LOS ANGELES—There are many challenges to developingaffordable housing, but even discounting all ofthe construction costs, time and subsidy information to getthrough, many projects don't get off the ground because ofpreconstruction costs that need funding before constructionfinancing kicks in. The New Generation Fund, afinancing platform from the City of Los Angeles, aims to changethat by providing financing specifically for these early costs.

The New Generation Fund is an amalgam of public and privatemoney from the City of L.A. and several affordable lenders anddevelopers. The fund currently has $50 million in investedproceeds, including $10 million in public funds, and offers capitaladvances of 120% LTV for non-profit sponsors and 95% LTV forfor-profit sponsors, with interest rates from 4.9% to 5.2% onthree-year term loans. “The City of Los Angeles basically went outto the affordable housing lender and investor community and said,'we are willing to subsidize projects that you guys are investingin,” Ofer Elitzur a partner atCox, Castle & Nicholson, tells GlobeSt.com.“If you guys want to have more product to invest in, why don't youkick in money to this fund and we'll collectively get moreaffordable housing across the finish line.' That is good for L.A.and it is good for those lenders and investors too. It is kind of awin-win.”

While Elitzur notes the general challenges of developing affordable housing,he says that a huge number of potentially successful projects neverget off the ground because of preconstruction costs. “The NewGeneration Fund helps finance these predevelopment expenses thatthe developer has to go through to develop a building. Developershave to apply for subsidies; they have to go through CEQA review;they have to get design approval. These are all upfront costs thata developer has to incur before they ever get their constructionfinancing or equity investors' money,” says Elitzur. “Before thereis money, there are a bunch of costs. The New Generation Fund looksat building that are financeable and that they are confident aregoing to get across the finish line and the fund gives money forthose predevelopment costs. That is a huge help. There are plentyof projects that never get built because the developer can't affordthose up-front costs.”

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Kelsi Maree Borland

Kelsi Maree Borland is a freelance journalist and magazine writer based in Los Angeles, California. For more than 5 years, she has extensively reported on the commercial real estate industry, covering major deals across all commercial asset classes, investment strategy and capital markets trends, market commentary, economic trends and new technologies disrupting and revolutionizing the industry. Her work appears daily on GlobeSt.com and regularly in Real Estate Forum Magazine. As a magazine writer, she covers lifestyle and travel trends. Her work has appeared in Angeleno, Los Angeles Magazine, Travel and Leisure and more.