Using Private Equity To Aid Struggling Housing Authorities
The pandemic has created a financial nightmare for federal and state housing authorities who are being mandated to upgrade, improve infrastructure, and maintain service, all while dealing with a dramatic drop in revenue. One solution has been for these authorities to partner with private sources of equity.
March 08, 2021 at 11:15 AM
5 minute read
The pandemic has created a financial nightmare for both federal and state housing authorities: governmental authorities, both federal and local, have mandated requirements to upgrade, improve infrastructure, and maintain service during the pandemic, while at the same time, housing authorities are confronted with a dramatic drop in revenue. However, this set of facts spurs a unique opportunity for housing authorities to innovate, partnering with private sources of equity, utilizing the expertise and financial resources of private developers, who will prepare and process the application for federal low income tax credits (commonly referred to as LIHTC).
Housing authorities have a myriad of options with respect to restructuring ownership, while maintaining continued management and control of the property. These private/public partnerships provide the housing authority with much needed funds as well as creating new ongoing revenue streams, while at the same time, providing upgraded housing for its residents, without burdening local taxpayers. Depending on the condition of the housing, a property may qualify for a tear down and rebuild, renovation, or if the housing authority is fortunate to own or have the opportunity to acquire vacant land, the opportunity to construct new development. Most developments utilizing this structure are dedicated to projects for qualified seniors or to work force housing, many near the central downtown area of the local municipality.
The infusion of private capital relies on the housing authority partnering with a private developer who will take on the financial risk of construction. The private developer will secure the necessary tax credit investor (i.e., providing the equity), construction funds, and state funds and grants available for projects like these. I will write on this topic often, because there is no question that the times will require most if not all housing authorities repositioning their properties using private sources of funding.
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