These days Lydia Smith’s calendar is full and for a very good reason. In fact, it’s an historic one: She directs an equity capital fund that’s helping broaden access to capital to developers of color for affordable housing development.
Welcome to the groundbreaking Emerging Minority Developer Fund (EMDF), a first-of-its-kind capital source that facilitates accelerated development capacity and wealth creation for affordable housing developers of color who haven’t had access to low-income housing tax credit (LIHTC) funding.
“EMDF helps address the biggest LIHTC barrier minority developers face—guidelines that require $1 million of liquidity and $5 million in net worth,” explains Smith, vice president at National Equity Fund, a 36-year-old tax credit syndicator.
Critical Funding Backstop
“Most developers targeted for this fund will not meet those guideline thresholds. EMDF provides a guaranteed financial backstop for undercapitalized developers of color. Without this level of support many development plans die in predevelopment due to the developer’s financial position or require the developer to add a deep pockets co-developer/guarantor which often costs them the majority of developer fee and stifles their ability to improve their financial position.” she says.
EMDF, started in late 2020, originally had a launch goal of $100 million. Thanks to 11 investors (see sidebar), the fund topped $147 million and is helping to finance about a dozen projects in various closing and late-review stages nationwide. The innovative fund breaks from traditional NEF funding practice by not requiring pre-fund project selection. Each investor signed on as an article of faith, confident in the belief that worthy, qualified projects would be identified and selected.
Smith reports that faith has been amply rewarded. “My calendar is full with people trying to tap this resource,” she says.
225 Units and Counting
Closed projects in Austin, Texas (27 units), Cincinnati (50 units), Milwaukee (25 units), Minneapolis (63 units), and Tacoma, Washington (60 units), illustrate the fund’s geographic diversity. The developers include:
- Guadalupe Neighborhood Development Corp.
- Maures Development Group / Scott Crawford
- Kingsley + Co.
- Shiloh Baptist Church
- Matrix Development
Not exactly household names, but that’s the point. EMDF helps each early-stage development group kickstart LIHTC-qualified projects, with the aim of facilitating accelerated growth, development capacity, and financial position of affordable housing developers of color that will break ground on many more projects for years to come.
“We’ve accounted for about 80% of our available first-round funds,” Smith reports. “We’re now in the process of identifying our last two to three projects for EMDF.”
“They’re all great deals. The developers approach us with varying degrees of development experience and financial capacity. Some a little more, some a little less. The 50-unit Victory Vistas project in Cincinnati is a good example. Kingsley + Co. had partnered with another developer on a LIHTC project, but this is their first solo LIHTC project.”
While EMDF is helping break new industry ground, Smith acknowledges there’s always room for improvement. Technical and financial assistance with preliminary architectural plans, environmental work, site control, market feasibility studies, and other areas of LIHTC application support are being investigated.
Anticipation is building for the next generation of EMDF, with an expected launch in early 2024. “We’re talking strategy and structure for that fund right now,” Smith says. “Our investors are very supportive. We expect that many will be back to invest in the next fund along with a few new investors.”
For affordable housing developers of color, the way forward has never shined brighter.
First-round EMDF investors:
- Ally Bank
- BMO Harris Bank
- Comerica Bank
- Fifth Third Bank
- JPMorgan Chase
- PNC Bank
- U.S. Bank
Learn more about how the Emerging Minority Developer Fund helps facilitate LIHTC access for affordable housing developers of color.