Ten Common Sense Ways to Fill Your Development Funding Gap

One of the most challenging stages of any affordable housing project is securing the final subsidies that make the project financially feasible. The difficulty lies with the fact that at this stage all the usual grant sources and government subsidies have been exhausted, yet a gap remains. The following is a summary of my favorite sources for gap financing as well as a couple of ideas you might not have considered to lower the development cost.

Federal Home Loan Bank. The Federal Home Loan Bank (FHLB) is a partnership of approximately 6,500 financial institutions around the United States. Each year, the FHLB is required to grant 10 percent of its profits to help rehabilitate or create affordable housing. Annually, FHLB distributes about $150 million nationally. Awards generally range from $2,000 to $20,000 per unit. You can learn more about the FHLB and its funding programs by visiting its website at www.fhlbanks.com.

Community Loan Funds. Although usually a source for predevelopment and construction loans, community loan funds may be convinced to provide you with a modest grant to help put your project in the black. Since most, if not all, of a community loan fund’s financing comes from contributions and loan commitments, they can also be an excellent source for referrals to other public and private grantors in your community.

Maximize Existing Subsidies. Often there is a rather large time span between notification of a grant award and actual construction of the project. Considering this, some grant programs might be willing to provide an “inflationary increase” to help cover rising construction costs. Of course, before inquiring about the possibility of your funders providing such an increase, be prepared to justify the need for additional funding. Once you secure supplementary funding, avoid going back to the same funders for additional funds for the same project. Funders do not want to be subjected to piecemeal requests. It complicates their procedures, ties up their staff, and can damage your credibility.

Tax Abatement. In many states, as a nonprofit you are entitled to free or reduced local property taxes for your organization’s occupied affordable housing projects. Tax laws governing abatements vary from state to state, so we recommend contacting your attorney for more information.

Other Sister Agencies. Think broadly and creatively when considering all your funding sources. Although you may be used to working with one state or local agency, remember that another “sister” agency may also have funding available to your project. For example, a state department of community affairs might provide the bulk of your development funding, but the state department of human services could have a set-aside of funds to meet the very objective you are pursuing. At the same time, the state’s housing finance agency can provide construction funding, permanent mortgage commitments, and possibly Low Income Housing Tax Credits. Also, at the county level, you can secure HOME or CDBG funding from the Community Development Office, while also securing discretionary funding from the county administration, or low interest financing from the County Improvement Authority.

HOME. Many of our clients don’t initially realize that the federal HOME program is structured to allow both local (municipal or county) sources and state sources to combine their limited HOME resources to help fund projects. Of course, federal regulations prohibit an excess of HOME funding going into the project, but we have found that usually local or state funding sources choose to award their funding at far below the permitted federal maximums, so this two-source approach to getting more HOME funds is often a viable tool.

Local/County Office of Community Development. These offices often serve as a clearinghouse for rehabilitation and new construction grant and loan funds (e.g., HOME, Block Grant funding, developer fees, and land donations). We’ve found the staff of these offices to also be quite knowledgeable of other public and private housing grantors in their communities.

Special Appropriations. With the current health of the economy, many states are seeing unexpectedly high revenues. Contact your state legislators about having a piece of these surplus funds earmarked for your project. Special appropriations funds are generally not available until just before the end of the fiscal year.

Giving and Donations. Of course, every nonprofit should have an annual giving campaign to support its mission. But has your organization considered a special fund drive for your housing project?

Waived Permit Fees. Many municipalities will waive or reduce permitting fees for nonprofit housing developers. There’s not usually a box on permit applications for requesting a waiver or reduction, so you will probably have to make your case, and then specifically ask for the governing body’s consideration.

As experienced housing developers know, most funders view gap financing as the most desirable type of funding to provide. After all, a project’s likelihood of success improves with each step toward financial feasibility. Use this knowledge when approaching potential funders, and convey a sense of confidence about the opportunity you are giving them.

As a final note to all new affordable housing developers – never let a final funding gap stop your project. In my eighteen years working in affordable housing, I have never seen an otherwise viable project halted due to lack of gap funding. With creativity, perseverance, and reliance on existing public and private funding mechanisms, your project will succeed. Good luck in housing.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.