Recent jumps in interest rates and construction costs have caused funding gaps for many multifamily affordable housing developers, but creative tax-exempt bond structuring techniques can free up more financing for such projects, McGuireWoods Washington partner Robert Kaplan wrote in a May 1 article he co-authored for Tax Credit Advisor. Kaplan is a member of the firm’s Public Finance Department.
The article explained how affordable housing developers claiming certain Low Income Housing Tax Credits can issue long-term bonds that bear interest at a lower rate during the construction and lease-up phase, and a higher rate after completion. When interest rates are high, as they are now, this “blended yield” structure can reduce the amount of money a developer might need to rebate to the IRS.
“In the current interest rate environment, the ability to blend yields in a cash-backed forward or two-series bond transaction may enable a borrower to retain certain investment earnings and apply them to qualified project costs, thereby narrowing funding gaps and increasing a project’s viability,” the authors wrote.