Recommendations for Resources on Financing Affordable Housing
I am trying to learn as much as possible about creating affordable multifamily. I am well acquainted with LIHTC and have been wading my way through the Novogradac beast. I was wondering if you all had any recommendations for other resources that I might check out. I am open to exploring other types of tax credits as well as creative financing mechanisms that don't involve tax credits. Help me learn!
[{"id": "houtmku", "text": "Following...", "replies": [], "depth": 1}, {"id": "houwkzg", "text": "Following as well\u2026", "replies": [], "depth": 1}, {"id": "hov7lzx", "text": "From my experience, affordable housing frequently has multiple layers of financing, that\u2019s what makes it affordable. \n\nThe word \u201cfinancing\u201d should be used pretty loosely since most of those multiple layers are straight up grants (aka free money) *subject to certain conditions*. \n\nSo, what could those \u201cmultiple layers\u201d consist of? \n\nLIHTC (low income housing tax credits)\nFHLB affordable housing grants\nCommunity Develop Block grants\nOther various HUD grants\nUSDA grants\nCommunity Development Funding\nVarious state specific grants\nVarious local specific grants \nVarious Uber wealthy endowment fund grants \nBank loan", "replies": [{"id": "hovm3d4", "text": "To add to this are historic tax credits for historic buildings being renovated or repurposed. In the rust belt this is a boom for converting old office and warehouse buildings to apartments with tax credits. These tend to be high end apartments but frequently there are some units required to be affordable.\nAnother option for affordable housing options is getting a multi year deferred tax assessment. A county may approve a multi year tax assessment in return for keeping some units affordable forever. \nA third policy is state law over riding local town zoning that intentionally makes housing unaffordable. In Massachusetts the 40-B policy is an example of this policy.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hovlvp7", "text": "Following", "replies": [], "depth": 1}, {"id": "hozamzo", "text": "Source: boutique investment firm/private capital firm specializing in affordable housing (LIHTC) and historic redevelopment (HTC). \n\nThe Novogradac beast is one of the best resources in LIHTC that I know of. There are many other tax credits to layer in. There\u2019s New Market (NMTC), Historic (HTC), Brownfield Remediation credits, renewables/solar, and LIHTC can be either 4% or 9%. (Aside: 4% and 9% are kind of the colloquial for those LIHTC projects since the 9% = 70% subsidy and 4% = 30%.)\n\nThe other necessary resource I\u2019d say would be Section 42 of the IRS tax code which outlines affordable housing credits/ low income housing tax credits. \n\nAs far as financing mechanisms, I\u2019m not sure how sophisticated or basic to answer this. But I\u2019ll give an overview. For financing, as expressed already in this thread. There\u2019s generally many sources for these deals and lots of funds layered in. It\u2019s easiest to break up the larger part of financing into debt and equity sides. To build the unit you will need construction debt with regular draws to fund what you build on a timeline, once construction is complete, building will be placed in service as it is ready for occupancy, for the most part credits will start to flow the month the qualifying units are occupied. This whole part of PIS and occupancy is much more involved and part of the strict LIHTC compliance so please don\u2019t take my words here as compliance or legal or tax advice. Don\u2019t want to get too in the weeds here. \n\nI bring that up because once fully occupied, you will want to convert to permanent debt since it\u2019s likely construction debt was interest-only payments and a short term. Some \u201ccreative\u201d financing would be gap financing for situations when you are constrained by construction loan debt size and need additional funds to be able to cover the other uses like soft costs, or even hard costs if you\u2019re also constructing market rate or retail units. \n\nThere\u2019s also predevelopment financing for things like land acquisition or acquisition of units for things like rehabilitation. \n\nAgain, don\u2019t want to get too in the weeds here. \nThere are certainly many who are much more well versed than me when it comes to understand the LIHTC or different financial instruments for debt and equity. \nPlease let me know if this helps. \n\nInbox is open as well. Love to chat with developers and fellow affordable housing commercial lenders.\n\nEdit: forgot to mention, please read your local QAP. That\u2019s going to be one of the best resources for you as a developer within your state.", "replies": [{"id": "hozdcna", "text": "Development side of firm specializing in LIHTC. Everything you've said is spot on.