Pre-development
and acquisition financing is essential for paying the many expenses of
developing housing that occur before breaking ground. Obtaining
financing for these expenses can be difficult -- especially for small
non-profits. Accordingly, a number of state and local governments have
developed loan programs to cover these costs, thereby facilitating and
expanding development activity for affordable homes.
Pre-development
expenses include a variety of costs related to determining the
feasibility of a particular project, such as the costs of preliminary
financial applications, legal fees, architectural fees, and engineering
fees. Acquisition expenses refer to any costs associated with obtaining
control of the site.
Since these costs are incurred before construction
begins, traditional lenders often consider pre-development and
acquisition loans to be high-risk and set the interest rates at levels
that make it infeasible for smaller organizations to get projects off
the ground. Many states and some local lending programs provide
low-cost financing for pre-development and acquisition expenses to help
increase the availability of affordable homes.
How does pre-development and acquisition financing increase the availability of affordable homes?
While larger non-profit and for-profit organizations may be able to use
reserves or lines of credit to pay for pre-development and acquisition
expenses, these costs can be a major obstacle for smaller,
community-based non-profit organizations. Indeed, when competing for
larger properties in desirable locations, even larger non-profits and
for-profits interested in building affordable homes may have difficulty
marshalling the funds for acquisition in a timely and cost-competitive
manner. By offering loans for pre-development and acquisition expenses,
state and local governments can make it easier for affordable housing
developers to compete for land and meet local affordable housing needs.
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Photo courtesy of Trinity Housing,
Via Roble, in Escondido, California, is a mixed-income
rental and homeowner community, which received pre-development and
acquisition financing through California's Housing Enabled by Local
Partnerships (HELP)
Program. A HELP award of $1.85 million to the
city of Escondido assisted with the site acquisition of Via Roble, as well as its development and rehabilitation. Click here to view more examples of programs at the state level.
Visit the Gallery to learn more about Via Roble.
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Learn more about pre-development and acquisition financing.
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