When company officials at Resia, a multifamily housing developer based in South Florida, first heard about a new Biden administration effort to provide low-interest loans for housing projects near transit stations, they thought it was a “very attractive opportunity.”
Gus Cabrera, the director of business development at Resia, said the loan could have helped finance a roughly $250 million project that would create 948 affordable housing units near a Metrorail station in Miami-Dade County.
But he pointed out several obstacles: Large projects needed to receive investment-grade ratings from two credit rating agencies, and he said going through the process could have cost nearly $800,000. The company would have also had to pay $250,000 upfront to the federal government for financial and legal advisers.
Mr. Cabrera said the company decided against pursuing the loan earlier this year because the application had been too “cost prohibitive,” and there had been no guarantee that it would have been approved.
A year ago, the Biden administration rolled out a plan to encourage affordable housing projects by unlocking more than $35 billion in lending capacity through existing low-interest loan programs. Developers that build housing near transit stations would now be able to access the loans, which would be offered by the Transportation Department.
But the effort has hit stumbling blocks. The administration has yet to close on any loans that would support housing-related projects. Although federal officials said they were on the verge of approving the first loan that would increase housing supply and they had taken steps to ease certain requirements, some developers said they had abandoned the process because the conditions had been too onerous and costly.
“No one’s ever been more interested in low-interest financing in a higher interest rate environment,” said Tracy Hadden Loh, a fellow at Brookings Metro, a research unit of the Brookings Institution. “But getting from interested to closed is extremely difficult.”
The issue reflects the broader challenges the Biden administration has faced trying to make housing more affordable as many Americans have grown frustrated over steep costs. Many of President Biden’s housing policy proposals have not gained enough support in Congress, leaving the administration with limited options.
More than two years ago, the White House released an expansive plan that was meant to help close the housing supply gap. It included “immediate” actions, such as leveraging existing loan and grant programs to encourage residential development. It also included heftier proposals, such as expanding a tax credit for low-income housing development and creating a $25 billion grant program to increase affordable housing production.
The Biden administration has made some progress: It encouraged state and local governments to spend federal pandemic relief funds on housing development. So far, about $20 billion has been budgeted for affordable housing and projects to house the homeless. Officials have also awarded nearly $85 million in grants to encourage local governments to ease outdated zoning rules, a major barrier to housing development. But many of those projects are still years away from completion.
Housing affordability has emerged as one of the most critical issues ahead of the presidential election. The Trump campaign has attacked Democrats for not doing enough to advance their housing policies while in office. Vice President Kamala Harris, the Democratic nominee, has repeatedly pointed to her proposals to lower housing costs and construct three million new units over the next four years.
Biden administration officials have stressed that the loan programs, known as the Transportation Infrastructure Finance and Innovation Act and Railroad Rehabilitation and Improvement Financing, have existing requirements that have limited their ability to support housing development for the first time. The programs, created more than 25 years ago, have typically supported traditional transportation projects like the development of highways, bridges and transit systems.
White House officials said the administration was using “every available tool” to build more homes and to lower housing costs, but that “reform doesn’t happen overnight.”
“We are on the verge of closing this program’s first housing projects, with dozens more in the pipeline, and demonstrating that this program will be a durable low-cost lending option to develop housing near transit for years to come,” Daniel Hornung, a deputy director at the National Economic Council, said in a statement.
Still, Transportation Department officials said there were certain statutory requirements that only Congress could change. Those requirements are still geared toward building transportation infrastructure, rather than real estate developments. For instance, projects that receive transportation loans have to receive an investment-grade credit rating, which is not typically an issue for public agencies financing traditional transportation projects. But that requirement has been a major barrier for housing developers.
Department officials said they were trying to streamline the process by easing environmental review requirements for some projects and encouraging credit rating agencies to create methodologies in order to evaluate transit-oriented development, among other things.
The department has received about 55 letters of interest so far, totaling about $11.5 billion in loan requests. Department officials said they were expecting to close soon on a transit-oriented development project that would address housing supply in Florida.
Aaron Stolear, the president of development at 13th Floor Investments, a residential and commercial developer based in South Florida, said the company was on track to receive a $120 million railroad rehabilitation loan that would help finance a $160 million project located near a Tri-Rail station in Boca Raton, Fla. The project is set to create 340 units, with 10 percent reserved for affordable housing.
Mr. Stolear said company officials understood that there were additional costs and requirements that came with the nontraditional loan process. He said the credit rating process alone would cost about $150,000.
But he said the extra hurdles had been worthwhile to receive a loan with a low interest rate of around 4.5 percent. If the company sought traditional lenders, the interest rate would most likely be around 8 percent, he said.
Still, Mr. Stolear said he thought there could be improvements. Although the company secured a loan through the railroad rehabilitation program, he said he wanted to see lawmakers adjust the investment-grade requirement for transportation loans.
“It creates a bit of a problem,” Mr. Stolear said. “It’s almost impossible to clear the bar of investment-grade.”
Other developers said the costs far exceeded the benefits of the programs.
Brett Walsh, a principal at Hullett Properties, a Pittsburgh-based real estate developer, said he had initially thought the Biden administration’s effort was a “fantastic” idea. Mr. Walsh said the loan could have helped finance a $35 million project in downtown Pittsburgh that would create 70 residential units near an Amtrak station.
But he said the oversight costs had been too steep. Going through the credit rating process, which would have most likely resulted in a lower interest rate, was estimated to cost about $250,000, he said.
“It’s not a program that is currently workable,” Mr. Walsh said, adding that the company was now seeking state grants to help fund the project, but it has yet to be approved.
Mr. Cabrera of Resia, the South Florida-based developer, said the company was now having conversations with commercial lenders to help finance its $250 million project. Although Mr. Cabrera said it was a good program “conceptually,” he said he hoped that federal officials would adjust the credit rating requirement and reduce upfront fees, which would allow developers to more easily access the loans.
“It would definitely help solve the housing affordability issues that many markets have,” Mr. Cabrera said.
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