Building An Affordable Housing Capital Stack

Great deals are rarely one-source miracles. Strong affordable housing capital stacks blend credits, bonds, soft loans, and grants into a coherent, sequenced plan that closes and stays compliant—from Monroe and Shreveport to Jackson, Little Rock, and metro Dallas–Houston.

Start with the spine of your stack
\Your spine is LIHTC equity plus permanent debt (and bonds if 4%). Everything else layers around it. Decide early whether 9% or 4% + bonds fits best; that choice sets equity timing, underwriting standards, and documentation. From there, add HOME/CDBG, trust funds, FHLB grants, and city/county contributions to close the gap.

Sequencing dollars to reduce friction

• Soft funds first: Secure commitments with realistic timelines—some require environmental clearance or underwriting before award.
• Debt aligned with construction: Ensure lender draws and retainage terms match contractor cash flow.
• Equity pay-ins: Tie to milestones you can control (permits, foundation, framing, C of O) to avoid liquidity crunches mid-build.
• Reserves & escrows: Pre-fund replacement, operating, and tax/insurance escrows at levels that reflect Gulf South realities.

Bond and rate risk for 4% deals
Coordinate inducement, TEFRA, volume cap, and pricing calendars. Run sensitivity on interest rates and spreads; test DSCR at stabilization with updated insurance quotes. Include a contingency for delayed closings if volume cap or underwriting queues lengthen.

Blending historic credits with LIHTC
For adaptive reuse in corridors like New Orleans’ CBD or Little Rock’s SoMa, twinning credits can unlock feasibility. Delineate QREs vs. LIHTC basis clearly, plan equity timing that reflects historic certification phases, and structure ownership (e.g., master lease) to satisfy both programs. When in doubt, loop your CPA early to avoid basis and recapture headaches.

Documentation that earns approvals

• Clean sources/uses with version control.
• Term sheets and commitment letters that reflect actual terms (rates, amortization, covenants).
• Pro forma tied to market study, utility allowances, and wage requirements.
• Evidence of site control, environmental clearance, and zoning readiness.

Negotiating soft funds and gap grants
Be explicit about readiness: present a milestone calendar, clear cost containment, and credible contingency planning. Show how the project meets local policy goals (e.g., family units near schools, senior sites near transit, or rehab in historic districts).

Stress testing that boards and investors trust
Model downside cases (cost +5–10%, lease-up slower by 2–3 months, insurance +15–25%). If the stack collapses under modest stress, look for additional soft sources or value engineering before you apply.

After award: staying stack-compliant

Keep covenants aligned across all sources—some require surplus cash restrictions, others dictate reserve levels or affordability periods beyond LIHTC. Use a covenant matrix so your team doesn’t miss a condition during change orders or draw requests.

Need a capital stack that closes without tripping over conditions? Little & Associates can map sources, timelines, and covenants into one workable plan.