A GROWER’S GUIDE

Affordable Housing Development 101

Affordable housing development is an intense multi-year process requiring close coordination between the developer and lenders, contractors, and government agencies. However, the benefits of affordable housing far outweigh the costs. Affordable housing delivers proven economic, social, and environmental impact and provides opportunity for local businesses to grow alongside with the communities they serve.

Permanent supportive housing (PSH) is the most popular form of subsidized affordable housing and a proven way to reduce homelessness. This guide outlines a typical PSH development process. Please keep in mind that every project is unique and may require additional support from public and private sources.

Which needs are most pressing?

Who is part of the project team?

How will it be financed?Plant the SeedsDeveloping affordable housing begins with forming a strategy that fits the needs of the community and the goals of the developer. Whether the developer is a for-profit or nonprofit organization, the project must “pencil” (make financial sense) by supporting the cost of design, construction, marketing, and operation along with the development team itself.

Developers frequently turn to a local Community Development Financial Institution (CDFI) like Century Housing to offer competitive loan terms along with expertise surrounding current legislation and available programs.STEP 1: CONCEPTDetermine the target population.

Construction and operations teams performance projections.

Purchase agreement and site control.Till the SoilManagement and Operations plan

Loan Closing

Construction BidJust Add WaterOnce the idea behind the project is a go, developers refine the strategy and obtain site control. The developer analyses the market and forms a strategy around a resident population—seniors, veterans, low-income families, or other vulnerable groups depending on available government programs and current community needs.

Architectural drawings are polished to produce a design which meets these needs and is accurate enough to produce operating and construction pro formas (projected financial results).

In order to obtain site control, the developer secures an agreement with the site owner to purchase the property.STEP 2: FEASIBILITYWhen all parties are in agreement and the management and operations plans are set, the developer is ready to acquire the property.

Acquisition financing is usually the first and most critical large investment. Acquisition loans are used to acquire land or existing properties which will be rehabilitated to add or preserve affordability. CDFIs specialize in assessing risk and can close quicker than conventional banks when competing for high-demand sites with market-rate developers.

Bridge loans cover additional predevelopment expenses. CDFIs provide this short-term financing to help developers meet important Low-Income Housing Tax Credit (LIHTC) deadlines.

Learn more about Century acquisition and bridge loans.

Once the property is purchased, the developer will request bids for the construction contract, secure construction financing, and prepare for groundbreaking—there’s no going back now! Century construction loans finance traditional affordable housing utilizing local, state, or federal subsidies, along with Naturally-Occurring Affordable Housing** (NOAH) and workforce housing.

Learn more about Century construction loans.STEP 3: FINANCING123

Lender Inspection and Draw

Schedules

Leasing and Management

Grand Opening Planning and PublicityGrow StrongPermanent Financing Closed

Equity Pay-In and Reporting

Occupancy and MortgageTime to BloomPermanent financing pays off all prior loans aside from some soft loans, which are loans provided by local government that do not need to be paid off until far into the future.

The developer holds the property for 15 years and must uphold its affordability, maintain the service contracts, manage the equity pay-in and reporting associated with the LIHTC program, and pay the mortgage. After this, the developer can receive an additional tax-credit subsidy to modernize the facilities and preserve affordability.

These homes continue to serve the community after the LIHTC-restricted period because they maintain the housing supply.STEP 5: OPERATIONIt’s time to go vertical! At each phase of construction, financing is provided in scheduled draws following local government and lender inspections.

As the project nears completion, marketing efforts begin to identify qualified residents while the operation team prepares for the grand opening. In the case of permanent supportive housing, the service provider prepares for case management, occupational therapy, career planning programs, and other wraparound services available to residents.

The grand opening marks the end of the construction phase.STEP 4: CONSTRUCTIONPermanent financing will pay off the construction loan later in the process but may be negotiated here to lock in terms. Century permanent financing has a maximum term of 18 years and a forward commitment of up to three years.

Learn more about Century permanent loans.*LIHTC financing is the single most important affordable housing subsidy, paying for as much as 70% of the development cost over the course of 10 years. In addition to helping navigate this program, CDFIs work collaboratively with government-funded programs like the Golden State Acquisition Fund (GSAF) to offer more favorable loan terms.

**NOAH developments offer affordable rents without a covenant (long-term deed restriction on rents and tenant eligibility). Mission-oriented developers purchase these sites to prevent the property from charging market rents.45
Which needs are most pressing?

Who is part of the project team?

How will it be financed?Plant the SeedsDetermine the target population.

Construction and operations teams performance projections.

