Attainable Housing Financial

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Breakdown of Models

Financial Structures

Attainable housing projects can be financed via a myriad of capital structures. While many are successfully delivered through traditional commercial real estate financing methods made up of primarily of developer equity and bank loans, this asset type also offers opportunities to tap alternative structures utilizing less traditional instruments of project financing such as tax-exempt municipal bonds.  The following is a list of project structures that can be considered for projects involving attainable housing:

  • Mixed Income Approach – 20%-30% of units designated for attainable housing rental rates with the rest at market rate rents
    • Typically financed via developer equity and bank loans, but inclusions of significant number of attainable housing units may allow overall project to benefit from lower-cost interest rate loans through state and local housing authorities or property-tax exemptions for those units designated as attainable.

 

  • Non-Profit 501c3 Model – Independent, non-profit entities with charitable missions to “lessen the burdens of government” are able to serve as borrowers through the issuance of tax-exempt project finance bonds covering 100% of total development costs with the goal of the project to provide 100% of units designated as attainable housing
    • Tax-exempt bond financing typically offers a lower overall cost of capital versus taxable debt, and the ability to finance the project at 100% loan-to-cost potentially allows for a project able to support lower rents.
    • This financing model has been successfully deployed in the on-campus student housing sector for more than 20 years.
  • Essential Housing Bonds – Municipal entities such as Public Housing Authorities (PHAs), Housing Finance Corporations (HFCs) and Public Finance Corporations (PFCs) serve as issuers of tax-exempt bonds and owners of the underlying projects.  Similar to the 501c3 model, these projects can finance up to 100% of total development costs with the goal of the project to provide100% of units designated as attainable housing..
    • This structure has been primarily utilized in California and Texas for acquisition and conversion of existing market-rate properties to 100% attainable housing apartments.

The following table provides a comparison between the traditional affordable housing financing programs and the tax-exempt bond structures described above:

In addition to the above financing structures, the ability for an attainable housing development to access publicly available funds in the form of public grants and/or public financing are additional sources of capital which can help to make an attainable housing development or acquisition economically viable.