Investing in Public Facility Corporations: Unlocking Opportunities in Public Infrastructure
At Hammer and Hampel , we've been keeping a close eye on the evolving landscape of affordable housing opportunities in Texas. One particularly attractive avenue that caught our attention is the creation of Public Facility Corporations (PFCs) as a tool for affordable housing development, thanks to the Texas Legislature's visionary decision in 2015. In 2015, the Texas Legislature adopted a new 100% property tax exemption for apartment complexes developed through a special type of public facility corporation structure—one where a private developer rather than a public entity controls a long-term leasehold interest in the apartment complex.
PFCs were created as an affordable housing tool under Title 9 Subtitle C Section 303 of the Texas Local Government Code. This model provides an incentive for private developers to incorporate affordable housing, but also benefits investors, which ensures that low and middle-income workers can find affordable apartments in the communities they want to live in and investors can be provided with a unique opportunity.
Public Facility Corporations (PFCs) offer unique investment prospects for individuals and institutions interested in contributing to the development and maintenance of public infrastructure. These entities act as intermediaries, bringing together public and private resources to fund and manage crucial projects that benefit communities.
Although PFCS are aimed at providing affordable housing for citizens, they are also beneficial to investors like you. This article explores the reasons why investing in Public Facility Corporations can be an attractive option, highlighting the potential financial returns, social impact, and long-term sustainability associated with such investments. Here are some of the benefits of PFCs:
1. Stable and Attractive Returns - One of the major draws for investors like us is the stability and predictability of returns that come with PFC investments. PPP (Private Public Partnership), is a way of funding infrastructure and urban development projects by combining public and private resources. As a type of Private Public Partnership (PPP), PFCs ensure a steady and reliable income with healthy cash flows over the long term.
2. Tax Exemption - The 100% property tax exemption under Section 303.042(f) of the Texas Local Government Code is a significant advantage that PFCs offer to private developers. For us, this translates to substantial property tax savings, which ultimately strengthens the financial performance of our multifamily properties. On average, we've seen savings of close to $1 million per property each year. Additionally, the 100% sales tax exemption on construction materials for new projects provides an additional one-time exemption of around $1.3 million per property. These exemptions significantly enhance the financial viability of our developments.
3. Attractive Leverage - Furthermore, the PFC model allows for attractive leverage options. By basing underwriting on post-property tax exemption incomes, lenders can comfortably provide more debt without compromising their risk assessment standards. This approach enables us to secure additional financing, further fueling the growth and impact of our affordable housing projects.
4. Diversification and Risk Mitigation - Diversification and risk mitigation are essential aspects of sound investment strategies. By incorporating PFC investments into our diverse portfolio, we can reduce overall risk exposure and enhance the resilience of our holdings, even during times of market volatility. The low correlation of public infrastructure projects with traditional asset classes like stocks and bonds reinforces our confidence in PFCs as a stable and reliable investment choice.
5. Long-Term Sustainability & Development - At Hammer and Hampel, we take pride in contributing to long-term sustainability and development. By focusing on projects with significant societal impact, such as affordable housing through PFCs, we align our investments with the long-term interests of the public. We firmly believe that investing in infrastructure assets not only generates income but also maintains value over decades, making them a suitable choice for our investors with a long-term investment horizon.
In conclusion, our journey with PFCs has been an inspiring and rewarding one. As of 2020, there were only 30 tax-exempt apartment properties sponsored by PFCs in Texas, and we are excited that we are investing in one of them. We have found a one-of-a-kind investment opportunity in Houston, Texas that offers downside protection, attractive leverage, long-term fixed-rate debt, and diversification to our Hammer and Hampel portfolio.
As a multifamily investment company, we see the immense potential that PFCs offer in creating affordable housing opportunities for low and middle-income workers, while also delivering stable and attractive returns for our valued investors.