A unique debt-and-equity REIT, the Community Development Trust, is being launched as a conduit for substantial securitizations of multifamily housing. While other hybrid REITs serve as conduits for securitizations and are involved in commercial mortgages, CDT is the first of its kind to specialize in affordable multifamily housing.

While REITs have been created for shopping centers, office buildings, hotels and even prisons, "CDT is the first REIT uniquely designed to apply these financing techniques to affordable housing and economic development," said Nicolas Retsinas, director of Harvard's Joint Center for Housing Studies.

Investment in the REIT itself is considered eligible for credits under the Community Reinvestment Act, said Marilyn Rovira, a vice president. If banks are involved in the securitizations, for instance by selling loans, they also could be CRA eligible. However, the main buyers of the multifamily mortgage-backed securities are expected to be insurance companies and pension funds.

This new hybrid real estate investment trust evolved out of the nonprofit conduit LIMAC, or Local Initiatives Asset Management Corp. The for-profit entity is backed by a group of investors led by Fannie Mae, as well as large banks like First Union Corp. and big insurance companies like Metropolitan Life Insurance Company.

"[The investors] did not do this to lose money, and we're operating on a competitive basis," said Rovira.

LIMAC has securitized $140 million in multifamily assets over the past decade. With the new hybrid REIT, "we project securitization will increase tremendously because of the greater capitalization," Rovira said.

CDT intends to keep subordinate pieces of its deals and sell the senior pieces, she said. This strategy is basically the same as that of LIMAC, which incidentally suffered no losses on any of the loans its $140 million portfolio, Rovira said.

The REIT's social aim is to increase capital for affordable housing and community development, said Judd Levy, CDT's chief executive officer. The former managing director at Merrill Lynch & Co. added that "CDT will accomplish this mission by providing a secondary market for long-term, fixed-rate mortgages and acquiring and preserving affordable housing."

CDT is designed to purchase fixed-rate mortgages not typically bought in the capital markets because of their size, location or property type. CDT expects to buy loans from all types of mortgage lenders, including banks, loan consortiums and housing finance agencies.

Besides debt, the hybrid REIT will also buy and hold equity in Section 8 multifamily housing.

This New York-based REIT was launched by Local Initiatives Support Corp. According to a spokesman, LISC is the largest nonprofit supporter of grassroots community development. LIMAC operated under the auspices of LISC, while CDT will be independent. Paul Grogan, the chief executive of LISC, will serve as chairman of CDT's board.

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