Case Study: CDE Consulting with Housing Partnership Network
Total Allocation Award: $70M
Allocation Years: 2015-2016; 2017
Total Transactions: 4
Total QLICIs: 11
Total QALICB / HPN Members: 9
States served: 8
Number of homes: 443
Established in 1992, the Housing Partnership Network, Inc. (HPN), a certified CDFI and CDE with a national service area, is a membership organization whose 100 high-performing nonprofit community and affordable housing developer members serve low-income communities throughout the U.S. HPN has helped its members develop, rehabilitate or preserve 420,000 affordable homes, provide homeownership education and counseling to 1.3M families and assist 11.5M people through housing, and community facilities and services.
Hearing of Smith NMTC’s work using NMTCs for affordable homeownership, HPN engaged Smith NMTC’s services in 2014 to pursue an NMTC allocation. “We soon realized that NMTCs could be an extremely valuable tool to our 30-plus members doing single-family, for-sale development and began working together to submit an application for allocation1” said Katie Rodriguez, vice president of lending and investment at HPN.
Working closely with HPN leadership, Smith NMTC prepared a successful NMTC application for the 2015-2016 allocation round. This work included developing a robust project pipeline, which was collected and refined through an intake process offered to all HPN members who developed for-sale housing in low-income communities. With its strong track record in real estate lending and asset management, as well as its targeted project outcomes supporting struggling neighborhoods and low-income families, HPN received a $40 million allocation in that round.
Upon final project approval by the HPN Board, Smith NMTC facilitated three transactions between May 2017 and April 2018, deploying the full $40 million to six nonprofit affordable homeownership developer HPN members. With its affordable homeownership NMTC model, Smith structured the multi-QALICB transactions to maximize the net benefit for each organization, sharing transaction costs on a pro rata basis. As needed, Smith NMTC Associates assisted QALICBs to raise leverage by supporting communication with source lenders and related legal counsel.
For the ongoing seven years of required reporting, the Smith NTMC team provides thorough accounting and compliance support. Working directly with QALICB staff, Smith ensures proper expense documentation of QLICI funds and verification that project addresses are in qualified census tracts and in areas of higher distress, as applicable. Project data is compiled for HPN review and completion of annual CDE reporting. Smith guarantees the recapture risk for HPN and its members, and handles all CIIS reporting, and compliance reporting for investors and others.
HPN and Smith collaborated to submit another successful NMTC allocation application, resulting in a $30M award in 2017. This entire allocation was deployed in a single transaction in September 2018 to four nonprofit affordable for-sale housing developers located in Texas, Georgia, New Jersey, Florida and Minnesota.
Since 2016, the total $70M of NTMC allocation awarded to HPN has resulted in the development of 443 for-sale homes within qualified census tracts. Eleven QLICIs were made to nine HPN members in eight states. A minimum of 124 project homes will be sold to low-income persons with incomes at or below 80% AMI. Two of the projects funded are part of a baseline impact study regarding affordable homeownership, with the goal to conduct a follow-up study in 3 to 5 years.
HPN’s NMTC funding enables its members to affordably build new, or acquire/rehab, and sell homes to low-income families and residents of low-income communities; to take back seller financing with more flexible underwriting standards than FHA; and to provide their buyers with pre-and post-purchase financial counseling, homeowner education, and high-touch loan servicing to ensure the best chance of success for their consumers. NMTCs are critical to HPN’s pipeline projects because subsidy is needed to address two primary causes of a funding gap between cost to construct and sale price: (1) in some neighborhoods, the cost to acquire the property and build the home exceeds an affordable price; and (2) in some neighborhoods the market value is less than the project cost. With NMTCs, the developers can subsidize either the market gap and/or the affordability gap. “The most rewarding part of this program is seeing how this financing tool can provide real impact at the neighborhood and community level,” said Rodriguez. “We have seen it allow our members to scale or complete projects that otherwise would not have been feasible, or much more challenging to complete.2”
1-2 Stanhope, Brad. “NMTCs Help Families Get Energy-Efficient Homes in Santa Fe, N.M.” Novogradac Journal of Tax Credits. May 7, 2018. Volume 9, Issue 5.