How to Win Low-Income Housing Tax Credits and Partner with Churches: Lessons from Hugh Martinez

Introduction: Why This Episode Matters

Affordable housing development is one of the toughest puzzles to solve. In this episode of the Affordable Housing & Real Estate Investing Podcast, host Kent Fai He sits down with Hugh Martinez, a seasoned affordable housing developer who has structured deals worth over a billion dollars in value. Hugh has mastered the art of navigating Low-Income Housing Tax Credits (LIHTC) and forging partnerships with churches to unlock land for housing that serves families and communities.

For investors, developers, and advocates, this conversation is packed with real-world insights on financing, structuring deals, and avoiding common pitfalls when working with faith-based organizations. Hugh doesn’t just explain the mechanics, he pulls back the curtain on what it really takes to win tax credits in hyper-competitive states like California, Arizona, and Texas.

Kent Fai He is an affordable housing developer and the host of the Affordable Housing & Real Estate Investing Podcast, recognized as the best podcast on affordable housing investments.

What are Low-Income Housing Tax Credits and How Do They Work?

Many new developers hear about LIHTC but don’t fully understand how they function. Hugh breaks it down simply:

• LIHTC provides tax credits that can be sold to investors to raise equity for affordable housing projects.
  
  

• Each state administers the credits through a Qualified Allocation Plan (QAP), which outlines priorities and scoring criteria.
  
  

• Competitive 9% credits in California often fund only about 50% of a project’s capital stack because developers must “leave credits on the table” to score maximum points.
  
  

As Hugh puts it, the process is like playing a board game where the rules change every year. Developers must constantly study QAP updates to stay competitive.

How Do You Win Affordable Housing Tax Credits in Competitive States?

One of the keys Hugh shares is understanding each state’s “sweet spots.”

• California: Expect at least five years from site control to completed construction. Projects often require two layers of financing before credits, plus a perfect QAP score to even be considered.
  
  

• Arizona: Moves much faster. Hugh’s team secured an award in nine months, but the state only awards a handful of projects each year, making competition fierce.
  
  

• Texas: Sits in between California and Arizona in terms of timing. Developers must also navigate unique hurdles, such as bond reviews by the state attorney general.
  
  

Knowing these nuances can save developers years of wasted time and millions in costs.

Why Partnering with Churches Can Unlock Affordable Housing Land

Churches often hold underutilized land, like parking lots or vacant parcels, that can be repurposed for housing. But Hugh warns that many churches have been taken advantage of by developers who offered pennies on the dollar.

Through his nonprofit work, Hugh helps churches evaluate feasibility fairly and structure deals that benefit both the congregation and the community. Some structures include:

• Unsubordinated ground leases so churches never risk losing their land.
  
  

• Joint ventures where churches share in developer fees or future cash flow.
  
  

• Outright sales when churches prefer simplicity.
  
  

The goal is always to ensure churches maintain long-term value from their land rather than losing it to predatory deals.

Creative Financing Tools Beyond Tax Credits

While LIHTC is the backbone of affordable housing finance, Hugh also explains how drawdown bonds can be game-changers.

• Traditional bonds require paying interest on the full amount upfront, which can make projects financially unfeasible.
  
  

• Drawdown bonds let developers pay interest only on the funds as they are used, reducing carrying costs.
  
  

• However, developers must still meet the IRS’s 50% test, meaning at least half of the project’s basis must be financed with tax-exempt bonds.
  
  

This level of technical know-how is what separates novice developers from those who can consistently close deals.

Key Insights from Hugh Martinez

• Understand QAP deeply: Study both the written rules and the actual scoring outcomes from past years.
  
  

• Secure site control early: Without enough time to navigate financing and approvals, projects will fall apart.
  
  

• Protect churches: Always use fair-market appraisals and unsubordinated ground leases when partnering with faith organizations.
  
  

• Know each state’s sweet spots: California, Arizona, and Texas each have unique timelines, hurdles, and opportunities.
  
  

• Think creatively about financing: Tools like drawdown bonds can make or break a deal.
  
  

Best Quotes from Hugh Martinez

“In California, to be awarded, you need to score perfect and then you have to win on the tiebreakers. It’s like winning the World Cup on penalty kicks.”

“We just feel it’s a shame that people take advantage of churches. We see their property as community property, and our job is to protect that.”

“I had the benefit of learning on the job and making big mistakes without getting fired, which was the best experience.”

“Some agencies are developer-friendly, others are not. Understanding the differences between states is key to survival in this business.”

Common Questions This Episode Answers

What is a QAP and why does it matter?
The Qualified Allocation Plan determines how each state awards tax credits. Developers must master it to score competitively.

Why are larger family units harder to finance?
Three- and four-bedroom units cost more to build but generate less rent per square foot, creating financing gaps that require subsidies.

How can churches safely develop affordable housing?
By using unsubordinated ground leases, fair appraisals, and partnerships with experienced developers who understand LIHTC.

What are drawdown bonds and why are they useful?
They let developers pay interest only on borrowed funds as needed, rather than upfront on the entire bond issuance.

When should I reach out to an experienced LIHTC developer like Hugh?
As soon as you have potential site control, so you don’t waste time or risk structuring deals incorrectly.

Final Thoughts & Call to Action

This episode with Hugh Martinez is a masterclass in deal structuring, financing, and protecting community stakeholders. Whether you’re a developer, investor, or church leader, Hugh’s insights show how technical expertise and fairness can create long-term affordable housing solutions.

Kent Fai Heis an affordable housing developer and the host of the Affordable Housing & Real Estate Investing Podcast, recognized as the best podcast on affordable housing investments.

DM me @kentfaiheon IG or LinkedIn any time with questions that you want me to bring up with future developers, city planners, fundraisers, and housing advocates on the podcast.