COVER STORY longer because of the restrictions in place. Ma-terial shortages, rising construction prices and higher land costs are also squeezing developers. “It’s harder to make deals pencil out,” says Beth Mullen, affordable housing industry prac -tice leader at accounting and advisory firm Cohn Reznick. Mullen works out of the Sacra-mento office of Cohn Reznick, which is head -quartered in New York City. Affordable housing developers are partner -ing with municipalities to reduce land costs and other expenses. For example, HearthSide Club Lafayette is a new 125-unit mixed-income seniors housing community in Fayetteville, Georgia, outside of Atlanta. The project is a public-private partner-ship between Atlanta-based OneStreet Residen-tial and the Charlotte-Mecklenberg Housing Partnership in North Carolina. Several other entities were involved including the City of Fayetteville. The land for the project was a distressed par-cel left over from the 2008 recession. It was part of a large master-planned development that had been partially developed when the reces-sion hit and work stopped. “We came in and were able to restart this part of the project and provide much needed affordable housing,” says Thurston Cooke, CFO at OneStreet Residential. HearthSide Club Lafayette features 75 afford -able units and 50 market-rate units. Monthly rents for the one-and two-bedroom apartments range from about $625 to $2,000. The project was completed in May 2019. The permanent loan for the project closed in June 2020. That process was triggered when the project was 93 percent occupied, or stabilized, for the 90 days prior to June. “We were pleased to be able to finalize the leasing and close on our permanent financing during the early months of the pandemic,” says Cooke. The total project cost of HearthSide Club Lafayette was $26.2 million. The developer sold both federal and Georgia state 9 percent tax credits to provide $15.6 million in equity. The project received tax-increment financ -ing from the city and the land seller contrib-uted $317,000 for offsite improvements. The co-developers deferred 43 percent of their fees, and Freddie Mac provided a $10 million permanent loan. HearthSide Club LaFayette was a finalist for the Urban Land Institute’s 2020 Jack Kemp Excellence in Affordable and Workforce Hous -ing awards. Expect to see more new projects. LIHTC allocations will continue to drive the develop-ment of affordable housing, say sources. While the pandemic has impacted the market, it has also highlighted the need for more affordable housing. Says PNC’s Crow, “This is a super impor-tant program that does a lot of good for a lot of people.” l Pinnacle at Peacefield in Hollywood, Florida, is a senior living community with three three-story buildings. Each building features its own amenities. BIG CHANGE IN 4 PERCENT TAX CREDIT IS SET TO LIFT AFFORDABLE MARKET A dditional equity is being made available for affordable housing projects to help developers boost production of apartments for those with low incomes. A recent change in the low-income housing tax credit (LIHTC) should add another 130,000 units of affordable housing nationwide by 2030, according to accounting and research firm Novogradac. “This is a tremendous victory,” says Peter Lawrence, director of public policy and government relations at Novogradac in Washington, D.C. The $900 billion federal relief package passed by the U.S. Congress and signed into law by former President Donald Trump on Dec. 27 includes reforms to the 4 percent LIHTC. Instead of being tied to a floating borrowing rate set by the Treasury Department, the credit will have a fixed floor of 4 percent. Affordable housing advocates have been lobbying for the fixed-rate change for several years. Prior to the new legislation, the 4 percent credit rate had hovered in recent months between 3.07 percent and 3.09 percent, according to the Affordable Housing Tax Credit Coalition. The low rates made it difficult to finance affordable housing projects. The change brings more predictability to the market and makes more projects financially fea -sible, experts say. Developers will be able to raise more equity through tax credit sales. Also, the modification comes at a time when local governments, which often provide supplemental equity for projects in the form of grants, are short on cash. “This 4 percent fix creates a whole new avenue of deals,” says Brent Barringer, managing di -rector of low-income housing at Monarch Private Capital in Atlanta. “More cash will come into these deals.” He estimates that the change could result in as much as a 25 percent boost in project equity. Also, projects will not be as highly leveraged, and more funds can be devoted to building improvements and amenities. “That’s the crux of it,” says Barringer. The Southeast could see an uptick in development, according to Barringer. He expects more deals in states where 4 percent credits have not been fully utilized. Alabama, for example, now might have as many as six deals a year compared to its previous track record of just one. Tennessee could also see an increase in new developments using the 4 percent credit. More tax credits in the market could lower pricing, experts say, though the impact should be minimal. Pricing will largely depend on demand. Other legislative changes are in the works. The Affordable Housing Credit Improvement Act is expected to be reintroduced in Congress. The Act has been proposed several times and would increase the annual housing credit allocation by 50 percent. If enacted, the change would increase production of affordable housing over the next 10 years nationwide by 320,000 units, according to Novogradac. The legislation would most likely be rolled into another bill, such as an infrastructure package, notes Lawrence. On the plus side, affordable housing reforms have broad bipartisan support. “It’s the most essential finance tool,” he says. — Jane Adler www.REBusinessOnline.com 12 | Southeast Affordable Housing Business | January/February 2021