Financial adviser outlines 501(c)(3) bond structure for workforce housing, cites Midtown Atlanta case

Liz Anderson, managing director at Alliant Capital Solutions, told the Industrial Development Board Ad Hoc Committee that 501(c)(3) tax-exempt bond financing can produce lower interest rates and broader access to capital for workforce housing than many traditional construction loans.

Anderson said tax-exempt bonds typically price about one-third lower than taxable construction financing and can fund acquisition, construction and permanent debt in a single transaction. She cautioned that nonprofit ownership and IRS rules impose compliance requirements, and that projects using a 501(c)(3) structure must demonstrate a nexus to a charitable purpose or state/local government need.

"You can finance almost nearly 100% of the cost in a tax exempt financing structure that avoids private equity," Anderson said. "They accept that construction risk as part of the bond documents." She added that borrowers usually prefund reserves at closing, which reduces refinancing risk but creates negative arbitrage in early years.

Anderson walked the committee through an Atlanta case study organized by Atlanta Urban Development Corporation (AUD), a subsidiary of Atlanta Housing. AUD is using city-controlled land, a housing production fund and private enterprise agreements that can grant property tax abatements for units occupied by people earning up to 140% of area median income (AMI). The proposed Midtown project covers about one acre, is planned for roughly 280 residential units in a 27–28–story mixed-use building that will redevelop Fire Station 15 with parking and a replacement station on-site.

Key numbers and deal features Anderson cited: the project team expects a roughly 51% AUD / 49% nonprofit joint venture ownership structure, a housing production fund tranche of about $37–38 million available for AUD, and an ownership/ground-lease approach that allows the city to retain land-value appreciation. Anderson said senior bond tranches on comparable deals have been priced in the 6–7% range without credit enhancement and subordinated tranches at higher yields; she stressed pricing varies by structure and market conditions.

Anderson described typical borrower arrangements for 501(c)(3) bond deals: a ground lease of city land (50–99 years), nonprofit ownership of the project for the life of the bonds, developer and contractor completion guarantees and the use of reserve accounts to cover lease-up and stabilization risks. She said TEFRA public hearings, appraisals, environmental reviews and typical bond-closing documentation are required and closing generally takes about four to six months once the parties commit to the structure.

Committee members asked how 501(c)(3) bonds compare to Fannie Mae and Freddie Mac financing. Anderson said the agency programs can require Davis‑Bacon wages and equity contributions and generally take longer, while 501(c)(3) transactions can be faster and avoid private equity returns, making them attractive for certain construction projects.

No formal action was taken by the Ad Hoc Committee during the informational meeting; Anderson and committee members said they expect further conversations if Nashville pursues a similar model.