2023 Spring Issue - 30

developments
expansion. If they find in this cooling
market that they have bitten
off a little more space than they
need to consume, there's a real
opportunity to partner in converting
some of that FAR [floor/area ratio]
to affordable housing.
One may ask how do we finance
" There's a lot going on right
now around the country,
where people are talking
about rent caps and other
restrictions that make it
difficult to develop housing
in those markets. We think
of the affordability crisis as
a supply issue and want to
build in markets that support
that view. "
-TJ McELROY, SVP, DOMINIUM
these innovative ideas? In almost
every state, there are industrial
development authorities-and/or
land banks-that have the ability to
create synthetic tax abatements for
targeted development. While this is
a replicable strategy that does not
require legislation, it does require
developers to engage with the
locality and ask for public/private
partnerships on different pieces of
land. Effectively these partnerships
would lower the capital and operating
cost to develop.
In thinking about how to fund
the capital stack, I would be remiss
if I did not again mention the enormous
rise of capital that is focused
on ESG right now. Bloomberg has
forecast ESG AUM [assets under
management] to hit $53 trillion by
2025, or a third of global assets. As
this capital searches for deal flow,
the development of workforce and
affordable housing could check the
box for ESG as clearly as sustainability
and climate resiliency work
do already today.
Lynch: I also think we should
recognize that [capital focused on
sustainability or housing] is not
necessarily a tradeoff, especially
if we're thinking about it from the
long-term hold perspective. Integrating
sustainability into affordable
housing and thinking about
operating costs over the long term
could be accomplished from the
design and from a retrofit to lower
operating costs, which could help
to increase the profitability or sustainability
of an asset.
McElroy: There's been some
recent changes to solar tax credits
30
URBAN LAND
SPRING 2023
that help pair them with LIHTC
where you can get some of the
benefits in your basis for the costs
of adding solar to your project.
There are ways we could provide
more incentives to allow developers
to put in those extra environmental
efficiencies upfront-things
like solar and water reduction that
would help create both environmental
and operating efficiencies.
Generally, because we are a
long-term holder, we want to do
everything we can to build and
provide sustainable housing and in
the context of the " E " of the ESG-
environmental sustainability. But if
we could find a way to quantify the
" S " where investors and banks can
get credit for the " S " in the same
way they do for the " E, " I think
there would probably be an influx
of capital into affordable housing
that we haven't seen yet.
Dominium is working on that,
trying to find metrics and to quantify
the " S " and the social benefits
to our residents, but it's hard.
That's something that I think this
group and others at ULI, in particular,
would be great at coming
together to find a way to solve
that problem.
Zukerman: In some cases, PACE
[property assessed clean energy
programs] could be accretive to the
capital stack.
We recently had a terrific LIHTC
bond financing execution for a
$75 million mixed-income senior
housing development in Michigan.
It had a $20 million gap that was
filled by PACE. That's one example
of being able to provide affordable
housing that is also sustainable.
I see two worlds that provide
housing in our nation. One world is
the affordable housing world-with
a capital A-and the second is the
market-rate housing world. The
capital-A affordable world has
grown very, very rapidly. I think that
the total private activity bond issue
just a few years ago or so was
about $6 billion in 2015, and now
that's gone up to $16 [billion] or
$17 billion. But that's capped out.
There are well over a dozen states
that reached their bond caps-
maybe north of 20 states-so that
subsidy is limited.
Our focus is on how we can
bring affordable housing solutions
into the market-rate housing world,
and that's through mixed income.
Mixed income requires an " all of
the above " approach in which a
leading role needs to be played by
the municipalities in conjunction
with their states. And they need
to work together to provide for an
optimized capital stack.
McElroy: I'd like to go back to
Matthew's comment earlier on
private activity bond volume cap to
qualify for LIHTC, because I think
it's important. There's a lot of talk
right now about reducing the 50
percent test to 25 percent that
would further stretch and utilize
that resource.
Some states, most notably
California, have given a volume
cap priority to multifamily housing
before single-family housing or any
other use of private activity bonds,
realizing that doing so can boost
the supply of housing by encouraging
multifamily development, and
maximize the federal subsidy that
comes with that-the 4 percent
Low-Income Housing Tax Credit.
And then in a number of other
states there are tax abatements or
exemptions for affordable housing.
In some, Dominium often partners
with a local nonprofit to help allow
for real estate tax abatement, and
that's very attractive; that helps
deals that would not otherwise be
feasible get done.
There's a lot of things that the
local governments and state governments
are doing that is helping.
But on a national level, we could
do a lot more.
2023 Spring Issue

Table of Contents for the Digital Edition of 2023 Spring Issue
