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Longtime LIHTC Syndicator Aims to Help Minority-led Affordable Housing Developers with New Fund
National Equity Fund (NEF), an industry-leading syndicator of low-income housing tax credits (LIHTCs), launched the $100 million Emerging Minority Developers Fund in late 2020 to assist minority-led affordable housing developers.
“This is about breaking down historical barriers and testing an approach that others can replicate,” said Michael Jacobs, senior vice president of originations at NEF, in a press release.
“This fund is for minority-led developers that don’t have enough LIHTC experience or financial capacity and need a partner,” said Mark Siranovic, senior vice president of investor relations at NEF.
While this is a unique venture for the seasoned company, it aligns with its mission and origin.
“NEF started by helping nonprofits in inner cities get access to capital,” said Jacobs. “In a way, NEF has always done this.”
The Emerging Minority Developers Fund will connect development companies with capital and technical support to build affordable housing. NEF is working with nine of its existing investors and already has more than $85 million in commitments. NEF is also talking with a handful of additional potential investors and plans on closing the fund in early 2021.
The fund will bring more equality to the LIHTC market by helping bridge capital gaps facing minority developers and focusing on less-experienced companies that have difficulty accessing LIHTC financing.
“There are very few minority-led development companies out there. And, the ones that are trying, often struggle,” said Jacobs. “We know from experience that there is a need for this type of fund.”
Benefits of the Emerging Minority Developers Fund
NEF will use the fund to provide a financial backstop to mitigate risk for investors and lenders because many emerging developers lack the financial capacity, net worth and liquidity to support the many guarantees
they need to provide. Consequently, developers are forced to engage a financial partner with deep pockets to fulfill these commitments, which comes at a price. The NEF fund offers an alternative without
the added cost.
In addition, the fund will assign an internal resource to the developers in the fund. The NEF staff resource can help them focus on operations and the progress of the investment through the system, as well as connect them with NEF board members who have agreed to serve as sounding boards or mentors.
“NEF is providing a full-time person to work with the developer as an intermediary,” said Jacobs. “That way, the developer always has a point of contact at NEF. They will work with the developer as well as the investor and asset manager in an ongoing role.”
Another benefit is that developers who participate in this fund get to keep 100% of their nondeferred developer fees.
Typically, when inexperienced affordable housing developers partner with experienced development companies to receive a LIHTC allocation and build affordable housing, the inexperienced developer is required to give a large portion of its developer fee to the experienced developer, making it difficult for the new developer to build its balance sheet.
“It’s hard to build your business when you give away a large part of your nondeferred developer fee on every deal,” said Siranovic.
Moreover, this joint-venture approach only helps minority developers receive a LIHTC award for one development. It isn’t a long-term strategy.
“The idea behind this is, ‘I can do one-off deals, but then the developer is left hanging,’” said Jacobs. “We [instead] want to bolster them up for the long haul. That way they are all much more successful moving on to the next transaction.”
The Emerging Minority Developers Fund is different. “NEF isn’t taking any portion of the developer fee,” said Jacobs.
The fund also benefits investors because of the Community Reinvestment Act (CRA) impacts.
“We can’t promise specific locations for CRA,” said Siranovic. “But we will do our best to invest in our investors’ footprints. Our current investor footprint touches 41 states.”
This venture will look different for each developer, depending on specific needs.
“This is not a box-checking fund. It’s not one size fits all,” said Siranovic. “This is new. We haven’t done this before and we don’t know exactly what it will look like. We won’t be sure until we take some live examples and see how they work out.”
While the Emerging Minority Developers Fund will begin helping minority developers immediately, Siranovic said the full impact of the fund won’t be realized right away.
“What does success look like?” asked Siranovic. “Success would be realized 15 years from now. We hope these developers will be on their sixth, seventh and eighth deals with us.”
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