Quite by accident, I had discovered something new and decided to investigate it. It was a new way to finance multi-family and detached housing. It is a government program. Now, before everyone jumps to conclusions, let me explain that it is not a subsidy to tenants. However, tenants and home buyers can benefit from the program. What I have been studying is called a Housing Finance Corporation. An HFC is a financing vehicle to aid seniors and "workforce" populations.
You'll need a little background on how financing of real estate development works.
There is a 99% chance that everytime you see something being built, whether a house or a $20 million apartment project, there is a lender that is funding the money to pay the concrete people, the electricians, the plumbers, painters, etc. These lenders are called "interim" or "construction" lenders. They fund the construction until construction is complete. Then, the "construction" lender is paid off by the "permanent" lender who sets up the mortgage payments for the homeowner or the apartment owner. The owners then make payments until the debt is retired.
Both lenders need to make money to stay in business. They have to pay their rent (or monthly payments), utilities and salaries of staff. If you put your money into a bank, they might pay you 1% interest. They have to loan that money out and charge 4% to break even and 5% interest to make a profit. However, since they're using your money, they have to do everything they can to make good loans with good credit support and protect the investment with good risk management.
There is where the HFC comes in. The HFC sells bonds to get the construction funds. However, the State and Federal government awards "tax credits" to purchasers of those bonds. These tax credits can be quite attractive and anyone needing "tax credits" are major purchasers of the bonds. To give you an example of the influence the "tax credits" can have on a project, a $20 million apartment project can contrubute as much as $1.5 million a year for 10 years. That gives the lender a very good risk cushion. The lender gets CRA credits, too. This is still a little dicey for small lenders, but the big boys know about it.
There are a number of advantages that accrue to the municipality the forms up the HFC. Below is a part of an email I sent to Brian Funderbunk, City Manager, and Todd Gottel, Mayor. I was asking for a meeting to go over what I had learned. We scheduled a meeting, but Todd couldn't make it and cancelled at the last moment. We set up another meeting, but Todd had to cancel again at the last moment. So, Brian, Marc Kubansade, Director of Planning, and myself attended the meeting. I am pleased to report that Brian expressed interest in pursuing further. Mark was un-commital, and Todd was absent.
Below is a portion of the email sent out on October 23, setting out some advantages to Rowlett:
It's my opinion that we narrowly missed an involvement with the Dallas Housing Authority. I feel more proposed associations with DHA are "in the works." I have nothing against the good work they do, however as a citizen of Rowlett, I , and other citizens I have talked to, prefer that Rowlett have more control over our under served markets than Dallas County. I am aware of the financial risks to the city and political exposures to elected officials. I feel these concerns are satisfactorily addressed.
I have been researching other municipalities. Rowlett is not unique in their under served citizens. It's nobody's fault. Everywhere, the Senior and Workforce real estate markets have been surprisingly and unexpectedly ignored by events favoring upscale real estate development. These are not "low income" people. They are policemen, firemen, staff in city offices, small business operators, and retired people on Social Security. They are the absolutely essential lubrication that make any community work. This adverse condition has been created because of the extraordinary good economic conditions that have spurred the economic explosion for Texas. Costs of housing have simply outdistanced many citizens ability to pay for suitable housing. It is incumbent upon city governments to address this problem. It is not felt that Section 8 and Walker Vouchers are the best way to address the under served market problem. These programs are more utilized in "low income" markets. This is not to be confused with workforce markets.
HFCs offer a more diversified, yet more targeted, alternative to Section 8. There is no use of subsidies such as Section 8 or Walker Vouchers. The HFC vehicle is the financing vehicle offered to Lenders and Investors. Lenders receive tax credits and CRA credits for their willingness to participate in financing the projects. There are rules, but very acceptable rules.
I have talked to experts in legal, financial, and administration of HFCs. I can share with you my findings, then provide you the contact information to verify my observations.
Essentially, two markets are addressed:
1. Senior housing
2. Workforce housing
Four advantages of Rowlett using HFCs in lieu of Dallas Housing Authority:
1. More control of who occupies and/or finances housing for selected market
2. Near 75%-80% of typical normal tax revenue with contract with city to offset tax exempt status.
3. No risk to city after HFC organized and running.
4. Political ties with HFC severed. No "blow back" to elected officials.
We had our meeting on November 10. I had sent a 36 page presentation setting out all my contacts and how to find them, some printed material written by some of the experts I had talked to, and some sample forms. Brian wanted to talk to staff about my presentation. I have not heard anything back.
I will call Brian tomorrow to find out if we can take the next step. Two organizations in Austin, each a confederation of HFC's in central Texas, offered to come to Rowlett and answer any questions that our City Council may have. I believe these people to be some of the most gracious people I have ever talked to.
Rowlett is not helping our senior citizens or workforce population enough. The vehicle is there to do it. I fear just reporting to Rowlett "officialdom" is not enough. It is like a black hole. Things go in, but nothing comes out. I will bug them.