How OZ + Affordable LIHTC Works in El Paso: A Local Framing
El Paso sits in an unusual position for affordable housing finance. Land costs remain low relative to virtually every other major Texas metro, construction labor markets are less overheated than Dallas or Austin, and a substantial portion of the city falls within federally designated Qualified Opportunity Zones. For sponsors who can navigate dual-compliance structures, that combination creates a genuine opportunity to stack OZ equity alongside 4% or 9% Low-Income Housing Tax Credit financing in ways that meaningfully improve deal economics. The structural logic is straightforward: OZ equity investors receive capital gains deferral and long-term gain exclusion after a ten-year hold, while LIHTC equity reduces the total equity gap that an OZ fund would otherwise need to fill. The result is a more balanced capital stack and a stronger underwriting story for patient capital.
In Texas, LIHTC allocation flows through the Texas Department of Housing and Community Affairs, which administers both the competitive 9% credit round and the non-competitive 4% credit paired with private activity bond cap. El Paso's local layer includes the City of El Paso Community and Human Development Department, which administers HOME and CDBG entitlement funds that can serve as soft gap debt when project restrictions are compatible with both LIHTC and OZ requirements. The El Paso Housing Authority administers project-based vouchers that, when committed early, materially improve underwriting for rental income and can influence TDHCA scoring. Sponsors who close these deals here are typically experienced affordable housing developers with prior LIHTC compliance track records and access to specialized legal and tax counsel capable of managing dual-program compliance. This is not a structure for first-time affordable sponsors.
The border location adds another dimension. El Paso's binational workforce dynamic, farmworker housing demand in outlying areas, and proximity to USDA-served rural communities all create specific affordable housing submarkets that do not exist in most Texas cities. Sponsors exploring OZ plus LIHTC in the Canutillo corridor or Ysleta, for example, may find USDA rural development programs layerable alongside the core structure, depending on geographic eligibility and income targeting. Understanding which programs are compatible with both LIHTC use restrictions and the OZ substantial improvement test is a precondition for capital stack assembly, not an afterthought.
The Capital Stack in El Paso
A typical OZ plus LIHTC capital stack in El Paso assembles in layers, with each source carrying its own compliance requirements and timing dependencies. At the top of the structure sits the Qualified Opportunity Fund equity investment, made into the operating entity or property entity depending on the structure. Beneath that, LIHTC investor equity, priced by syndicators based on current market conditions, fills a substantial portion of the equity need and directly reduces the OZ equity requirement. For 4% credit deals, tax-exempt private activity bond financing is required and draws on Texas bond cap allocation administered through TDHCA. That bond financing typically comes from a bank or CDFI construction lender, often the same institution that underwrites the construction loan.
On the soft debt side, El Paso sponsors have access to HOME and CDBG funds through the City of El Paso Community and Human Development Department, which can be structured as deferred loans when the affordability restrictions are compatible with both LIHTC rent and income limits and OZ use requirements. The Paso del Norte Affordable Housing Initiative has also been active in supporting gap financing for affordable projects in the region, and EPHA project-based voucher commitments can function as a credit enhancement that improves permanent debt sizing. At stabilization, the permanent first mortgage is either a standalone placement or a conversion of the construction-period bond financing, depending on the deal structure.
The 9% credit round at TDHCA is competitive and heavily scored. El Paso projects may receive geographic scoring considerations, but the round is statewide and competitive pressure from larger metros is real. For OZ plus LIHTC structures, the 4% credit paired with bond cap is often more realistic because it avoids competitive round exposure and aligns better with the patient timeline that OZ equity investors require. TDHCA bond cap applications have their own scheduling rhythm, and sponsors who plan to pursue 4% credits should build that timeline into predevelopment planning from the outset.
