Using HOME and HTF Funds within Opportunity Zones

Projects that include multiple sources of funds require a developer to orchestrate the timing and availability of the resources in a skillful manner. An OZ investor has its own constraints to manage once a capital gain is recognized; the investor generally has 180 days to invest an eligible gain in an OZ-qualified project (for an investment in an individual project) or into a QOF.

Each financial partner must underwrite the feasibility of a project to assess its own risks. Grantees cannot make a commitment of HOME or HTF funds until all funding sources are identified, and the grantee has done a pre-commitment review of the project’s feasibility, including an environmental review and an underwriting and subsidy layering review. The specific pre-commitment review is described earlier in this Guidebook, in HOME Program Basics 101, Administrative Requirements.

The amount of HOME and HTF gap financing is finalized only once all other sources have been determined. Developers need to develop their proforma total development costs based on assumptions of the OZ and other project equity (such as LIHTC equity, if applicable) that may be available to the project. Developers may have to apply for HOME and HTF resources, based on the timetable specified by the grantee. If a project includes LIHTCs, the developer must also coordinate the application within the timetable of the state agency administering the LIHTC program.

Grantees, developers, and OZ investors will need to plan for and manage these timing considerations for an equity investment to be effectively executed. Effective communication about the constraints of grantees and the timing of their processes such as an environmental review, subsidy layering reviews and related requirements that must occur prior to a commitment is very important for the success of a project. Likewise, OZ investors will need to communicate clearly about their deadlines and grantees may need to prioritize OZ projects to address timing needs.