If approved by City Council, Invest Chattanooga will use the fund to offer low-interest construction loans on shovel-ready projects that guarantee affordable housing units
Today the City of Chattanooga announced its plan to launch Invest Chattanooga, a new public enterprise created to fund housing developments with a mix of market-rate and dedicated affordable units. If approved by City Council, Invest Chattanooga will administer the $20 million Housing Production Fund City Council created in 2022.
Invest Chattanooga will offer loans to cover up to 25% of a project’s construction costs at a low interest rate, replacing the need for expensive private equity. The high returns required by most equity investors can be the difference between a housing development being built or sitting untouched for years. In exchange for this favorable financing, 30% of units at the selected development must be dedicated affordable units.
“The national housing crisis is the biggest issue facing Chattanoogans today, and we have to use every resource and option available to us to make housing more affordable,” said Chattanooga Mayor Tim Kelly. “Our team has done a great job identifying and addressing the gaps in how housing development is financed, allowing us to use a one-time investment to make positive change for decades to come. We are one of only a handful of communities who have successfully stood up a fund of this nature and are proud to be leading the country in affordable housing solutions.”
After projects are built, Invest Chattanooga’s loan will be replaced with capital from impact investment partners, so Invest Chattanooga’s proceeds can be reinvested in new projects. This creates a ‘revolving’ fund that can catalyze new mixed-income housing developments every 3-5 years. Officials hope that Invest Chattanooga could make its first loan early next year, with construction on the first Invest Chattanooga project to start as early as summer 2025. Over 20 years, it is anticipated that Invest Chattanooga’s $20 million fund will lead to the development of $400 million worth of mixed-income housing.
“By partnering with private developers and impact investors, Invest Chattanooga is designed to leverage the speed, simplicity, and scalability of private-sector real estate deals,” said City Council Affordable Housing Committee Chair Jenny Hill. “By not relying on limited federal funds, Invest Chattanooga will be able to operate in a business-friendly and efficient way alongside our existing affordable housing programs.”
Frequently Asked Questions
How much will Invest Chattanooga loan? Invest Chattanooga’s low-interest loans will cover up to 25% of the development cost of a housing development.
Exactly how many units will be required to be affordable, and how do we define ‘affordable?’ In exchange for becoming a partner in the development, Invest Chattanooga will require that a housing development dedicate 20% of its units as affordable for Chattanoogans earning less than 50% of Area Median Income (AMI); which would currently be someone making $35,000 or less per year. Invest Chattanooga will negotiate the affordability level on 10% of the units according to market conditions, requiring that they be affordable to households making between 50 and 100% AMI; which would currently be someone making $70,000 or less per year. That means 30% of the total units will be dedicated as affordable, while the remaining 70% will rent for market rate.
How long will the affordable units be dedicated as affordable? Permanently.
How will Invest Chattanooga be repaid for its loans? The debt incurred by multi-unit housing developers is traditionally refinanced once the project is completed and the risk of delays, cost overruns, or construction issues is gone. Like the other investors who funded the construction of the project, Invest Chattanooga will have its loan repaid when the building is refinanced.
Will Invest Chattanooga do anything else besides loan? Taking an active role in its investments, Invest Chattanooga will work with development partners to ensure they’re taking advantage of other affordable housing incentives, like the newly-reformed PILOT (Payment In Lieu of Taxes) policy and forthcoming voluntary no-cost incentives. They will also identify opportunities to leverage publicly-owned land and engage the local and national philanthropic communities for impact investment capital. Invest Chattanooga will remain a partner in its properties long-term, to ensure permanent affordability.
How will Invest Chattanooga be structured and will there be accountability measures? To enable permanent affordability, Invest Chattanooga is structured as a 501(c)(3) non-profit subsidiary of the Chattanooga Housing Authority (CHA). It will be financially and operationally independent from CHA with its own board to allow Invest Chattanooga to operate flexibly and meet the opportunities in the market. But as a public enterprise, its appointed board will hold public meetings and Invest Chattanooga will be audited and issue reports to the Chattanooga City Council annually.
Originally piloted in Montgomery County, Maryland in 2021, this approach to mixed-income housing development is gaining momentum nationwide. It has been successfully implemented in Atlanta and there are ongoing initiatives in Raleigh, Syracuse, Kingston, Chicago, Boston, and the state of Michigan. For Chattanooga, this approach reflects the city’s strong tradition of public-private partnerships, leveraging the development capacity of the private sector while creating long-term community benefits.
