The New 25% Bond Test: What It Means for Affordable Housing Developers

A Major Change in Affordable Housing Finance, and What It Means for Your Next Deal

For years, affordable housing developers pursuing 4% LIHTCs were required to finance at least 50% of a project’s aggregate basis with tax-exempt bonds. That has now changed. Recent legislation permanently reduced the threshold to 25%, effective for properties placed in service after December 31, 2025.

What This Means in Practice

States can now spread their volume cap across more projects. A project that previously needed $15 million in bonds to meet the 50% test might now only need $7.5 million. This frees up bond capacity for additional developments and means more projects can access 4% credits. For developers, this is overwhelmingly positive. More deals will get done.

The Hedging Implications

When a project uses variable-rate tax-exempt bonds, the borrower needs to hedge the interest rate exposure through a swap or cap. As more projects come to market under the new threshold, more developers will face these requirements, many for the first time. An independent swap advisor helps developers understand their options, ensure competitive pricing, and negotiate documentation that protects the borrower.

Planning Ahead

If you’re a developer with a 4% project in the pipeline, now is the time to start thinking about hedging, not at the last minute. Contact Evercrest early in your financing process, and we’ll help you build the hedge into your capital stack from the beginning.

Email: info@evercrestadvisors.com | Phone: 212-837-8900