IRVINE, CA—New sources of financial support for developing affordable-housing projects have been introduced in the years since RDA funding was eliminated in California, experts tell GlobeSt.com. We spoke exclusively with Elizabeth Hull, an attorney with Best Best & Krieger in San Diego; David Musial, SVP and director of Capital One Community Finance in Los Angeles; Ofer Elitzur, a partner with Cox, Castle & Nicholson in San Francisco; Jim Anderson, SVP at High Street Residential in Los Angeles; and Daryl Carter, founder, chairman and CEO of Avanath Capital Management here, about how developers can bridge the gap in financing affordable-housing development without the RDAs. Stay tuned for a more in-depth feature on affordable-housing development in Southern California in the September issue of Real Estate Forum.

GlobeSt.com: What is being done about the financing gap now that housing funds from RDAs are gone?

Hull: Even with RDAs, developers faced funding issues. Those problems have grown exponentially in their absence, however, further complicating the process. Developers are now relying on federal, state and local grants as well as highly competitive, tax-funded programs that come with varying stipulations and project-requirement inconsistencies. Facing fierce competition, developers are adding suggested items to projects, such as green and sustainable features that could add to a development's overall costs. Say a basic affordable-housing project starts at $20 million, but, with added features to make the development more appealing to decision makers, costs rise to $25 million. This cost gap cannot be absorbed by the consumer. In a traditional housing development, unit prices would rise to cover added expenses. Affordable-housing developers, however, cannot pass higher project costs onto residents.

Musial: I have seen the introduction of a couple sources of financial support for affordable-housing projects in the years since RDA funding was eliminated. One example of a relatively new soft-gap source is the Affordable Housing Sustainable Communities Program, which is administered by the California Department of Housing and Community Development. AHSC provides loans and/or grants, or a combination of the two, for affordable-housing development and infrastructure projects benefitting disadvantaged communities. In addition to AHSC, in recent years the Housing for Health Division of the Los Angeles County Department of Health Services rolled out the Flexible Housing Subsidy Pool, a supportive housing rental subsidy program aimed at providing affordable housing for DHS patients. The lack of RDA funding has led to increased competition for all sources of gap financing.

Elitzur: There are still a number of federal, state and local loan and grant programs available for affordable-housing deals, and these sources of funds help fill the gap that often was filled in the past with RDA funds. Some of these programs came into existence after the elimination of the RDAs, such as AHSC, funded from the Greenhouse Gas Reduction Fund established to receive proceeds from California's carbon cap-and-trade auction program. That program is designed to subsidize development of in low-carbon emission affordable housing near transit hubs.

But the most interesting recent development in the effort to close the financing gap for affordable housing projects is Governor Brown's so-called “by right” development proposal set forth in the governor's 2016-'17 budget. This would provide for an expedited (and lower-cost) entitlement process for proposed projects that set aside a designated amount of low-income restricted units. Governor Brown's proposal would help close the financing gap not through additional subsidy dollars, but rather via decreased development costs for affordable projects. The LA Times published an informative story on this very point back in May.

Andersen: Several new sources, including Cap and Trade, are providing some sources, as are various municipalities with excess land holdings. As an example, the La Plaza Village project, a 355-unit, 42,000-square-foot deal in Downtown Los Angeles, is providing 20% affordable housing. Downtown has experienced a surge of growth, with very little affordable housing due to extremely high land and construction costs. High Street was able to negotiate a long term ground-lease structure that allowed for the inclusion of those units.

Carter: Our affordable redevelopment strategy provides attractive, market returns to our investors. Our target leverage is 60% of our investment costs, with DSCs in excess of two times. This is an attractive debt structure to most banks, GSEs and insurance companies. Within our redevelopment strategy, we have a multitude of attractive debt alternatives and are not impacted by the departure of RDAs.

Steady gains in the US economy have resulted in net positives for the multifamily sector—will this wave continue for the foreseeable future? What's driving development and capital flows? Join us at RealShare Apartments on October 19 & 20 for impactful information from the leaders in the National multifamily space. Learn more.

