Congratulations! You’ve successfully been awarded a tax credit allocation from your state housing finance agency and/or one of its suballocators. What does this mean and what should you do next? One of your key roles as a developer is to secure the necessary financing to construct your project and get it ready for occupancy. Without ample financing, your project is likely going to fail. Securing adequate financing is an especially challenging endeavor with affordable housing, as these projects often require several layers of financing in order to keep rents affordable. As you may be aware, the federal tax credit program is one of the most widely used financing mechanisms for affordable multi-family housing developments.
However, just because you’ve received an allocation does not mean your job is finished. In fact, receiving a tax credit allocation is just one of many hurdles that developers must overcome in order to successfully construct and manage a tax credit development and actually, it’ just the first step of a lengthy and complex negotiation process with potential equity investors. Receiving an allocation of tax credits doesn’t do you any good unless you can actually sell the credits to an investor. Investors are critical to the housing development process because very few projects can support enough debt to finance the entire cost of a project. If a project does not attract equity, it will most likely not be built.
The goals of this paper are to provide you with a refresher on the basics of the tax credit program, to help you understand what motivates investors so that you can create projects that are attractive to them, and most importantly to help guide you through the negotiation process and give you insights into some key issues you should be paying attention to when evaluating equity proposals from potential investors. By paying attention to these key issues, you can be on the road to successfully closing your deal and getting your project constructed (and hopefully within budget!).
Berg, Kelly. Evaluating Equity Proposals for Low-Income Housing Tax Credit Developments: What to Look for & Pay Attention to as a Developer. April 20 2009. May 29 2009. Hubert H Humphrey Institute of Public Affairs.
professional paper in partial fulfillment of the Master of Urban and Regional Planning degree requirement
Evaluating Equity Proposals for Low-Income Housing Tax Credit Developments: What to Look for & Pay Attention to as a Developer.
Hubert H. Humphrey Institute of Public Affairs.
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