don't know how to that's going to really get addressed.

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It's a huge conversation, but I think the challenge with it is really like, you know, the light tech doesn't play with air, right?

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Like, you know, and I think a lot of developers are thinking about like, well, you know, it's it's naturally occurring affordable, right?

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And there are projects like that.

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But like, you know, recapitalizing those kind of projects, like how are you thinking about, you know, basically maintaining that project?

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All that kind of stuff.

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I think that's I think that's interesting to do because even developers that are like taking over projects and wanting to maintain it as naturally occurring affordability,

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getting lenders comfortable with the fact that you'll do that because you're mission driven.

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As you know, another piece of the puzzle.

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Hey, guys, looking at energy tax credits, Stephanie, the charging station solar.

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I think some investors are still interested in energy.

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World's solar.

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We haven't seen a lot of them, honestly, like there's the 45 credit that we've seen a little bit.

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It's just like it's so small.

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The deal like we have to find.

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And I want to say we meaning syndicators have to find that like right investor.

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That's like, yeah, that's the you know, that's the size.

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So are that is that small banks, region, small regional banks, which we see is a whole other issue that had popped up.

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Right. Like is the small regional bank safe enough and more people like pulling the money out, whatever the case is.

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So I think for the energy credits, like there's a big focus on it.

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But I don't know that the right investors is like readily available for folks.

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So we've got to be a little bit.

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Creative about the solution there.

334
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I mean, I know you like it.

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Any historic test credit or.

336
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Historic as well. But historic are again, it's just depending on who's interested in the historic.

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Right. Like, yeah, it's just placing it with the right folks.

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I almost think of myself as like a dating service.

339
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Right. Like you tell me what you want.

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I talked to someone. So and they tell me, yeah, that fits with me or doesn't fit with me.

341
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And then what is the job right to make sure that I can face you and match you.

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So it's a good relationship going forward and, you know, potentially make sure that the pipeline is strong so that that continues.

343
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Yeah, this is this is this is good information stuff.

344
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I was just in your hometown of Puerto Rico.

345
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As you know, we're seeing a lot of light tech projects pop up in Puerto Rico now.

346
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You had a chance to do any work there.

347
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Any definitely done work there. I haven't had a chance.

348
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But I think it's great. Honestly, we had a lot of free deals and think of America before, you know, oh, wait.

349
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But then Lehman Brothers was an investment back then.

350
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Like there was a lot of a lot of stuff that went sideways. So it's good to see Puerto Rico some of that happening.

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I think, you know, obviously, you know, like they have a lot of hurricane impacts.

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Focusing on rebuilding is going to be the primary people are awesome.

353
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That was beautiful to see some of the neighborhoods come back.

354
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Yeah, yeah. Always appreciated.

355
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Thank you, Kermit. Thanks for including me.

356
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Thank you. Take care.

357
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Take care now.