Breaking Ground

By many accounts, 2024 was a challenging year within the affordable housing industry. Multi-year difficulties, such as inflationary pressure, supply chain disruptions and environmental burdens persisted, while fresh hurdles like rapidly rising insurance rates began to take hold.

Still, members of the affordable housing world are nothing if not resilient, and strong teams with clear vision certainly find a way to overcome whatever challenges come to continue to build desperately needed homes across the country.

One such team is National Equity Fund (NEF), one of the largest nonprofit real estate investment managers of affordable housing deals in the United States. Despite the year’s challenges, NEF announced last month that 2024 was a record year for the company, as they helped deploy more than $2.7 billion of affordable housing investments to build and preserve over 16,000 homes across the country.

Tax Credit Advisor sat down with Matt Reilein, who has served as NEF’s president and CEO since 2019, to discuss the achievement, lessons learned along the way and what the future holds for the company and the industry.

Tax Credit Advisor: What does this achievement represent for you and your partners?

Matt Reilein: We’re excited about the numbers, and we’re happy about the record year. But the way I approach it and think about it is that our 2024 investments represent the deep partnerships that we have, both with our investors and with our developers across the country. Those numbers show that our partners are eager to work with us, especially in times of some distress in the market and that we bring a stable, steady source of capital and the ability to execute.

Though 2024 was a challenging year in some respects—the interest rate environment continued to be volatile, there was the political overlay of the federal elections, inflation was still high and insurance continued to be a big component in rising costs—our success is a testament to the NEF team and their expertise in how we approach underwriting and structuring transactions that bridge the gaps between the needs of development and the needs of the investor.

A stable and long-term capital partner is critically important to the affordable housing ecosystem. That’s the thing that we’re most proud of, having long-term relationships with both our investors and developers, our proven ability to serve as that stable source of capital and investment and ultimately to support the creation and preservation of affordable housing across the country.

TCA: What are NEF’s strategies for building those deep partnerships?

MR: First, the long tenure of our partnerships lays a great foundation for the relationships we have with investors and developers. We are focused on maintaining our relevance to both. That means meeting their needs and anticipating what it is they’re trying to accomplish and the mission they are trying to achieve in the affordable housing space. I believe that our mission of creating greater access to capital for the creation and preservation of affordable housing aligns largely with our developers and investors. So, we need to maintain the ability to have open discussions and conversations about not only their needs but their long-term goals.

When you have the combination of long-tenured relationships with the ability to have candid and open discussions, that’s what unlocks the ability to achieve together.

Unfortunately, even though we had a great 2024, that’s not going to solve the affordable housing crisis immediately. It is about openness, dialogue and understanding between partners on a sustained basis. It’s going to take decades to solve this, but I feel like we are in the midst, at NEF, of helping our investors and developers to address the affordable housing crisis.

TCA: What other approaches, in addition to those deep partnerships, have contributed to this sustained success?

MR: One strategy has been expanding our geographic presence. This is now the second year that we’ve had a northeast-focused fund on the Low Income Housing Tax Credit side. We purchased Mountain Plains Equity Group about 18 months ago, and the integration of that geographic area in the middle of the country has helped us. We have a long-term commitment to California, where we have had a California-focused LIHTC fund for decades and we continue to build those out even in a challenging market.

This geographic approach is one of the hallmarks of NEF. We’re a national company, and we have a national approach, but we are also anticipating and trying to be responsive to the needs of both our investors and developers based on specific geographic market idiosyncrasies. Different markets have different needs, and there’s different pricing, there’s different firms, and in some instances, there’s different underwriting. Our ability to take a national approach and best-in-class learnings and apply them to specific market dynamics of individual geography is one of the things that separates NEF in the market.

We’ve also tried to anticipate a huge trend in the industry of increased deal sizes and being able to absorb those deals on behalf of our developers by working with our investors in ways that have not typically been present in the market. We’ve used increased club funds, synthetic club funds and even our own balance sheet to accommodate some of those transactions.

NEF has also launched a partnership with NeighborWorks Capital to increase access to LIHTC for nonprofit developers across the country. And if you were to add the nonprofits in the NeighborWorks network together, you’d have far and away the largest developer of affordable housing year over year. By some measures, they are larger than the next ten largest for-profit developers in the country. We’re focused on helping the NeighborWorks Capital network gain access to LIHTC with equitable terms, and I think that’s been helpful in our growth as well.

TCA: Were there any internal factors that helped NEF achieve its success in 2024?

MR: We are committed to deep talent development and succession planning in the affordable housing finance industry at NEF. We’re also excited to see industry associations and other large institutions committing to that talent development because of the expertise that’s required to be successful in this industry.

We are incredibly proud of the NEF teams’ expertise and experience, and we think that we are a leading contributor to the industry because of that. We’re also excited about bringing new people into this market because we need fresh ideas and fresh energy to continue to drive toward the solution for the affordable housing crisis.

TCA: Nearly $1 billion of your 2024 placements went into non-LIHTC deals. What did those deals look like?

MR: The bulk of that non-LIHTC investment is in our preservation strategy, which comes from a mission and policy perspective focused on identifying ways to preserve and maintain affordable units in the country to avoid attrition of affordable units into market-rate units.

From a policy perspective, it’s a huge cost saving in most instances to preserve a unit rather than to build a new unit, and if you lose the unit, then you need to be able to build two units to make any progress against the affordable housing crisis. From a mission perspective, we view the preservation of a unit as being just as important as creating a new unit.

From an investor perspective, we are seeing ongoing and continued interest in the preservation space, not only from a mission perspective but also from a risk-adjusted rate of return perspective. Investors today feel that these are stable, long-term properties and that if you maintain affordability, you know how they’re going to perform in the market. Given what’s going on in the broader real estate market, preservation deals have drawn the interest of not only traditional investors in affordable housing but also investors who typically have looked at other segments of the real estate market.

TCA: Were there any initiatives or strategies that helped contribute to 2024’s success?

MR: As we continued to assess the difficulties in the market, we looked at new ways to use state tax credits. Now, more than half of the states have some sort of state-level tax credit to support the creation of affordable housing. So, we’ve stepped into that space to bring our national and transparent approach to that market to draw more investment in and to ensure ease and certainty of execution in bringing capital into those markets that have state tax credits. That’s been a significant contribution to our volume, as well as the success of the broader affordable housing industry.

Additionally, one of our focuses is on new entrants into the affordable housing space by bridging the gap in available liquidity and net worth to address systemic barriers of entry into the market. We’ve been working on that for the past four-plus years and hope to help create the next generation of LIHTC developers. We closed about $70 million worth of transactions through that strategy in 2024 and are planning to continue to evolve that.

TCA: What are your expectations for 2025, particularly given the political climate looking forward?

MR: The affordable housing crisis is not diminishing, and unfortunately it continues to deepen and accelerate. Fortunately, the affordable housing crisis is taking a more mainstream view, whether that’s through political campaigns, in the business media world or on the nightly news. I think that NEF and the broader affordable housing industry are well-positioned to continue to tell our story.

I anticipate that there’s going to be continued momentum, from both politicians and investors, in moving capital into the affordable housing ecosystem and leveraging the existing infrastructure in a way that helps us continue to accelerate solving that problem and not just sustain the status quo. From NEF’s perspective, we’re excited to be a part of the solution.