Active Lender Types for El Paso Affordable Deals
The lender pool for OZ plus LIHTC deals in El Paso is narrower than for standalone market-rate or even conventional LIHTC financing. Mission-focused CDFIs with affordable housing mandates are among the most consistently active construction and bridge lenders in this structure. They are typically willing to accept thinner spreads in exchange for mission alignment, and several have experience underwriting dual-compliance projects that require navigating both LIHTC regulatory agreements and OZ operating requirements. Community banks with dedicated affordable housing platforms can fill construction lending roles, particularly for deals that include bond financing from a state issuer.
On the permanent debt side, Fannie Mae Multifamily Affordable Housing and Freddie Mac Tax-Exempt Loan executions are well-suited to stabilized LIHTC properties and are among the more reliable execution paths for projects that do not pursue HUD financing. HUD programs, particularly 221(d)(4) for construction and substantial rehabilitation and 223(f) for acquisition and refinance, offer longer amortization periods and non-recourse structures that appeal to long-hold sponsors, which is precisely the profile of most OZ investors. Life insurance companies with affordable allocations are occasionally active in this market but tend to focus on larger deal sizes and stabilized assets. For El Paso specifically, CDFIs and agency executions represent the most dependable permanent debt sources given deal size ranges and the border market's limited conventional lender familiarity.
Typical Deal Profile and Timeline
A realistic OZ plus LIHTC deal in El Paso falls in the range of fifteen million to sixty million dollars in total development cost, with larger deals typically pursuing 4% credits and bond financing rather than the competitive 9% round. The sponsor profile that lenders and equity investors expect includes a prior LIHTC compliance history, site control at application, and access to specialized affordable housing tax counsel. Predevelopment through construction loan closing typically runs twelve to twenty-four months depending on whether the deal pursues competitive 9% credits or a 4% bond transaction. Construction periods for ground-up affordable multifamily in El Paso are generally twelve to eighteen months, followed by a lease-up and stabilization period before permanent loan conversion. From site control to stabilized permanent financing, sponsors should underwrite a total timeline of three to four years, which aligns comfortably with the OZ ten-year hold requirement.
Common Execution Pitfalls in El Paso
First, sponsors frequently underestimate the timing dependency between TDHCA bond cap applications and local soft debt commitments. The City of El Paso HOME and CDBG allocation cycles do not automatically align with TDHCA application windows, and missing a local commitment deadline can force a one-year delay in the entire structure. Soft debt letters need to be in hand before TDHCA applications are submitted, which requires early coordination with the city's Community and Human Development Department.
Second, the OZ substantial improvement test creates a cost basis requirement that can conflict with LIHTC cost containment discipline. Projects in El Paso's lower-cost submarkets may need to engineer additional hard cost investment to satisfy OZ improvement thresholds, which adds budget complexity that is not always anticipated in early feasibility modeling. Sponsors should run OZ compliance analysis alongside LIHTC cost certification planning from the beginning of predevelopment.
Third, site control in El Paso's historically underserved neighborhoods, including parts of Segundo Barrio and the Lower Valley, can involve title complications, heir property situations, or environmental conditions that extend due diligence timelines. Lenders underwriting construction financing expect clean title and Phase II clearance before commitment, and surprises in this area can derail deals that otherwise pencil well.
Fourth, prevailing wage requirements apply to projects receiving certain federal funding sources, and El Paso deals that layer HOME, CDBG, or USDA funding alongside LIHTC and OZ equity may trigger Davis-Bacon obligations. Sponsors who do not identify prevailing wage exposure early in the capital stack design process frequently encounter hard cost increases that were not reflected in original development budgets, creating a gap that is difficult to close late in the process.
If you have a site under control or a project in predevelopment in El Paso that may qualify for OZ plus LIHTC financing, Trevor Damyan and the CLS CRE team can help you assess capital stack feasibility, identify compatible soft debt sources, and connect you with lenders and equity investors active in this structure. Review the full OZ and Affordable LIHTC program guide at clscre.com for a complete overview of how this financing works nationally, and reach out directly to begin a preliminary deal analysis.