For more than 2,000 low-income California families looking for affordable, safe housing, the California Housing Accelerator program is about to bring some needed help.
About two dozen shovel-ready multifamily housing developments throughout California will be breaking ground—or already have—in the coming months, with about the same number of projects coming in line in 2023. Because the state made the bold, and quick, decision to launch the new program, it is reducing the backlog of projects stuck in the funding pipeline due to oversubscribed low-income housing tax credits (LIHTCs) and tax-exempt bonds, the keystones of affordable housing finance.
Funding assistance is available in the form of forgivable loans from the California Department of Housing and Community Development (HCD) coming from the Accelerator’s $1.6 billion in American Rescue Plan Act dollars. Less publicized is how a group of banks helped ensure the program’s viability. The group included the most-active community development lenders.
The group’s steadfast resolve in overcoming a series of complex technical challenges is well understood by Cécile Chalifour, West region head of Community Development Banking at JPMorgan Chase. Chalifour, who served as the group’s project lead, recently discussed the Accelerator program.
Why is the California Housing Accelerator critically important? Data shows that as of 2019, 1.2 million low-income renter households in California didn’t have access to affordable housing, and the numbers keep increasing.1 The housing crisis has grown even worse in the last few years. It’s no longer confined to the most vulnerable populations and low-wage earners, either. Middle-income workers’ paychecks are increasingly going to rent. There is a sense of renewed urgency in delivering housing units for all. The California Housing Accelerator is important because it allows much-needed multifamily affordable housing projects to proceed quickly, many of which have waited years for this moment.
How many projects are we talking about?
There are 27 projects in the Tier 1 funding round, and construction has started on some of them. Tier 2 projects were recently selected. 57 projects were awarded in total, each providing between 31 and 155 affordable units, for a total of 5,071 units at locations throughout the state.
What challenges does Accelerator’s funding represent?
There are some daunting technical issues involved. Lenders are required to develop and apply underwriting standards to maintain a diversified, risk-balanced portfolio that reflects prudent industry standards and includes the requirements of their respective regulating agencies. Under the Accelerator program, there is no LIHTC in the deal, so there is no tax credit investor to bring strength to the project if needed, not only during construction but in the years to come. In addition, because HCD only funds its loans at conversion, the loan-to-value (LTV) on banks’ construction loans goes through the roof (up to 800% LTV or even higher), well beyond banking industry LTV limits. Banks have to be confident there will be no issue or delay with HCD’s funding at conversion to pay their loan off or down.
What did the banks do to be able to underwrite those deals?
As bankers, we knew this funding had to work. The housing situation here is too dire, and walking away from such a meaningful resource for affordable housing wasn’t an option for us—or any of our banking partners. The banks stepped up immediately and worked through a very complex challenge. We worked with HCD’s staff for months to design a standard agreement that would be used on all transactions and alleviate some of the risks by clarifying and firming up at closing the conditions for the Accelerator program to fund at conversion.
Is there one project you’d like to single out?
Potrero Block B in San Francisco. It’s part of a large low-income housing community. The project is 157 units, all affordable. JPMorgan Chase made one of the largest purely affordable housing construction loans in the state’s history at $146 million—alongside $94 million in Accelerator funding. This demonstrates the depth of commitment firms like ours make to support those most in need. That responsiveness hasn’t gone unnoticed. “The California Housing Accelerator has been a creative initiative from Gov. Newsom to unlock thousands of shovel-ready affordable housing units that have been stuck waiting for federal reforms to increase bond and tax credit capacity into the market,” says Gustavo Velasquez, HCD director.
“We are thankful to the major financial institutions who regularly work with HCD’s affordable housing programs,” Velasquez adds. “They partnered with us and saw in the Housing Accelerator an innovative approach to help close California’s affordable housing shortage.”
How would you advise developers, public officials, and your banking colleagues in other states?
Together, we are proving a program like this, without housing tax credits, can be done, at scale. Having said that, it’s not for every project, or every developer. You need an experienced and accomplished developer to organize a deal without bonds or credits and be underwritten by a bank. But it certainly is an option to consider as we need more tools and resources to solve the affordable housing crisis.
To learn more, get in touch with the JPMorgan Chase Community Development Banking team.
 California Housing Partnership Preservation Database, January 2021. California’s Roadmap Home 2030.