\n\nTBH, there's only so much OP/anyone can learn about affordable housing development and finance without actually doing the job, it's like drinking from a firehose but you really need to get into the weeds for it to 'click'. The best/masochist way to understand how to make an affordable deal work is to haggle with a HFA.", "replies": [{"id": "hozeish", "text": "Appreciate that. Thanks for the kind words. \n\nYea, you\u2019re spot on as well. There\u2019s really no one resource or centralized place for all the info. It\u2019s a very complex subject with lots of variance state to state. I feel like I\u2019m drinking from a firehouse everyday. \n\nOn top of that, the landscape is constantly shifting. \n\nFor example, the latest legislation (it passed) will likely be diverting more funds to affordable housing, increasing the supply and likely the competition. \n\nAnd that\u2019s to say nothing of more industry-specific buzzy topics like Income Averaging (IA) or Environmental, Social and Corporate Governance (ESG) scores that will likely have more impact on the way investors set pricing for upcoming developments in the LIHTC space.", "replies": [{"id": "hozg3jk", "text": "Big truth re: shifting landscape. The 4% fix was a blessing. I'm interested to how the change to the 50% test (temporarily lowered to 25%) will change the landscape in NY (and CA) where 4%+bonds is perennially oversubscribed. And interested in seeing if/how NJ ASPIRE has play in large urban 4% deals. But also concerned about if/how the increase LIHTC allocations will affect equity pricing (increase supply -&gt; lower pricing).\n\nTo OP: keeping up with all the policy changes is as important as understanding the finance. Don't get caught flatfooted.", "replies": [{"id": "hp0np3a", "text": "Curious to know if you do acq rehabs of S8? I'm on the debt side but am seeing S8 assets go for wild numbers which has  negated the benefit of the fixed 4 and the increased equity since it's just going into acquisition prices.", "replies": [{"id": "hp1w5jj", "text": "I personally don't work on acq/rehab, though the firm did close on a RAD deal this year. Interesting to hear about what you're seeing re: S8. I suppose the increased price kinda makes sense since you've got guaranteed rent stream? Perhaps investors are also hungry to park their money somewhere, given the macro environment, and are bidding up the price.", "replies": [{"id": "hp2779g", "text": "Yep, pretty much. Unintended consequence of Developers having more equity available to be more aggressive on the purchase price. RAD is an interesting program, but I have only worked on two RAD II deals versus a RAD I deal. They sometimes pair well with the HUD construction/perm debt options depending on some timing dynamics. I mentioned this to someone else in this thread, but hit me up if you want another lender to take a look at your deal. We offer HUD/GSE perm debt options and now have equity syndication inside the umbrella.", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "hqw8uf4", "text": "&gt;Novogradac beast\n\nIs this the beast:\n\nThe 2021 Novogradac Rental Assistance Demonstration Handbook?\n\n&amp;#x200B;\n\nasking for a friend", "replies": [{"id": "hqxnknq", "text": "All of the Novogradac resources and literature I find extremely helpful. But I\u2019m pretty sure the beast OP is referring to is the Novogradac Low-Income Housing Tax Credit Handbook 2021 Edition.", "replies": [{"id": "hqy39qi", "text": "Woh, that *is* a beast, both in content and asking price.\n\nAnyone got a pdf for an earlier year around here?\n\nI think I will wait until the dust settles with BBBA before I get a new version.\n\n&amp;#x200B;\n\nThanks so much", "replies": [{"id": "hqy3sl0", "text": "Okay, found a cliffnotes of the whole affair on kindle from Novogradac, thanks again though, awesome", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hozcd0w", "text": "I'd suggest checking out the content / free tutorials over at '[adventures in CRE](https://www.adventuresincre.com/lihtc/)' to brush up on LIHTC. [AHIC](https://ahic.org/Acquisitions_Underwriting) has useful underwriting resources.\n\nAs for other types of 'creative financing', it really varies by state and locality but at the state level it's straight grant subsidy, cashflow loans, and state credits, at the county level it's grants, and at the muni level it's land conveyance, trust fund money, bonds, tax abatements, and zoning changes which help a development realize efficiencies of scale. Plus federal grant monies, other credit programs which have less play than LIHTC, and OZ. It'd be great if there were an easily navigable compendium on different financing programs/sources but no such resource exists.\n\nSince most affordable multifamily development relies on LIHTC, you're gonna be delving into state HFA's QAPs and underwriting guidelines. And QAP are very different across states.\n\nEDIT: as someone else said, LIHTC business model is fee based and there's much less emphasis on common CRE metrics (e.g., IRR, equity multiple), since affordability terms can run as long as 45 years (NJ is effectively 30+15 for 9% deals). Which means if your construction schedule gets effed, you might be hit with downward adjusters that have outsize impact on your bottom line.", "replies": [], "depth": 1}, {"id": "ic2zvz5", "text": "Now that the 4% credit has a \u201cfloor\u201d of 4% (it used to fluctuate at a lower rate), some developers are having more luck partnering with local jurisdictions to rehab existing property. They will sometimes donate land and provide soft funding for acq/rehabbing the property they want to see an improvement in.", "replies": [], "depth": 1}]