Opportunity Investment Fund

The Mezzanine Loan Fund (also known as the Opportunity Investment Fund) is an efficient model to encourage the creation and preservation of affordable rental units in strong markets. Housing Choice Vouchers (HCVs) or project-based vouchers (PBVs, which are contracts that attach to buildings) pay market rents, so that in high cost markets owners can maintain consistent cash flow even while renting to extremely low-income households.

The Fund provides low-cost mezzanine debt to developers who purchase existing, functioning rental buildings in high cost markets. In exchange, at least 20% of those units must be affordable to households at 50% AMI for at least 15 years. Developers can access the Fund to cover up to half of their equity requirement, or go up to 90% LTV, whichever is less. For instance, an owner might borrow 80% of a building’s value from a private lender. Of the remaining 20% equity requirement, the Fund would cover 10%, and another 10% would be equity from the developer.

Program highlights:

• Below-market interest rates.
• Interest only payments.
• 10 year term.
• At least 15 year affordability requirement.
• No prepayment penalty.

The PBV contract works even if buildings have no vacancies and no income-qualified tenants. The PBV units would come into play with turnover of occupied units.

This approach means a speedy acquisition, allows both for-profit and non-profit developers to participate, and helps eliminate the need for scarce public subsidies for capital. Owners could also refinance buildings in their existing portfolio.

By providing loans instead of grants, The Fund creates more affordable units using revolving funds as opposed to a one time grant allotment.