$35,000,000 Affordable Housing (LIHTC) in South Los Angeles, CA

The Deal

Commercial Lending Solutions recently closed a $35 million construction loan for a 95-unit affordable housing development in South Los Angeles. The project utilized Low-Income Housing Tax Credits (LIHTC) as part of a complex five-source capital stack totaling approximately $65 million in development costs.

The financing featured a 24-month construction term with permanent conversion upon stabilization at 95% occupancy. The loan carried a floating rate of prime plus 75 basis points with interest-only payments during construction. The loan-to-cost ratio was 54%, reflecting the layered capital structure typical of affordable housing developments.

The development includes a mix of one, two, and three-bedroom units targeting households earning 30% to 60% of Area Median Income (AMI). The project incorporates sustainable building practices to meet California's green building requirements and includes community amenities such as a computer lab, community room, and children's play area.

The Challenge

Affordable housing transactions present unique financing complexities that few lenders understand or can accommodate. This particular deal involved five distinct capital sources: LIHTC equity ($18 million), tax-exempt bond financing ($8 million), city soft loans ($3 million), county housing trust fund money ($1 million), and the conventional construction loan ($35 million).

Each capital source operates on different timelines and regulatory frameworks. The LIHTC equity required investor approval processes spanning 90+ days. Tax-exempt bonds needed rating agency reviews and public approval processes. Municipal funding sources had their own bureaucratic timelines tied to city council meetings and compliance requirements.

The general partner, an experienced affordable housing developer with 20+ years in the market, faced an additional hurdle when their primary construction lender reached their annual affordable housing allocation limit just weeks before the planned closing. This forced them to seek alternative financing with limited time remaining on their various regulatory approvals and equity commitments.

Traditional construction lenders often struggle with affordable housing deals due to the extended lease-up periods, rent restrictions, and complex regulatory compliance requirements that continue through the permanent phase. The underwriting requires specialized knowledge of LIHTC regulations, Davis-Bacon prevailing wage requirements, and local affordable housing policies.

The Solution

We identified that this deal required a lender with specific affordable housing expertise rather than a conventional construction lender trying to adapt their standard program. Our solution involved partnering with a Community Development Financial Institution (CDFI) that specializes in Los Angeles affordable housing projects.

The CDFI had established relationships with the relevant municipal agencies and understood the timing coordination required across all capital sources. They had previously worked with the same LIHTC syndicator and were familiar with that investor's due diligence and funding requirements.

We structured the financing to accommodate the phased funding typical of affordable housing deals. The construction loan included provisions for tax credit equity draws tied to development milestones, with initial funding covering site work and foundation while equity contributions funded vertical construction phases.

The permanent conversion was structured at a fixed rate of 4.85% over 30 years, with a 35-year amortization schedule. The permanent loan-to-value ratio of 68% reflected the property's restricted cash flows but provided adequate leverage given the long-term nature of affordable housing investments.

Critical to the solution was coordinating the timing across all funding sources. We established a closing timeline that sequenced the tax-exempt bond issuance, LIHTC equity funding commitments, and municipal approvals to align with the construction loan closing.

The Outcome

The transaction closed on schedule despite the capital source complexity, allowing the developer to meet their LIHTC deadline requirements and maintain their equity pricing. The 24-month construction timeline proved accurate, with the project reaching stabilization within 90 days of construction completion.

The CDFI relationship proved valuable beyond this single transaction, as the lender has since provided additional financing for two other projects in the developer's pipeline. This demonstrates the importance of matching borrowers with lenders whose business models align with their specific property types.

The permanent conversion executed smoothly at stabilization, with the property achieving 97% occupancy within six months of completion. The project has maintained full occupancy with a waiting list, typical for well-located affordable housing in Los Angeles.

This transaction reinforced several key lessons about affordable housing finance: the critical importance of lender selection based on property type expertise, the necessity of early coordination across capital sources, and the value of establishing relationships with specialized lenders who understand complex regulatory environments.

The success of this financing enabled the developer to preserve their equity relationships and maintain momentum on their development pipeline, ultimately contributing to Los Angeles's affordable housing supply in an area with significant need.