Clearing Upfront Hurdles – April 28, 2025
Affordable housing developers are looking at new ways of covering predevelopment costs
An old saying tells us that necessity is the mother of invention. Given the pressures exerted by tariffs on construction materials and a less certain outlook for state, local and federal funding, some affordable housing developers have gotten inventive to make projects pencil at the outset.
Specifically, they’re looking at ways to finance predevelopment costs. Bloomberg News reported that the construction phase of affordable projects offers ample public-sector options to secure funding, but in the predevelopment stage, developers are largely on their own.
“The predevelopment phase includes scouting development sites, researching land use regulations and legal restrictions and even closing on a land deal before another developer swoops in,” wrote Bloomberg’s Sarah Holder. “Then there are other softs costs for permitting, entitlements and architectural design fees.”
For Volunteers of America-Greater New York, a solution may reside in what it calls a Housing Innovation Fund. Seeded with a $20-million contribution from an anonymous donor, the new fund can help cover upfront costs and facilitate the search for more potential building and redevelopment sites. “Here, we’re talking about a $20-million gift that will leverage literally hundreds of millions of dollars in new construction, in housing units, that will last a century,” CEO Jeffrey Ginsburg told Bloomberg.
The nonprofit VOA-GNY’s budget for this year is about $145 million, Bloomberg reported. City, state and federal funding sources, along with other donations, support the bulk of its work, which includes homelessness services and operation of emergency shelters, transitional housing and permanent supportive housing in addition to development.
In the year since Ginsburg started as CEO, there have been several deals that VOA-GNY didn’t go after “because we were afraid of spending as little as $10,000 or $20,000” on an architectural review or a zoning analysis, he told Bloomberg. Given an ongoing housing shortage, “we’ve got to be able to move quickly and build.” The group is aiming to develop 2,000 affordable units over the next five years.
Bloomberg reported that debt sources do exist for predevelopment work. “In New York, for example, some nonprofit developers building affordable housing can get predevelopment and site acquisition loans through the state’s Housing Development Fund Corporation,” wrote Holder.
Such loans can be more risky than construction loans, in part because of the odds that a planned project will literally fail to get off the ground. However, Holder wote, “predevelopment loans can also be attractive to certain lenders because they have a faster and more reliable rate of return. They’re generally paid back once construction financing or permanent financing is secured — that is, when the project breaks ground or finishes construction, not decades down the line.”
The result is greater efficiency for these loan funds. New York State’s HDFC, for instance, is a revolving fund, meaning the pool of money is recycled over and over again to support several projects.
And donors that support affordable housing construction have been increasingly targeting predevelopment work, too. “It absolutely creates an opportunity to take philanthropic dollars and stretch them farther,” Ray Bramson, COO for Silicon Valley-based nonprofit Destination: Home, told Bloomberg. “You can reinvest dollars that have come into your organization five or 10 times over and create thousands of units as opposed to hundreds of units.”