LOS ANGLES-Affordable housing requirements can be daunting to non-affordable developers. Master developers, in particular, many of whom are now seeing movement in projects which may have been stalled during the recent downturn, are often in need of support when it comes to developing this product type.

It's not that the concept of inclusionary housing is difficult: when building a community, developers simply have to dedicate a certain portion of the construction to affordable housing. The process of financing these projects and bringing them to fruition, however, can be easier said than done in many cases. It's also a question of maximizing return on these deeply restricted units for the master developer.

The way to do this is to access tax credits and tax-exempt bonds to bring in sources that aren't typically available. The crux of the issue is how to make a project competitive for this financing. Theoretically, anyone can access the tax-exempt bonds and tax credits which are available to builders of affordable housing. However, because regulations are constantly changing, many master developers are now looking to affordable housing specialists to assist them in navigating this complicated process.

These specialists can help not only to compete for specific funding, but ultimately to finance these projects in a way that maximizes the value of the land for the master developer.

As affordable housing specialists and developers ourselves, we know that the key is to be current. Competition for bonds and credits is substantial, and a great deal of time can be wasted if a developer doesn't know how to structure a proposal according to the most current regulations.

For example, competition for 9% tax credits is extremely high, and these credits are heavily oversubscribed. An alternative is to apply for a 4% tax credit and supplement the financing with tax-exempt bonds. The most essential element from a builder's perspective is understanding which projects will be competitive in which financial space, and which will produce best financial benefit. If a developer spends time applying for the wrong tax credit, it could stall the project by two to three years, or more.

For instance, we averted this dilemma recently when working with a partnership between Lennar and Lyon Homes on a project within its Villages of Columbus master planned community. The partnership had designated a parcel of land for senior housing, and initially zoned it for senior condos. When the market turned in 2006/2007, the feasibility of developing those condos was significantly reduced. The planned condos were burdened with mello-roos, HOAs, and affordability covenants.

It was here that Meta Housing Corp. was able to assist. We presented Lennar and Lyon with a solution: convert the product to senior rentals. We worked for a year to re-entitle the land, while maintaining age and affordability restrictions and fulfilling all obligations to the HOA.

We then secured low income tax credits and tax-exempt bond financing for the 240-unit multifamily community. We knew that this particular project would be most beneficial to the master developer if we were able to achieve a 4% tax credit, so we completed the proposal and were successful in securing those credits. We then coupled those sources with a third-party market rate investor.

By combining these elements, we were able to fulfill the obligation to the City and deliver affordable units while allowing Lennar and Lyon to move forward with the remaining components of its master plan.

This is a scenario we are likely to see more of in the coming months, as more housing developments resurface. We continue to find new opportunities to partner with master developers in Los Angeles, Orange County, San Diego and Ventura County, and we believe there will be more ahead. Cities throughout the country are implementing and refining inclusionary housing programs, and partnerships with developers with a niche in delivering affordable properties will bring the most value.

Kasey Burke is the EVP of Meta Housing Corp. in Los Angeles. He can be contacted at kburke@metahousing.com. The views expressed in this column are the author's own.

Instant Insights /

Tax Specialists Can Help Access Credits, Bonds

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