What Questions to Expect When Raising $50M+ in Housing Bonds for Affordable Housing

Introduction

On this episode of the Affordable Housing & Real Estate Investing Podcast, Kent Fai He speaks with Alvin Hope Johnson, president of Hope Housing Foundation, about one of the most advanced financing tools in real estate: housing bonds.

Alvin shares the reality of what developers can expect when pursuing a $50 million bond issuance, including the questions bond underwriters ask, the risks investors consider, and how developers can position themselves to succeed. For developers, investors, and advocates, this episode is a rare behind-the-curtain look at how large-scale affordable housing projects secure the financing they need to break ground.

What Are Housing Bonds in Real Estate Development?

A housing bond is essentially a debt security—an IOU issued to investors in exchange for capital.

• Bonds provide developers with large sums of money to finance construction, acquisition, or rehabilitation.
  
  

• Investors earn a fixed coupon (interest rate) on their investment.
  
  

• Depending on structure, bonds can be taxable or tax-exempt.
  
  

Unlike equity financing, where investors take ownership stakes, bond investors are lenders who are repaid before equity holders in case of default. This makes bonds a popular choice for institutional investors and mission-driven capital sources.

What Do Bond Underwriters Look for in Affordable Housing Deals?

When developers pursue bonds, underwriters scrutinize every line of the pro forma. Alvin explains that their questions focus on assumptions, risk management, and execution capacity.

• Rent growth projections: If a developer assumes 5 percent annual rent growth, an underwriter may view this as overly aggressive and question the entire deal. Conservative assumptions are preferred.
  
  

• Occupancy levels: While 98 percent occupancy may reflect market data, underwriters often want developers to model lower, more realistic numbers.
  
  

• Bad debt assumptions: Not every tenant pays rent on time. Pro formas must allocate for nonpayment, typically 2–5 percent depending on the market.
  
  

• Management costs: Underwriters evaluate property management fees, staffing assumptions, and turnover costs. A new build may have lower expenses, but older assets require higher reserves.
  
  

Underwriters also examine the experience and reputation of contractors. If a general contractor has never built a 200-unit project, underwriters want to know how the development team will mitigate execution risk.

Why Do Investors Buy Housing Bonds?

Bonds may seem less exciting than stocks, but they offer several unique benefits:

• Stability: Bonds are often seen as safer than equities.
  
  

• Tax advantages: Tax-exempt bonds allow investors to avoid paying taxes on their coupon income.
  
  

• Community impact: Investing in housing bonds supports affordable housing development while still delivering a competitive return.
  
  

Institutional investors, insurance companies, and even regional banks often purchase these bonds to meet Community Reinvestment Act (CRA) requirements or to balance portfolios.

What Risks Are Associated with Housing Bonds?

Even though bonds are secured by real estate, they are not risk-free.

• Market risk: Inflation, rising interest rates, or policy changes can affect project feasibility.
  
  

• Operational risk: Developers must maintain high occupancy and control expenses to meet debt service obligations.
  
  

• Compliance risk: Tax-exempt bonds require income-restricted units. Failure to maintain compliance can strip bonds of their tax benefits.
  
  

• Construction risk: Underwriters often require payment and performance bonds to ensure contractors complete the project on time and within budget.
  
  

Alvin emphasizes that having the right legal team, underwriter, and property management company is critical to mitigating these risks.

How Long Do Housing Bonds Last?

Bond terms vary depending on the type:

• Tax-exempt bonds: Typically structured with maturities of 30–40 years. They may include lockout periods where early repayment triggers penalties.
  
  

• Investment-grade bonds: Often structured with five-year horizons, designed to be refinanced once the property stabilizes.
  
  

This flexibility allows developers to match financing terms with project goals, whether they want to hold long-term or refinance after stabilization.

Key Insights from Alvin Hope Johnson

• Underwriters scrutinize rent growth, occupancy, and expense assumptions.
  
  

• Conservative pro formas increase the likelihood of approval.
  
  

• Contractor reputation and property management experience directly impact underwriter confidence.
  
  

• Bonds provide higher leverage than traditional loans but come with stricter compliance requirements.
  
  

• Long-term stability and tax benefits make bonds attractive to large institutional investors.
  
  

Memorable Quotes from Alvin Hope Johnson

“The bond underwriter is going to look at how aggressive you are trying to grow rents, and how realistic your occupancy assumptions are”.

“If your rent growth assumption is five percent, some investors may stop looking at your project altogether”.

“Just because you have a great pro forma on paper does not mean the project will succeed. The underwriters want to know that your team has the experience to deliver”.

“A bond is just a piece of paper until somebody buys it. The value is in the investor believing in the project”.

Common Questions Answered in This Episode

What are housing bonds?
Debt securities issued to raise money for real estate projects. Investors earn interest, and bonds can be taxable or tax-exempt.

Who buys housing bonds?
Institutional investors, banks, insurance companies, and mission-driven funds often purchase them for stable returns and tax advantages.

What risks do investors face?
Market conditions, compliance failures, or inexperienced teams can all threaten bond performance.

How long do housing bonds last?
Tax-exempt bonds often run 30–40 years, while investment-grade bonds may have five-year terms.

Why do underwriters scrutinize pro formas so heavily?
They want to ensure assumptions are conservative, realistic, and backed by experienced teams.

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. By bringing in experts like Alvin Hope Johnson, Kent provides developers with actionable insights into financing tools that most only hear about in exclusive boardrooms.

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.