National Equity Fund (NEF) is launching a $100 million Emerging Minority Developers Fund (EMDF) to connect promising but often overlooked development firms with capital and technical support to build affordable housing, especially utilizing the low-income housing tax credit (LIHTC).

The move by NEF is designed to make the LIHTC market more equitable by helping bridge capital gaps facing minority developers and focusing on less experienced firms that are not generally able to access LIHTC financing, according to the equity syndicator, which has invested about $17 billion in affordable housing nationwide.

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Working with a range of its existing investors, NEF has commitments in excess of $80 million. Investors are carving out a portion of their traditional community development capital to fuel minority-led developers.

“If you look at our portfolio and the nearly 200 funds we have under management, it might seem that we are already addressing racial equity concerns,” said Matt Reilein, president and CEO of NEF, in a statement. “After all, we make many of our investments in communities of color, and we take on difficult deals that some other syndicators and investors might avoid.

“But that doesn’t really get at the systemic challenges,” he explained. “The LIHTC market represents billions of dollars in affordable housing capital every year, and smaller, newer affordable housing developers—many of which are led by people of color—can’t really get a piece of that, mostly because they don’t have the track record to compete. That means the communities they serve have less access to capital, the jobs they could create are lost, and the much-needed housing they could build stays on the drawing board. Additionally, it limits the developers’ ability to grow their companies, scale their operations, and ultimately build their net worth.”

In response, NEF is rethinking the traditional approach to LIHTC project underwriting with EMDF, taking into account the financial circumstances of smaller firms, the risk appetite of investors, and the services needed to ensure positive outcomes for residents and communities, according to Mark Siranovic, NEF senior vice president, capital markets.

NEF said it will fund a financial backstop for EMDF-financed projects to mitigate risk, while also providing an on-staff “advocate” to help developers build their balance sheets and expand their development capacity for the future.

Matthew Reilein
Matthew Reilein

Reilein said he hopes the fund will demonstrate that traditional approaches to risk and return sometimes overlook the range of opportunities to meet both financial and community impact objectives.

“This is about building the next generation of LIHTC developers,” he said. “If we are going to solve the country’s affordable housing crisis, and if we want to help make our economy fairer and more robust, then we need to think, act, and invest differently. That’s what this fund is all about. The measure of success will be in 10 to 15 years, when we see this cohort of developers with multiple properties and scaled businesses.”

Based in Chicago, NEF is a leading nonprofit investor and lender in affordable housing and one of the nation’s largest syndicators of federal LIHTCs. Since 1987, it has invested $17 billion in 2,800 developments, supporting more than 187,000 affordable homes and fueling more than 228,400 jobs nationwide. NEF is an affiliate of the nonprofit Local Initiatives Support Corp. (LISC) and has made more than $180 million in grants to support LISC’s broad-based community investment efforts throughout the country.