Affordable housing projects squeezed by SVB collapse

The sudden and spectacular collapse of Silicon Valley Bank didn't just hit venture-backed tech startups. It also dealt a blow to many of the Bay Area's largest nonprofit housing developers, forcing construction delays and throwing into uncertainty at least a thousand desperately needed lowincome units planned for the region.

Nonprofit developers are now scrambling to find financing for projects after the bank — a key affordable housing lender in the Bay Area — told them it couldn't move forward with plans to issue new loans. Others are left asking whether the Santa Clara-based bank will honor its outstanding loan agreements and investments in their properties.

Across California, nine developers are in varying states of limbo over 13 low-income projects — including 11 in Bay Area cities from San Jose to Petaluma, according to the California Housing Partnership, a nonprofit that supports affordable housing developers. A project in Los Angeles and one in the Central Valley also were impacted.

In the wake of the bank's failure this month, federal regulators said they would reimburse all lost deposits by companies, nonprofits and individuals, but the move doesn't apply to loans or investments made by the bank.

Micaela Connery, chief executive of The Kelsey, a San Francisco-based developer planning a 112unit affordable project near city hall, was set to finalize a $52 million construction loan from Silicon Valley Bank to start construction on the project this month.

Then, just a few hours before the loan was about to close, news broke the bank had gone under.

“Everything kind of stopped, and we knew we'd have to find a replacement lender,” Connery said.

That will likely delay construction on the project, co-developed with San Francisco-based Mercy Housing California, for a few months. Any delay comes with a “cost risk,” Connery said, but she doesn't expect it to be significant enough to jeopardize the project to house people with, and without, disabilities. The Kelsey's 115-unit Ayer Station project in San Jose wasn't impacted by the failure.

Other developers said officials with Silicon Valley Bank, once the 16th largest lender in the U.S., have told them they will continue processing loan disbursements during construction and follow through on all investments. But when the Federal Deposit Insurance Corp.— which has taken emergency control of the bank — eventually sells what's left of it, it's unclear whether new ownership will honor those commitments.

While the bank appears to be making every effort to keep money flowing to ongoing projects, Matt Schwartz, chief executive of the California Housing Partnership, said he's worried that could end abruptly once a sale goes through.

“How much can anyone outside rely on anyone's word or intent within the bank right now?,” he asked.

In an email, a representative of the federal agency that insures bank deposits would say only that Silicon Valley Bank is now a “full-service bridge bank,” meaning it's still fully operational while seized by regulators.

On March 17, the bank's parent company, SVB Financial Group, filed for bankruptcy protection. It's no longer affiliated with Silicon Valley Bank since the seizure.

Silicon Valley Bank has long been one of the region's major financiers of affordable housing, committing $2.7 billion in loans and investments to build or rehab nearly 10,000 affordable housing units in the region between 2002 and 2021.

Developers said if the bank ultimately decides to pull back its presence in the local affordable housing market, it could make it even harder to secure already scarce funding for low-income apartments, town homes and supportive housing — at a time when the need has never been greater.

The Bay Area must add more than 180,000 affordable homes over the next eight years to keep up with demand, according to state officials.

“For a few decades now, Silicon Valley Bank has been a really great investor,” said Matt Franklin, chief executive of Midpen Housing in Foster City. “We're worried and sad to see them potentially exiting the marketplace. That would mean less competition for our business.”

Midpen has three affordable projects that may be impacted by the failure. It's vulnerable to losing up to $158 million in loans and investments, the latter of which the bank made through a federal tax credit program. But after assurances from bank officials, Franklin said the developer is moving “full steam ahead” with construction.

Those projects include the planned 108-unit Immanuel-sobrato facility near San Jose City College for formerly homeless residents, a 135-unit teacher housing development in San Francisco and a 45unit complex for people with developmental disabilities in Livermore.

Shortly after the collapse, Silicon Valley Bank also declined to move forward with financing a 50unit affordable project in Petaluma being developed by Santa Rosa-based Burbank Housing. Burbank officials told the Bay Area News Group they're “extremely confident” they will find a new loan. Burbank still has a loan from the bank for a 64-unit project under construction in Santa Rosa.

Despite the uncertainty, Silicon Valley Bank's demise is spelling some good news for developers. The financial turmoil wrought by the collapse has pushed down the cost of financing projects, with interest rates on development loans dropping a full percent to around 4.5%, according to Schwartz.

Mortgage rates for homebuyers also dropped, sliding slightly to about 6.6% for a typical home loan Thursday, according to Freddie Mac.

And going forward, analysts expect the Federal Reserve could stop raising the federal funds rate in hopes of calming fears of a widespread financial meltdown, further keeping borrowing costs in check.

Connery with The Kelsey hopes to take advantage of the lower rates but noted construction loans are only one piece of the funding puzzle for nonprofit developers. If the Bay Area hopes to add anywhere near enough affordable homes to solve its housing crisis, public officials must dedicate additional money to building them, she said.

“We need more funding for affordable housing, more vouchers for people who are extremely lowincome and with disabilities, and more tax credits available to fund more low-income projects,” she said.