T
exas' multifamily developers are turning to housing finance corporations (HFCs) as a way to salvage underperforming real estate projects. Rising interest rates, stagnant rent growth, and soaring property taxes have made many projects unviable, but HFCs offer significant tax breaks that can be the difference between success or failure.

    Designed to facilitate affordable housing, Texas' HFC program provides developers with exemptions from property and sales taxes. This has become particularly crucial in high-cost markets like Austin and Houston. The growing use of HFCs follows the closure of a similar loophole involving public facility corporations (PFCs), which were abused by developers for tax exemptions.

    Unlike PFCs, HFCs must be sponsored by a city or county and require developers to join the general partner entity of a project in exchange for tax breaks. As the Texas real estate market has become more challenging, multifamily syndicators have increasingly turned to this model to save their projects. However, concerns have been raised about how much affordable housing is actually being created through HFCs.

    Two of the most active HFCs, Garland and Cameron County, have been involved in numerous projects across Texas, leaving questions about their impact on local communities. The county's top official has expressed skepticism about the program's benefits, saying "I don't know how much of that benefit is for the people of Cameron County." Lawmakers are taking notice, with one state senator already pushing for reforms to the HFC program in January.