NHTF Q&A

Q: How would you cross subsidize using 60-80% AMI units when there is no equity source (LIHTC) available for those units. They don’t throw off cash when they need such high debt amount given the low equity available.

A: Ginger: Every deal is different. In order to cross subsidize you have to have excess from some units that can be used to reduce the rent on other units. If this isn’t possible because of the debt service burden, then it can’t be done. Cross subsidies are easier to use in areas with high AMIs and high market rents, but not particularly high construction costs.

Nancy: The most viable way to cross subsidize 60-80% AMI units is to balance them with market rate units. This strategy works only in markets where the rent spread between 60-80% rents and market rents is substantial. Unfortunately in many markets LIHTC rents are market rents, making it virtually impossible to develop 60-80% AMI units.

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