Purchase agreement and site control.Till the SoilDeveloping affordable housing begins with forming a strategy that fits the needs of the community and the goals of the developer. Whether the developer is a for-profit or nonprofit organization, the project must “pencil” (make financial sense) by supporting the cost of design, construction, marketing, and operation along with the development team itself.

Developers frequently turn to a local Community Development Financial Institution (CDFI) like Century Housing to offer competitive loan terms along with expertise surrounding current legislation and available programs.STEP 1: CONCEPTOnce the idea behind the project is a go, developers refine the strategy and obtain site control. The developer analyses the market and forms a strategy around a resident population—seniors, veterans, low-income families, or other vulnerable groups depending on available government programs and current community needs.

Architectural drawings are polished to produce a design which meets these needs and is accurate enough to produce operating and construction pro formas (projected financial results).

In order to obtain site control, the developer secures an agreement with the site owner to purchase the property.STEP 2: FEASIBILITYWhen all parties are in agreement and the management and operations plans are set, the developer is ready to acquire the property.

Acquisition financing is usually the first and most critical large investment. Acquisition loans are used to acquire land or existing properties which will be rehabilitated to add or preserve affordability. CDFIs specialize in assessing risk and can close quicker than conventional banks when competing for high-demand sites with market-rate developers.

Bridge loans cover additional predevelopment expenses. CDFIs provide this short-term financing to help developers meet important Low-Income Housing Tax Credit (LIHTC) deadlines.

Learn more about Century acquisition and bridge loans.STEP 3: FINANCINGJust Add WaterManagement and Operations plan

Loan Closing

Construction Bid
Lender Inspection and Draw

Schedules

Leasing and Management

Grand Opening Planning and PublicityGrow StrongPermanent Financing Closed

Equity Pay-In and Reporting

Occupancy and MortgageTime to BloomOnce the property is purchased, the developer will request bids for the construction contract, secure construction financing, and prepare for groundbreaking—there’s no going back now! Century construction loans finance traditional affordable housing utilizing local, state, or federal subsidies, along with Naturally-Occurring Affordable Housing** (NOAH) and workforce housing.
Learn more about Century construction loans.
Permanent financing will pay off the construction loan later in the process but may be negotiated here to lock in terms. Century permanent financing has a maximum term of 18 years and a forward commitment of up to three years.
Learn more about Century permanent loans.Permanent financing pays off all prior loans aside from some soft loans, which are loans provided by local government that do not need to be paid off until far into the future.

The developer holds the property for 15 years and must uphold its affordability, maintain the service contracts, manage the equity pay-in and reporting associated with the LIHTC program, and pay the mortgage. After this, the developer can receive an additional tax-credit subsidy to modernize the facilities and preserve affordability.

These homes continue to serve the community after the LIHTC-restricted period because they maintain the housing supply.STEP 5: OPERATIONIt’s time to go vertical! At each phase of construction, financing is provided in scheduled draws following local government and lender inspections.

As the project nears completion, marketing efforts begin to identify qualified residents while the operation team prepares for the grand opening. In the case of permanent supportive housing, the service provider prepares for case management, occupational therapy, career planning programs, and other wraparound services available to residents.

The grand opening marks the end of the construction phase.STEP 4: CONSTRUCTION*LIHTC financing is the single most important affordable housing subsidy, paying for as much as 70% of the development cost over the course of 10 years. In addition to helping navigate this program, CDFIs work collaboratively with government-funded programs like the Golden State Acquisition Fund (GSAF) to offer more favorable loan terms.

**NOAH developments offer affordable rents without a covenant (long-term deed restriction on rents and tenant eligibility). Mission-oriented developers purchase these sites to prevent the property from charging market rents.

Grow Better Communities

Affordable housing promotes economic growth and, contrary to popular belief, can increase surrounding property values. Educational outcomes are also well-documented, with increased school performance and college acceptance rates for students living in affordable homes.

Affordable housing is often transit-oriented (built near public transportation) to reduce reliance on polluting vehicles, incorporates sustainably sourced and energy-conserving building materials, and supports prevailing wages. Modern affordable housing communities are often the most attractive and “green” buildings on the block!

We invite you to learn more about affordable housing and join us in nourishing support for affordable development in your neighborhood.

Additional Resources

Novogradac:  https://www.novoco.com/resource-centers/affordable-housing-tax-credits/lihtc-basics/about-lihtc

California Housing Consortium: https://calhsng.org/resources/affordable-housing-101/how-is-it-built/

California State Treasurer: https://www.treasurer.ca.gov/ctcac/tax.asp

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