Acquisition Funds
An acquisition fund is a pool of capital created by a local jurisdiction, state or nonprofit entity specifically for the purpose of providing low-cost financing that may be used to secure sites for the development or preservation of affordable and mixed-income housing. In some cases, this occurs well in advance of installation of a new transit line or other infrastructure investment from which existing and/or future residents will benefit. Acquisition funds can be used to acquire land for a variety of activities; in the context of this policy guide, however, we refer only to acquisition funds created to enable the development or preservation of affordable or mixed-income residential and mixed-use projects.
Especially in areas with abundant developable land, acquisition funds may be used to gain control of large lots or to assemble contiguous sites with different owners to support large-scale development, such as a mixed-use, mixed-income town center.
Activities Supported by Acquisition Funds
Depending on how an acquisition fund is structured, fund administrators may purchase property directly or issue low-cost loans to enable acquisition by a third party. While developers still need to obtain permanent financing through conventional sources, acquisition funds enable local communities and nonprofit or mission-driven developers to act quickly and early to secure a land parcel, before property values appreciate significantly or the property is acquired by another party.
Using Acquisition Funds to Develop Affordable Housing in Advantageous Locations
Acquisition funds may be structured to support a variety of uses related to the purchase of targeted properties, depending on the goals of the community and the surrounding neighborhood characteristics. Some communities might choose to direct revenues from existing local or state housing trust funds toward strategic site acquisition rather than creating a new standalone acquisition fund. This approach is often preferred in areas with a strong commitment to planning and transit-oriented growth, as these communities tend to have in place an existing policy framework that prioritizes location-efficient projects. Conditions built in to the framework of the fund can direct acquisitions to targeted areas along a transit corridor, such as neighborhoods that have an active neighborhood association, complementary planning initiatives, or redevelopment projects underway. For example, in largely built-out communities near proposed or existing transit stations slated for redevelopment, local leaders may use acquisition funds to purchase individual lots for small-scale infill development, or may focus on the purchase and preservation of existing affordable rental homes that are at risk of being sold or redeveloped as higher-priced housing as property values increase. Developers can also partner with regional transit authorities to pursue “joint development” projects near transit stations, as Denver Colo.’s Transit Oriented Development Fund has done.
However they are used, acquisition funds work best when applied in a policy and regulatory environment that supports the development and preservation of well-located affordable homes through other, complementary policies, such as an inclusionary housing ordinance or ongoing comprehensive planning process.
Interim Financing
Interim financing is short-term capital, usually a loan, used to cover funding gaps at any point in the development process that arise from having multiple sources of funds that are not necessarily aligned in their timing. Gaps in funding could occur in the predevelopment phase, for instance, or during construction or lease-up. In those gaps, interim funds can sustain the project on a short-term basis until permanent loans are secured or until the property is fully leased up and generating revenues through rent payments. Nonprofits such as the Housing Partnership Network, the Housing Assistance Council, and the Greater Minnesota Housing Fund offer loans for interim financing, among many examples. Funds from state housing finance agencies, from the Department of the Treasury’s Capital Magnet Fund, and local government sources have all been used as interim financing in various forms.
Land Banks as a Supplemental Tool for Development
In some cases, acquisition funds may support development on a relatively short timeframe, including scenarios where the groundwork for new development has already been laid. However, given that the use of acquisition funds often requires specific time frames for development, other tools are needed in cases where jurisdictions decide to acquire and hold land for longer periods of time before developing affordable housing. Over the long term, land banks are one mechanism for doing this. Land banks serve as a tool for holding land for long periods of time while waiting for housing markets to improve or for major investments to be made in a specific project. In a slow market, communities may need to hold land for as long as 10 years before development becomes viable. Similarly, local and state agencies often own well-located but underutilized properties that can be redeveloped for residential purposes.
Stabilizing Neighborhoods
In the wake of the mortgage foreclosure crisis, many communities had a surplus of foreclosed and abandoned properties that, when inadequately secured and maintained, could destabilize entire neighborhoods and adversely impact nearby property values. The Neighborhood Stabilization Program (NSP) was authorized in 2008 as part of the Housing and Economic Recovery Act. The act specified five eligible uses for NSP funds, including the establishment of financing tools for the purchase and redevelopment of foreclosed homes. In the wake of NSP, some states and local communities have become involved with the acquisition and redevelopment of foreclosed properties in an effort to address blight and preserve or improve neighborhoods. Many places have expanded their land banking activities and are looking for ways to continue neighborhood stabilization activities in the absence of NSP funds.