While awaiting guidance on state’s $100 million housing fund, developers ponder the pitfalls
NeighborWorks Southern New Hampshire completed a 45-unit affordable housing development in Merrimack three years ago. (Courtesy of NeighborWorks Southern New Hampshire)
When affordable housing developer NeighborWorks Southern New Hampshire embarked on its latest project – an affordable housing development in Nashua – it should have been familiar territory.
The development is slated to hold 45 one- to two-bedroom units. Just three years ago, NeighborWorks, a nonprofit based in Manchester, completed a similar project in Merrimack: 45 two- and three-bedroom units.
But construction costs and material shortages have exploded since 2019, and the environment for developers has changed significantly. This year, the Nashua development is expected to be 40 percent more expensive than the Merrimack complex, despite featuring smaller units, according to Robert Tourigny, executive director of NeighborWorks.
It’s a hurdle state officials hope to alleviate with a new state program paid for with federal pandemic aid. In early May, New Hampshire’s Executive Council gave final approval to “InvestNH,” an initiative that would devote $100 million toward affordable housing development – $50 million of which would go directly to developers who are coming up short.
But as developers await more guidance from the Department of Business and Economic Affairs, some are proceeding cautiously. Without further details from the state, some worry the new state-administered federal funding could reduce the amount of money they can get from other sources.
NeighborWorks has already leveraged as many tax credits and subsidies as it can, including state tax credits administered by the Community Development Finance Authority.
“You add all that up, and, you know, you’re a couple million bucks short,” Tourigny said in an interview.
That problem is facing many New Hampshire developers this year. Between the end of 2019 and the beginning of 2021, national softwood lumber prices increased nearly 164 percent, according to numbers from the U.S. Bureau of Labor Statistics republished by New Hampshire Housing. They fell by nearly the same amount later in 2021, only to spike again in early 2022. Inflation and supply-chain problems have sent homebuilders and investors reeling.
Tourigny is ready to apply for the money. “The InvestNH program was designed for just this purpose: to keep projects that would otherwise become unfeasible relatively feasible,” he said. “… I hope it will be an important gap filler.”
Patrick Hess, development officer at Avesta Housing, an affordable housing developer based in Portland, Maine, isn’t sure yet.
“I think the overall concept is much needed and quite helpful,” Hess said. “However, as with so many things, the proof will be in the pudding of what the details actually are. And until we see those, it’s hard to know exactly how the funds will be best accessed and by which projects over what timeline.”
Some developers are watching for how the New Hampshire program will interact with another key source of funding for affordable units: the federal low-income housing tax credit.
Administered through New Hampshire Housing, that program allows developers to get federal tax credits they can then sell to investors to raise money. But developers might receive less in credits if they are receiving other federal grants. The more grants developers are awarded, the less in tax credits they will receive.
Whether that structure becomes an issue for recipients of the InvestNH program depends on whether the money is counted as a federal grant or a federal loan, developers say. If it is a grant, the additional money could cut into those organizations’ tax credits, forcing developers to rebalance their financing.
“They don’t want you to double dip, right?” said Greg Chakmakas, an attorney with Sheehan Phinney, speaking on the reasoning behind the tax credit rules. “So it creates an issue. If you take it in as a grant, then you can’t generate tax credit equity on the cost up to the amount of the grant that you receive.”
One concern for developers, especially those building affordable rental units, is debt. Taking on too much debt when building apartments can make it difficult to keep those same apartments affordable.
“(You want to) maximize the amount of tax credits you generate for the project,” Chakmakas said. “Which is good … because then it reduces the amount of debt that you put on the project, which reduces your debt service cost and allows you to rent the project perhaps to deeper affordability targets.”
So far, it is not clear how the Department of Business and Economic Affairs plans to structure the grants. Details around the program – including when to apply for it – are still being developed, according to Alex Fries, director of intergovernmental affairs at the department. It will inform developers of the deadline for applications sometime in the coming weeks, Fries said.
The department is aware of developers’ concerns around the low-income tax credit program, Fries said Monday, but it isn’t ready to release its guidance on the issue.
“It’s certainly something that we’ve looked at,” Fries said. “I think at this point in time, I think generally speaking it’s probably something on individual projects and individual developers and their teams to look at, and sort of assess what’s best for their project and how their (funding) comes together.”
And the state is still hiring three staff members to help develop and staff the InvestNH program, Fries added.
For now, developers are trudging forward, seeking to snap up any investments possible as construction costs balloon.
Jack Franks, president and CEO of Avanru Development in Walpole, is nearing the final stages on a workforce housing development in Swanzey. To get to the finish line, Franks pulled together a mosaic of funds, ranging from federal tax credits, to a bond from New Hampshire Housing, to the Affordable Housing Fund, also administered through New Hampshire Housing.
Franks might have been interested in additional InvestNH funds, he said, but he couldn’t swing the timing. With a diverse array of funding sources, the task of aligning them in time to start construction can be a juggling act for developers. The wait for the application process to be revealed simply didn’t line up with the Swanzey developments needs, Franks said.
But beyond the timing, Franks, like many, is standing by for the details of the state program – and particularly the tax credit implications. Avanru is developing an affordable housing project in Newport, which currently has a funding gap of around $1.3 million, he said.
“I’m in a situation now with Newport where I’ve gotta have answers to these questions now,” Franks said. “This project is in jeopardy of being pushed off or having to find another funding source.”
“This is the perfect situation for the (InvestNH) money to be used,” he added. “… But if you can’t get the money in because it’s too difficult or it’s not going to work the way that it’s structured, it’s no good to these deals.”
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