$40,000,000 Mixed-Income Multifamily (4% LIHTC), Mission District / SOMA, San Francisco, CA

Mixed-income multifamily deals in San Francisco require threading the needle between multiple capital sources, each with their own timeline and documentation requirements. When a developer needed $40 million in construction financing for a ground-up project combining 120-150 units across AMI tiers in the Mission District/SOMA area, the complexity of coordinating 4% LIHTC equity, tax-exempt bond financing, MOHCD soft debt, and permanent takeout commitments made this anything but a routine construction loan.

The Deal

The borrower approached us with plans for a mixed-income multifamily development utilizing 4% Low-Income Housing Tax Credits. The project required $40 million in construction financing to support development across multiple AMI tiers, creating affordable and workforce housing in one of San Francisco's most supply-constrained markets. The deal structure included significant public subsidies through MOHCD soft debt and tax-exempt bond financing, creating a capital stack that needed to satisfy both public agency requirements and private capital return expectations.

The Challenge

LIHTC construction deals present timing challenges that standard multifamily projects avoid entirely. The construction lender demanded documented forward takeout commitments before closing, but LIHTC investors typically won't provide binding equity commitments until construction milestones are achieved. Meanwhile, the tax-exempt bond component required coordination with the state housing finance agency on timing that didn't align with either the construction lender's or LIHTC investor's preferred schedule.

The permanent financing structure added another layer of complexity. Mixed-income properties with LIHTC components trade at different cap rates than conventional multifamily, and many permanent lenders struggle to underwrite the cash flow restrictions that come with affordability requirements. The forward commitment needed to satisfy a construction lender's takeout requirements while accommodating the regulatory compliance testing that wouldn't occur until lease-up.

MOHCD's soft debt component created additional coordination requirements around construction milestones and draw procedures. The public financing moved on a different timeline than private capital, with board approval processes and public notice requirements that couldn't be accelerated to match construction loan closing deadlines.

The Solution

We structured the deal around a construction loan from a regional bank experienced with LIHTC transactions. The lender agreed to a 75% loan-to-cost basis with an 18-month initial term and two six-month extension options, providing flexibility around the permanent financing transition. The floating rate structure started at prime plus 75 basis points, reflecting the lower risk profile that comes with public subsidies and forward-committed permanent financing.

The critical breakthrough was securing a conditional forward commitment from a national life insurance company for the permanent financing. Rather than waiting for construction completion, we documented a commitment structure that satisfied the construction lender's takeout requirements while giving the permanent lender adequate protection around lease-up performance and LIHTC compliance testing. The permanent loan was structured at 80% LTV with a 4.2% fixed rate over 35-year amortization.

For the LIHTC equity component, we coordinated with a syndicator to provide a binding commitment letter that outlined funding tranches tied to construction milestones. This gave the construction lender comfort around the equity funding timeline while preserving the LIHTC investor's ability to conduct compliance testing before final funding.

The tax-exempt bond financing required close coordination with the state HFA around timing and documentation. We worked with bond counsel to structure the bond issuance timeline around construction milestones, ensuring that the tax-exempt financing would be available when needed without creating unnecessary carrying costs during the development phase.

The Outcome

The borrower received construction financing that accommodated the complex capital stack while maintaining competitive terms. The 75% LTV provided adequate leverage while the floating rate structure kept interest costs manageable during the development phase. More importantly, the forward-committed permanent financing eliminated refinancing risk and provided cost certainty that made the entire development pencil at San Francisco construction costs.

The coordinated timing between construction loan, LIHTC equity, tax-exempt bonds, and MOHCD soft debt created a funding sequence that worked for all parties. The construction lender received the takeout documentation they required, while the permanent lender got the compliance testing and lease-up protection they needed to commit forward.

This deal demonstrates how mixed-income multifamily projects can access competitive construction financing despite their complexity, provided the capital stack coordination happens upfront rather than as an afterthought during the development process.