IRVINE, CA—New sources of financial support for developing affordable-housing projects have been introduced in the years since RDA funding was eliminated in California, experts tell GlobeSt.com. We spoke exclusively with Elizabeth Hull, an attorney with Best Best & Krieger in San Diego; David Musial, SVP and director of Capital One Community Finance in Los Angeles; Ofer Elitzur, a partner with Cox, Castle & Nicholson in San Francisco; Jim Anderson, SVP at High Street Residential in Los Angeles; and Daryl Carter, founder, chairman and CEO of Avanath Capital Management here, about how developers can bridge the gap in financing affordable-housing development without the RDAs. Stay tuned for a more in-depth feature on affordable-housing development in Southern California in the September issue of Real Estate Forum.

GlobeSt.com: What is being done about the financing gap now that housing funds from RDAs are gone?

Hull: Even with RDAs, developers faced funding issues. Those problems have grown exponentially in their absence, however, further complicating the process. Developers are now relying on federal, state and local grants as well as highly competitive, tax-funded programs that come with varying stipulations and project-requirement inconsistencies. Facing fierce competition, developers are adding suggested items to projects, such as green and sustainable features that could add to a development's overall costs. Say a basic affordable-housing project starts at $20 million, but, with added features to make the development more appealing to decision makers, costs rise to $25 million. This cost gap cannot be absorbed by the consumer. In a traditional housing development, unit prices would rise to cover added expenses. Affordable-housing developers, however, cannot pass higher project costs onto residents.

Musial: I have seen the introduction of a couple sources of financial support for affordable-housing projects in the years since RDA funding was eliminated. One example of a relatively new soft-gap source is the Affordable Housing Sustainable Communities Program, which is administered by the California Department of Housing and Community Development. AHSC provides loans and/or grants, or a combination of the two, for affordable-housing development and infrastructure projects benefitting disadvantaged communities. In addition to AHSC, in recent years the Housing for Health Division of the Los Angeles County Department of Health Services rolled out the Flexible Housing Subsidy Pool, a supportive housing rental subsidy program aimed at providing affordable housing for DHS patients. The lack of RDA funding has led to increased competition for all sources of gap financing.

Elitzur: There are still a number of federal, state and local loan and grant programs available for affordable-housing deals, and these sources of funds help fill the gap that often was filled in the past with RDA funds. Some of these programs came into existence after the elimination of the RDAs, such as AHSC, funded from the Greenhouse Gas Reduction Fund established to receive proceeds from California's carbon cap-and-trade auction program. That program is designed to subsidize development of in low-carbon emission affordable housing near transit hubs.

But the most interesting recent development in the effort to close the financing gap for affordable housing projects is Governor Brown's so-called “by right” development proposal set forth in the governor's 2016-'17 budget. This would provide for an expedited (and lower-cost) entitlement process for proposed projects that set aside a designated amount of low-income restricted units. Governor Brown's proposal would help close the financing gap not through additional subsidy dollars, but rather via decreased development costs for affordable projects. The LA Times published an informative story on this very point back in May.

Andersen: Several new sources, including Cap and Trade, are providing some sources, as are various municipalities with excess land holdings. As an example, the La Plaza Village project, a 355-unit, 42,000-square-foot deal in Downtown Los Angeles, is providing 20% affordable housing. Downtown has experienced a surge of growth, with very little affordable housing due to extremely high land and construction costs. High Street was able to negotiate a long term ground-lease structure that allowed for the inclusion of those units.

Carter: Our affordable redevelopment strategy provides attractive, market returns to our investors. Our target leverage is 60% of our investment costs, with DSCs in excess of two times. This is an attractive debt structure to most banks, GSEs and insurance companies. Within our redevelopment strategy, we have a multitude of attractive debt alternatives and are not impacted by the departure of RDAs.

Steady gains in the US economy have resulted in net positives for the multifamily sector—will this wave continue for the foreseeable future? What's driving development and capital flows? Join us at RealShare Apartments on October 19 & 20 for impactful information from the leaders in the National multifamily space. Learn more.