Narrow the affordable housing gap.
There is an affordable housing crisis in the United States. Heading into the pandemic recession, only 36 affordable rental homes were available for every 100 renter households earning below the federal poverty level, according to the National Low Income Housing Coalition. As inflation adjusted median household incomes have stagnated, housing costs have soared and the availability of affordable units has continued to decrease. These diverging trends have relegated increasing numbers of American families to substandard living conditions and unmanageable financial burdens.
With the recent demand for housing related ESG investments and the ongoing demand for Low Income Housing Tax Credits, hopefully all of us can help finance and build many projects for those in need. While experts have repeatedly said that the Low Income Housing Tax Credits that Congress approved in 1986 have been the most effective means of expanding and preserving affordable housing, the recently validated social value of the investments will attract ESG investors unlike before.
When you invest in affordable housing, you invest in the livelihood and well-being of the communities themselves. By offering clean, safe and affordable housing options for all, we can create promising new horizons for families across the country.
An ESG investment in an affordable housing fund doesn’t just improve living conditions, because it removes many obstacles that stand in the way of success. A safe and stable home environment improves family health, education, and well-being. The economic boost and social stability that accompany these investments have a lasting effect on communities as lives are improved for generations to come.
In addition, as the country has needed private and public sector support for inclusionary initiatives to help cities and states provide more housing options for low and moderate income households of all races, Monarch Private Capital has repeatedly promoted and supported such initiatives. The inclusionary housing ordinances currently sought in communities across the country have been endorsed by Monarch from its founding in 2005.
Monarch and its portfolio companies have managed many tax equity funds and facilitated investments that have led to the development of over 300 affordable housing developments with 35,000 units in over 20 states. Developments include senior communities, multi-family and single-family homes financed with both 9% and 4% tax credits. Monarch’s expertise includes the development of new construction, rehabilitation, and adaptive reuse properties into affordable housing.
Making a Difference
Along with providing a source of security and new opportunity, affordable housing projects stimulate the local economy by increasing local purchasing power and bringing in new jobs and tax revenues. Data shows that affordable housing investments raise the property value of their surrounding areas. These projects benefit their communities in many other ways, however. Perhaps one of the most significant benefits is on our health, our youth’s specifically.
Poor housing conditions can have a serious negative impact on a child’s performance in school as well as their health. According to the National Center for Children in Poverty (NCCP), 21 percent of all children in the United States live in families with incomes below the federal poverty level. By offering greater access to quality housing with lower rents, we help pave the way for brighter futures.
When families have less to pay on rent, more can be spent on essentials like food and clothing or even things like extra-curricular activities and educational programs.
Our mission is to help create quality homes by providing tax equity capital for affordable housing developments. From boosting the local economy to giving hope to entire communities, these funds address many issues prevalent in cities across the United States.
Since inception, Monarch has facilitated tax equity investments in more than 300 affordable housing projects which have generated:
in local income
in local taxes
new affordable homes
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Monarch’s Affordable Housing Division makes federal and state tax credit equity ESG investments and bridge loans to development teams that focus on affordable housing projects.
- Provides capital at the beginning and throughout the construction process, which includes robust bridge lending funding capabilities, if necessary.
- Operates through a variety of diﬀerent funds created each year for our various investors in which we serve as Managing Member. We have full discretionary rights and responsibilities as fund manager, including executing all project-level documents and committing to all contributions required under the terms of the operating agreement at the project level. Many of our fund investors require anonymity so as not to have to deal with project-level requests/issues or direct solicitations by brokers.
- When Monarch commits to a project, we fully stand behind and support that obligation. Unlike others in the marketplace, we do not simply serve as brokers on transactions wherein the ultimate investor is responsible for due diligence and execution of documents at the project level.
Tax Credits are the Largest Producers of Affordable Housing
Created in 1986 and made permanent in 1993, the federal Low Income Housing Tax Credit (LIHTC) program remains the largest source of new affordable housing in the United States, substantially increasing the affordable housing stock for more than 30 years. Since implemented, the LIHTC has developed more homes than any other construction and preservation program operating today. The program addresses the significant lack of quality affordable housing located in low-income communities, injecting new capital into the local economy and generating new job opportunities within the area.
ESG investments in qualifying federal LIHTC projects generate federal tax credits are spread over a 10-year time frame.
Several states have programs of a similar nature to the federal program. These programs vary by state and apply to different state taxes levied.
Eligibility for the credit is predicated on renting the units to families with income below certain thresholds for the community. These rent-restricted units tend to provide attractive and affordable housing alternatives for families and the elderly.
- Involves a multiple-year investment in affordable housing.
- Guidance exists, eliminating GAAP concerns.
- Credits flow tax losses due to depreciation and usually no cash flow distributions.
- Typically, safe underlying economics.
- Returns are single digits due to CRA (Community Reinvestment Act) competition.
- Federal affordable housing tax credits are typically pooled and syndicated on a proprietary basis or may be syndicated to multiple corporate investors in a given fund.
- Investments may be used to satisfy CRA requirements.
- Fifteen-year recapture period — though recapture seldom happens.
- Extremely low-risk profile given vigorous underwriting and proactive asset management throughout the 15-year compliance period.
- Debt levels are often less than 50% of the capital of the project due to the substantial tax equity investments.
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