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By Terry Barnard, CHFA Community Development Lending Manager
Over the last several years, multifamily developments have faced a continual escalation in construction costs, mostly related to lumber. In addition to hard-cost increases, labor shortages and supply chain issues have compounded the challenges many of the developments CHFA has financed through Housing Tax Credits and multifamily loans. And if these factors weren’t enough of a moving target, the industry is now in a rising interest rate environment. Since the beginning of 2022, the price of a 30-year tax-exempt bond has increased by over 160 basis points. Taxable sources, which index to the U.S. Treasury market, have increased more than 200 basis points since the beginning of January. The consequence of moving costs and pricing is that many projects are scrambling to find additional funding sources to fill gaps in their capital stack.
So how is CHFA able to help deals weather this changing environment? We are, after all, subject to market pricing for many of our funding sources. However, we are helping deals get to the finish line in a couple of ways. First, some CHFA fund sources have a lower fixed rate so that we can offer a lower blended interest rate with current market pricing to our borrowers.
Secondly, our Housing Opportunity Fund (HOF) is a lower cost source from CHFA’s general fund that can be used to provide an interest rate subsidy to qualified projects, thereby reducing the overall rate to leverage a larger permanent loan; or HOF can be used as a subordinate loan to help fill gaps created by hard-cost increases and higher interest rates. It’s one of several ways CHFA puts its net revenues back into creating more affordable housing and serving its mission to strengthen Colorado by investing in affordable housing and community development.
If your project is facing challenges in the current market, please don’t hesitate to get in touch with us to learn how we might be able to help your deal reach the finish line.
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