How Capital, Capacity and Policy Help Affordable Developers
A new report by LISC reveals solutions for the current market cycle's issues.
Ongoing supply constraints combined, sticky inflation and the rising cost of utilities, as well as construction and insurance continue to be obstacles for the income-restricted housing sector. A new report from the Local Initiatives Support Corp. identifies potential solutions to help affordable developers navigate this market cycle.
One way that operators can offset rising costs and bring projects closer to the finish line is through creative lending and financing solutions. Strategies may include receiving credit ratings for bonds to support production and preservation projects and ‘as of right’ bond issuance by nonprofits.
An example cited in the report included BRIDGE Housing, a nonprofit that closed the first public tax-exempt bond offering of its kind for a new development in the U.S. This enabled the developer to borrow construction funds below market rate, saving the project $2.5 million. BRIDGE raised $71.5 million for the Portland, Ore., project dubbed HollywoodHUB and broke ground last year.
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Abode Communities also pioneered the first Revolving Construction Loan Fund, a $6.2 million vehicle meant to offset early project costs and advance modular construction during predevelopment. LISC was among the companies that partnered with the developer on the fund, which was deployed for the construction of Western Landing in Los Angeles.
These examples also showcase the limits of creative capital, with this type of execution often requiring institutional scale, a strong balance sheet and investor confidence. Such advantages may often not be attainable for emerging or smaller nonprofit organizations.
A stepping stone for affordable developers
Building the necessary knowledge to inform decision-making is the next step identified by LISC. Training programs and critical tools can assist emerging nonprofit developers in overcoming barriers and pushing projects forward.
While LISC has its own capacity-building program, it isn’t the only company to organize such training and mentorship events. In Atlanta, Capital Impact Partners launched the EDI program to ensure developers have the required skills for community growth and revitalization.
In other markets, including Detroit, Omaha, Neb., Tulsa, Okla. and Seattle, panels organized by Grow America assist the next generation of developers with training across architecture, financing, tax credits and zoning issues.
Policy remains a growing catalyst for production
Efforts to move the needle in affordable housing production extend into policy and legislation. While Congress’s push to expand and improve LIHTC has made constant headlines, other local and state-level programs might have flown under the radar.
For example, California, Florida, and Virginia are pursuing less restrictive zoning for faith-based institutions seeking to build affordable housing. That’s relevant as churches own 20 percent of the land in the U.S., according to Logos Faith Development, a company that aimed to raise $400 million to build some 2,000 income-restricted units across the West Coast.
Markets such as New York City incentivized affordable housing through programs offering lower property and liability insurance costs for income-restricted and rent-stabilized housing, while Knoxville, Tenn., proposed a PILOT program for affordable production and revitalization.
