For more than 50 years, state Housing Finance Agencies (HFAs) have played an essential role in the nation’s affordable housing delivery system, financing the purchase, development, and rehabilitation of affordable homes and rental apartments for low- and moderate-income households. Much of this development is located in areas that are now designated as Opportunity Zones (OZs).

OZs present an exciting new tool we expect will further support HFA efforts to revitalize distressed communities and provide affordable housing to the residents. It is critical that mission-driven entities, such as HFAs and their partners, are actively engaged in OZs to ensure that this new tool achieves the important objectives congress envisioned for it, not only improving many distressed communities but also helping the residents to remain in those communities and share in the benefits of Opportunity Zones. State HFAs intend to do just that.


Most HFAs collaborated with their governors to identify OZ census tracts last year and are now allocating significant financial resources—including tax-exempt private-activity bonds and Low Income Housing Tax Credits (Housing Credits) to encourage the development and preservation of affordable and workforce housing in OZs.

The Maryland Department of Housing and Community Development was one of the first HFAs to take an active role in helping to shape state OZs activity. In addition to providing incentives for use of its housing and economic development resources in OZs, the agency has built a comprehensive online information exchange that serves as a virtual meeting place for OZ investors, fund managers, property developers, businesses and local stakeholders.

The Michigan State Housing Development Authority also embraced the OZ program shortly after its creation, focusing its efforts on educating communities and other stakeholders across the state on the opportunities and challenges associated with investment in the newly-designated zones and developing a coordinated approach to use of state financial resources.

The Virginia Housing Development Authority is collaborating with other agencies on a coordinated initiative to educate stakeholders and connect investors to developments in state OZs. The agency is also funding a $50 million program to help investors acquire property in OZs.


Several state HFAs have incentivized use of the Housing Credit to encourage much-needed affordable rental housing development in OZs. The Mississippi Home Corporation, for example, has approved a special set-aside of its annual Housing Credit authority for OZ developments, while the California Tax Credit Allocation Committee provides significant points in its very competitive Housing Credit allocation scoring criteria to developments located in designated OZs.

Other HFAs are targeting private activity bonds and state-appropriated rental housing funding to encourage new affordable development in OZs.

To support HFA initiatives in OZs, the National Council of State Housing Agencies (NCSHA) created an Opportunity Zone fund directory last October that initially identified 22 funds representing $6 billion in anticipated OZ investment. While the vast majority of these initial funds were focused on commercial real estate, two of the 22 funds (9%) reported anticipated investment in affordable housing, community revitalization or workforce housing.

In the 12 months since NCSHA published the first edition of its directory, the number of OZ funds focusing on housing and community development has increased substantially. The October 2019 edition includes 183 funds representing more than $44 billion in anticipated OZ investment. Nearly two-thirds of the funds (115 of 183) plan to invest in affordable housing, community revitalization, or workforce housing. While nearly all of the 183 funds report investment focus in multiple categories, the dramatic increase in funds targeting housing and community development is significant compared to the relatively stable investment focus in other categories such as commercial real estate, economic development, small business development and infrastructure. 


As federal funding for affordable housing production declined over the past few decades, the Housing Credit program administered by HFAs emerged as the primary tool for the development and preservation of affordable rental housing across the country. Since the program began in 1986, it has financed more than three million affordable rental homes. Despite this success, the program cannot keep pace with the growing need for affordable rental housing.

The Housing Credit industry is sophisticated, with a network of experienced housing developers competing for the limited supply of Housing Credits available in each state annually. Developers finance their projects in part with equity investments sold in a very efficient Housing Credit equity market, and the vast majority of current equity comes from commercial banks. Most Housing Credit investors are subject to Community Reinvestment Act requirements that result in typically high equity pricing. In some U.S. markets, investors routinely pay more than $1 for $1 of Housing Credit.


Syndicators are an integral part of the Housing Credit industry, and they bring more than three decades of experience in deal structuring, financial underwriting, and fund management. They also provide significant asset management services to investors for the length of their investments.

Not surprisingly, several national Housing Credit syndicators have taken an active role in developing OZ funds that target affordable and workforce housing.

Boston Financial Investment Management, for example, has launched a $108 million fund exclusively targeting deals that leverage OZ incentives with Housing Credits or Historic Tax Credits.

The National Equity Fund, meanwhile, is focusing a $100 million OZ initiative on workforce housing serving residents earning between 80% to 120% of area median income -- higher than the income allowed under the Housing Credit program but typically below the income necessary to qualify for homeownership in many housing markets.

A third national Housing Credit syndicator, Enterprise Community Investments, is partnering with Rivermont Capital in the $250 million Emergent Communities Fund. The group is structuring affordable and workforce housing deals in OZ using Housing Credits and other financing sources.

Other funds specifically targeting affordable housing investments include the $400 million Allagash Opportunity CRE fund, the $300 million Acclaim Multifamily Opportunity fund, the $200 million Sixty West Access Opportunity fund, and the $100 million LIHTC Development Group fund.


For OZ fund managers, attracting investors to affordable and workforce housing deals is a challenge, as the vast majority of active Housing Credit investors do not generate capital gains that allow them to qualify for OZ tax incentives.

Fund managers are working to attract new investors, including insurance companies, by pitching the benefits of leveraging OZ tax incentives with the Housing Credit, tax-exempt bonds, and other public finance tools to facilitate affordable housing development.

As state HFAs, project developers, OZ fund managers and tax advisors explore optimal financial structuring tactics for affordable housing in OZs, it is clear that not every affordable housing development located in a designated zone will attract OZ capital.

To date, the Internal Revenue Service (IRS) has published one proposed OZ regulation and one second round of regulation clarifications, that explain some aspects of the tax treatment of these investments but leave other issues unresolved.

To qualify for OZ tax incentives, the IRS rules effectively require a development to be new construction or a very substantial rehabilitation of an existing development. Deals with significant debt and/or high losses, including many tax-exempt bond