Small tax-exempt multifamily transactions (less than $10 million) are a niche market that can have an important impact on the development and rehabilitation of affordable housing in the U.S. That was the message that I was pleased to share as part of a “Multifamily Bond Financing Seminar” at the recent 2019 Housing Credit Conference.
The National Council of State Housing Agencies (NCSHA), a national nonprofit, nonpartisan organization created by state Housing Financing Agencies (HFAs) to advance affordable housing to those who need it, recently held a national conference focused on providing low income housing solutions. I participated on a panel of recognized experts representing the housing, legal and finance communities discussing how bond financing structures could provide low income housing.
Before an audience of approximately 100 housing agency representatives, investors, consultants and developers, I explained how and why targeting niche or overlooked market segments has defined IMPACT’s value proposition and its ability to finance more than 45,000 affordable residences.
Our strategy delivers impact investments to institutional investors, providing steady income while working to drive investment into underserved communities. To make this possible, IMPACT invests in affordable housing developments nationwide and aggregates investments to bring scale to investors and liquidity to the affordable housing industry.
The ability to efficiently combine tax-exempt financing and noncompetitive 4% Low-Income Housing Tax Credits (LIHTC) is an important financing tool for the development of the affordable housing stock nationwide. Being able to finance developments with a tax-exempt structure rather than using more limited 9% LIHTC allows states to more efficiently utilize their limited resources to maximize the production of affordable housing.
For many investors, the challenge of financing affordable housing is making small tax-exempt transactions efficient and feasible. At IMPACT, which has specialized in small niche transactions and purchased over $1 billion in affordable housing loans, we believe the following elements are necessary:
Fostering Alignment: It is important to get everyone involved in the transactions (from the investor to the debt provider) aligned on process and goals as early as possible. This may seem obvious, but it is an often overlooked step that if not done properly limits opportunities for a systematic relationship down the line.
Scalability: Create a programmatic approach by taking the time up front to iron out critical deal aspects including loan structure, documentation and development schedule. This approach minimizes any issues encountered at the 11th hour of the transaction and sets the framework for a systematic process that can be repeatable and scalable.
Driving Cost Efficiency: For smaller transactions, expense mitigation is key. Having an agreed upon process and document framework helps lower costs such as legal fees. Eliminating any overlap and duplication of work as much as possible by transaction participants also increases efficiency. Working with existing transaction partners enables continued process improvements over time.
With the availability of affordable housing at crisis levels, the value of efficient smaller tax-exempt transactions becomes more vital. When done successfully, all parties win—developers and housing agencies seeking to rehab and/or build multifamily units, investors seeking long-term investments that help their communities, and ultimately, low-income families seeking affordable accommodation in their communities.