A coalition of public and private partners, including two cities in southern California, led by Clearinghouse Community Development Financial Institution (CDFI), a non-traditional lender; have found a way to create affordable for-sale housing using a specialized federal tax credit program, known as New Markets Tax Credits (NMTC).

The program, signed into law in late 2000, is designed to bring $15 billion in private capital to areas of the country that are economically distressed. The NMTC provide an attractive incentive to investors by giving a 39-cent tax credit for every dollar invested and allows the developer to secure low-interest construction loans. Five years into the program, almost all projects funded with NMTC have been either commercial, retail, office or manufacturing.

Although NMTC technically allows for construction of for-sale housing, specific tax credit requirements such as the seven year holding period have previously made its use virtually non-existent for housing.

Clearinghouse CDFI is a for-profit community development financial institution serving low-income, distressed communities of California. They specialize in making loans to non-profit organizations. They are using their NMTC award to increase their lending activities for businesses, community facilities, and other eligible projects. With over $160 million in assets, Clearinghouse CDFI is one of the largest CDFIs in the nation.

The developer, Heritage Housing Partners (HHP), a California non-profit dedicated to promoting neighborhood revitalization and affordable housing took an interest in NMTC when rising construction costs for the development of 40 affordable, for-sale homes in Pasadena made the project no longer viable. "We didn't want to go back to the city of Pasadena for additional funding after they had already committed so much. We had to be creative and that's when we took a close look at NMTCs and saw how it could help us meet our funding gap," said Michael Williamson, President of the Board for Heritage Housing Partners. HHP eventually contacted Clearinghouse to help them meet their financing needs.

Clearinghouse President Doug Bystry liked the project immediately and began working closely with HHP to find a NMTC investor to purchase the credits and provide the remaining $13 million in capital needed to build the project.

The biggest obstacle was the requirement that the investment remain in qualified loans for at least seven years. Factoring in the time to construct and sell the homes, the project would be completed within two years. The solution was to find another project so that the funds could be re-invested for the remainder of the seven year requirement. "Initially there was strong interest from several investors", said Bystry. "But when it came time to ultimately put the transaction together, issues would always come up that prevented the project from moving forward."

At about that time, HHP began dialogue with Pasadena's neighbor city of Glendale, which was equally anxious to provide affordable housing. Glendale had already identified a property suitable for the construction of new for-sale affordable housing and it was already vacant. The project was a perfect "second" project and together, much more attractive for potential NMTC investors.

With two viable projects in line, Bystry approached one of CDFI's largest tax credit investors, Commercial Capital Bank, a $5 billion rapidly growing institution headquartered in Irvine, CA. Bystry agreed to sell its $13 million tax credit allocation to Commercial Capital Bank if they would agree to do the HHP project. Commercial Capital Bank agreed.

"When we can prudently finance an innovative project bringing much needed affordable housing in Southern California and receive a tax credit as well, Commercial Capital Bank is very pleased", said David DePillo, President and CEO of Commercial Capital Bank.

The purchase of the two properties was completed in late December 2005 and construction is expected to start this week. The sales prices of the affordable units will range from $100,000 to $260,000 for new two and three bedroom townhomes.

Heritage Housing Partners (HHP) was incorporated in 1998 as a 501(c)(3) non-profit. Their mission is to serve low income communities and promote affordable housing and neighborhood revitalization through the preservation of existing historic homes and new construction of single-family residences. HHP provide affordable homeownership opportunities to low and moderate income first-time home buyers and preserves the density and integrity of existing neighborhoods by allowing long-term renters to become homeowners, encouraging neighborhood revitalization through the pride of homeownership.

Source: prnewswire