Affordable Housing Developers Face Growing Funding Gaps, But They See A New Way To Fill Them

For developers, getting affordable housing deals financed today can feel like playing a game of Jenga.

Like the stacked block game, all the pieces of the capital stack need to align just right to achieve stability. And in this moment, as the pieces pile higher, one too many precariously placed gaps could mean it all comes crashing down. 

Amid today's complex, unsteady environment, the need for affordable housing is greater than ever, as a widening segment of the population is overburdened by housing costs. Panelists at Bisnow’s DMV Affordable Housing Summit last week discussed the especially tricky environment for affordable housing and an emerging solution that has helped fill those gaps and move projects forward faster than they otherwise would. 

That solution has come in the form of a $2B fund from tech giant Amazon, which has financed a series of projects in the region that otherwise may have taken longer to develop, panelists said. That financing has typically come as below-market-rate loans that act as mezzanine debt to fill gaps in a project's capital stack, and the company says it also provides grants. 

“This capital is so critical to help nonprofits close on projects, they're often providing gap financing to get to the close,” Washington Housing Conservancy Executive Director Kimberly Driggins said of Amazon's funding. “And in our case, they really are an important part of the capital stack that allows us to move faster than some of the public sector funds allow.” 

The WHC acquires properties to preserve their affordability and shield them from gentrification, she said. But it is difficult for the WHC to compete with for-profit buyers looking to do value-add acquisitions. To help it compete for deals, the WHC has utilized funds from JBG Smith's impact investment pool and Amazon's $2B Housing Equity Fund. 

Amazon’s fund launched in 2021, aiming to create and preserve affordable housing near its major office hubs in Arlington, Virginia, Nashville and Seattle.

Driggins said the Amazon funding deals have been “game-changers” for some of the WHC’s projects, and for at least one building, the nonprofit wouldn't have been able to do the deal without Amazon. 

While the e-commerce company is one of the world's largest and is building its second headquarters in the D.C. region, Driggins said it shouldn't be the only large employer helping to fill these gaps. 

“There's really no reason why other companies can't create similar types of impact funds,” Driggins said. “I'm sure Amazon doesn't want to be the only one in the room.

Amazon Housing Equity Fund Managing Principal Senthil Sankaran, to Driggins' right on the stage at the Washington Marriott Georgetown, nodded. 

“There is a role for everybody to play, no matter how small that may be,” Sankaran said. “So if that's tackling a couple of units or maybe creating a mixed-income deal where you might not otherwise have thought about that, or it's lobbying for policy that will promote additional affordable housing.”

Arlington Partnership for Affordable Housing CEO Carmen Romero said that without funding from Amazon, a development like the one her nonprofit is undertaking in Tysons, turning a car dealership into 516 units, would have taken 20 years. 

But with $55M from Amazon, APAH was able to press forward with the development on the dealership lot all at once, instead of in phases. 

“They’re an accelerant,” Romero said. 

The Exchange at Spring Hill Station, two 31-story towers that broke ground in December, is the first all-affordable development in the submarket. 

For the WHC’s Crystal House development in National Landing, Amazon funding enabled the nonprofit to buy market-rate luxury buildings. The WHC is undertaking a conversion of the property, where Driggins said 75% of the 825 units are planned to be affordable. 

“That was a major deal. It was transformative for the area,” Driggins said. “Essentially, in an area that really didn't have any affordable housing, we created affordable housing.” 

Driggins said that for corporations, there is a value proposition to fund housing for their employees and for the success of the region. 

“Hospitals and universities, they're the largest employers here. This directly impacts them, many of your workers, let alone the communities that they’re in,” she said. “I'd like to see more housing impact funds out there.” 

City governments have traditionally played a key role in affordable housing, though they are being forced to cut back on funding due to budget constraints. 

D.C. has allocated at least $100M to its affordable housing initiative for the last 10 years, but Mayor Muriel Bowser’s 2025 budget proposal calls for $60M.

“She’s got, quite frankly, a fraction of what she had at her disposal in recent years, so we need a lot of creative solutions,” United Bank Managing Director Joe LeMense said of the mayor. 

The reduction in government funding is creating more gaps for projects that force developers to bring in additional funding sources, LeMense said. 

“The key distinction between market and affordable is the number of parties in the capital stack that reads like alphabet soup, and there have been needs for more of that recently,” he said. 

Once projects are financed, gaps can emerge by the time they get permitted and head to construction due to rising construction costs.  

“We had a project in 2022 that was 100% financed around the summer. By end of year, it had a $6M gap,” Northern Real Estate Urban Ventures principal Gina Merritt said.

She closed the gap over the last three months but said the project has 13 permanent financing sources. 

Merritt said she has just started looking at projects again after a slowdown over the last year and a half as she tried to obtain $600M in financing for existing projects. 

“The combination of public sector and private sector funds are really critical,” Driggins said. “We need more tools in the toolkit. And with the existing tools, we often need gap financing, which the patient capital often provides.”