Getting to Yes

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3 min read

Recently I was speaking with a prominent California-based developer about potential topics for NH&RA’s annual West Coast jaunt – the Spring Developers Forum, to be held this year on May 19-20 in Marina del Rey, Calif.

She said: “I’ll speak about anything except new sources of gap financing – I am looking for answers, too!”

I nodded. I hear this comment all the time, as developers scrounge for gap dollars to make new affordable multifamily housing deals pencil out. This is an even greater challenge now that the rate for the 70 percent present value low-income housing tax credit is no longer “fixed” at 9 percent but is instead a much lower floating rate (7.64% in February).

While we continue pushing on Capitol Hill and in state legislatures for new or expanded sources of gap financing, I think it’s important to remember that there are other paths to get a deal to yes.

Not surprisingly, I promote energy efficiency as a synthetic gap filler; spending less money on utilities in projects means more funds available for debt service. Energy efficiency programs (namely utility financing programs) are among the available – yet underutilized – sources of funding for affordable properties, and a potential growth area thanks to groups like the National Housing Trust, National Resources Defense Council, the Energy Foundation, and the American Council for an Energy Efficient Economy (ACEEE). These organizations have made significant progress engaging utilities and public service commissions to better target utility funding to multifamily affordable housing for energy efficiency improvements.       Controlling property taxes is another tool. Payments in Lieu of Tax (PILOT) agreements, which reduce the local tax burden for a property, are available in many municipalities. Yet these are often untapped by affordable housing developers. In other jurisdictions, joint ventures with housing authorities and nonprofits can yield significant tax benefits (and sometimes access to program dollars not otherwise available to for-profit developers).

Advocacy efforts, such as NH&RA’s current campaign to try to persuade Tennessee’s legislature to require more favorable assessment policies for affordable multifamily properties, become even more important when government resources are scarce.

Finally, good old-fashioned cost containment is another method. Technology that was expensive just a few short years ago may be more cost-effective today. If you don’t explore bulk purchasing nor regularly shop for technology, building supplies, and insurance, you could be overpaying. Simple things like routinely “scrubbing” your utility bills for accuracy and employing brokers to negotiate better utility rates in deregulated states can yield huge savings, often with no upfront costs.

I want to close by sharing an advocacy success story. Previously I wrote about our efforts to obtain changes to state tax-exempt bond programs to facilitate more 4 percent housing credit transactions. In 2013, NH&RA’s Tennessee Developers Council convinced the Tennessee Housing Development Agency to change the developer fee calculation in its Bond Program Description, a modification that helps leverage additional tax credit equity. I’m pleased to report that developer Highmark Holdings will be the first to utilize this new resource in a transaction scheduled to close soon. Without the extra proceeds from this change, Highmark Holdings couldn’t have beaten out the competing conventional buyers to acquire the property, a 130-unit LIHTC development in Rutherford County that was at risk of being lost from the affordable housing inventory.

As I noted earlier, there are a variety of ways to get to yes. Keep exploring.

 

Thom Amdur is Associate Publisher of Tax Credit Advisor and Executive Director of National Housing & Rehabilitation Association