Affordable Housing Development Capital Stack Structures

[Manuel Angeles]

When developing affordable housing in California (more specifically Los Angeles), how complicated is it to raise capital using subsidies?

Is it common for developers to use subsidies to cover 100% of the construction costs without needing to obtaining debt or raising equity?

Or do they leverage debt, and use the subsidies to cover the equity needed?

When dealing with federal, state, and local NOFA (notice of funds availabilities), do government funds allocated for affordable housing often get depleted from too many developers requesting funds for new projects?

When a developer can't obtain subsidies for their affordable housing projects, do they just wait until the next round of subsidies availability?

[Matthew Drouin]

@Manuel Angeles affordable deals depending on size can have multiple funding sources…. Sometimes 5 in the case of 9% LIHTC deals but all the way up to 15 as I’ve seen in 4% deals.  9% is competitive meaning there’s only a certain amount of projects awarded each year by your states HCR.  4% is not competitive and is usually more appropriate for large projects because 9% will get allocated to projects of smaller size so as to spread the benefit.  There’s also a scorecard that gets released based upon many factors.  Affordable deals do not typically produce cash flow.  The developer makes their money on a one time developer fee of 10% of the total project cost.  Most affordable developers will pay more for a given piece of property but will want to lock it up for two years under a financing contingency so that they can go through two rounds in the event their project doesn’t get awarded on their first round.  That being said, if this is your first go around, partner with a development consultant.  They will typically take a cut of the development fee and it’s worth it.