Across the country, jurisdictions are adopting innovative public sector investment models in which a housing authority subsidiary deploys a combination of a public land strategy, public financing tools, and tax incentives to ensure long-term affordability within mixed-income multifamily housing. Within the last three years, two notable and recently established entities, the Atlanta Urban Development Corporation (AUD) and Invest Chattanooga have begun joint-venture partnership negotiations with private developers to begin construction on new units of housing. These efforts follow in the footsteps of the Montgomery County Housing Opportunity Commission (HOC) which invested $14 million of its now $100 million revolving construction fund to finance The Laureate, a 268-unit mixed-income development which provides 30% of the units at affordable rents and opened in 2023. HOC co-developed The Laureate through a joint-venture with two private partners. That project is an example of the public sector investing during a time when private capital markets were not, as interest rates and construction costs rose significantly.
At a recent Public Development Community of Practice (PDCOP) virtual event held by Center for Public Enterprise, we heard from leaders within these organizations who have been on the front lines of negotiations with private equity and private developer partners to ensure that the public will ultimately benefit from the increase in housing production, the creation of new affordable housing units, and the long-term financial benefits of owning a multifamily housing asset. The following is a recap of the key takeaways from our conversation with John Majors, CEO of Atlanta Urban Development Corporation (AUD), Matt Bedsole, CEO of Invest Chattanooga, and Zachary Marks, EVP of Enterprise Community Development and former Senior VP of Real Estate at Montgomery County HOC.
Know your non-negotiables
As may be indicated by the job titles of our three panelists, these experts have deep knowledge of the private sector including backgrounds in real estate development and investment and corporate finance. Today, they leverage this background to negotiate on behalf of the public to secure long-term affordability in their communities. As Matt Bedsole put it, “know what is sacrosanct from day one,” as knowing your non-negotiables is typically the most important place to start when having initial conversations with potential private partners. In Atlanta, that floor for negotiations is having each development they invest in with 20% of units set-aside at 50% AMI and 10% of units at 80% AMI. Utilizing a RFQ process allows AUD to be up front about this affordability requirement and allows interested parties to engage in preliminary discussions before spending any dollars on site plans or custom RFP submission documents. What they’re really screening for is relevant experience on specific construction types (mid-rise, high-rise), financing capabilities, and community engagement track record. “Are you the type of development partner that—not if, when—things get tough, you guys are gonna roll up your sleeves, along with us, rolling up our sleeves at the table, lean in and say, alright, let’s figure this thing out together,” asked Majors.
Speaking the same language
To move a housing development from concept phase to a groundbreaking, conversations must be anchored by the mission, standards, and non-negotiables led by the public partner. Once that anchor is established between parties, it’s the facilitation of public and private capital and expertise that allows a project to pick up speed and gain momentum. For public partners, this means identifying publicly owned parcels suitable for redevelopment, issuing bonds to finance subordinate construction loans or revolving loan funds, and identifying additional incentives such as property tax abatement or payments in-lieu of tax (PILOT) arrangements that are necessary to make the deal financially viable.
On the private side, this means getting bids from architectural and engineering teams, general contractors, and establishing the timeline for entitlements and permitting. Additionally, the private partner should make commitments about equity contributions and expected returns for any limited partner (LP) investments and how these LPs intend to exit the project either through a refinance or sale of a property. As project details become more defined, public partners often serve the role as a translator, both understanding the private partner’s language and goals for financial gain and ensuring that those gains are also mutually beneficial for the public and the mission of building housing with long-term affordability guaranteed. Recognizing that private partners are often putting their own personal capital at risk in a way that public partners are not, can lead to better understanding between parties. “We’re mostly working with for-profit partners that have their own personal funds invested in a project,” said Bedsole. “They are personally at risk in a way that I do not have my 401(k) on the line with any particular deal.”
Nowhere is that personal risk more apparent than in the question of exits. Private partners earn their money through the proceeds from a sale. “That’s not our business model,” said Bedsole. While there is a natural conflict between the structural nature of private equity funds and the need for LP investors to exit typically between 5-7 years after the initial investment and the public partner’s desire to build-and-hold the housing development in the long run, these experts have found creative solutions to solve this problem.
The right of first refusal is a contractual provision that is crucial to this negotiation process and is what ensures that the public partner has exclusive rights to buy out the private partner after a certain period of time. Invest Chattanooga addressed this with a creative alternative: a 7-year minimum hold, a right of first refusal to buy out the developer’s interest, and a graduated penalty structure modeled loosely on Opportunity Zone provisions that phases out over years 10 through 15. The goal is to give developers a credible path to liquidity without compromising the public entity’s core mission of long-term ownership and affordability.
You have more leverage than you think
Perhaps the most important mindset shift for public developers entering these negotiations is recognizing the strength of their own position. “You’re the boss,” said Marks, “especially when you’re the one with the suitcase of money.” That’s especially true in today’s capital environment. With interest rates elevated and private capital tight, public entities are often simply the best, or perhaps the only offer on the table. “This model works well because we are pretty often the best offer out there,” Bedsole said, adding that the calculus shifts in a lower-rate environment when developers have more options.
For decades, public financing of affordable housing functionally meant grants dressed up as loans, meaning money rarely came back or generated a long-term return. The public developer model is tried and true in the sense that it’s a combination of tools that already exist: bond issuance, revolving funds, and joint-venture structures are simply repackaged to see public investment as a genuine equity and ownership position worth negotiating hard for. Marks has witnessed the power of these mixed-income deals firsthand. When Montgomery County HOC refinances properties it built 20 years prior, the accrued equity flows not to shareholders but towards strengthening the housing authority’s balance sheet. These public entities are not only fulfilling a social mission but also generating capital to reinvest into their communities.
That leverage, however, has to be exercised with discipline. Know your mission, your return benchmarks, and come to the table ready to respond. And developers, Marks noted, are often more relieved than reluctant to have a public partner. “They’re either secretly or out loud thrilled to have you as their equity partner instead of somebody on the 65th floor of some building in New York City who cleans their teeth with developer bones.”
About PDCOP and Center for Public Enterprise
The Public Development Community of Practice (PDCOP) brings together like-minded public sector leaders and housing policy professionals for a quarterly virtual event series held by the Center for Public Enterprise (CPE). As a nonprofit think tank and technical assistance provider, CPE will continue to share best practices related to public development as more communities take their seat at the negotiating table.
Interested in joining our community of practice? CPE welcomes any members of a public agency to request to join by filling out this form.