Sectors

Texas PFC Affordable Housing Structures

Texas Public Facility Corporation structures are Chapter 303 public-entity tools that can create property-tax-exemption economics for multifamily affordable or mixed-income housing. They are not ordinary nonprofit exemptions, not HOME CHDO certification, and not automatically equivalent to HFC structures under Chapter 394.

Also known as: Texas PFC structure, Texas Public Facility Corporation affordable housing

Updated May 5, 2026

Use this page when a Texas deal relies on a PFC sponsor, PFC ownership, a PFC ground lease, a public facility user, or Local Government Code Sections 303.0421, 303.0425, or 303.0426.

Structure Map

Party / document	What to identify	Why it matters
PFC sponsor	City, county, housing authority, or other sponsor behind the PFC	Defines public purpose, geography, board control, approval path, and political risk.
PFC	Chapter 303 public corporation / instrumentality	Holds the public-facility role and exemption claim.
Public facility user	Private or affiliated user/operator receiving possessory or operating rights	Usually captures development economics and bears compliance/audit burden.
Project company	Fee owner, leasehold owner, GP/member stack, and beneficial ownership	Determines lender collateral, transfer restrictions, and who controls cash flow.
Ground lease / use agreement	Term, rent, service fees, restrictions, remedies, transfer rights	Turns tax benefit into enforceable economics and controls exit/refinance.
Recorded restriction	Income/rent/unit mix, term, monitoring, enforcement	Proves affordability is legally enforceable, not just described in a memo.

The underwriting question is not "is the project PFC-owned?" It is whether the exact PFC structure qualifies under the current Chapter 303 lane, whether the public benefit is enforceable, and whether the tax benefit survives audit, appraisal, political, transfer, and lender diligence.

Applicability Gate

HB 2071 became effective June 18, 2023 and changed the PFC multifamily lane. TDHCA monitors covered PFC multifamily developments that are subject to Local Government Code Sections 303.0421 and 303.0425 and were initiated on or after June 18, 2023.

The first screen should classify the project:

Question	Underwriting action
Was the development initiated, approved, or acquired before or after June 18, 2023?	Apply the effective-date and transition analysis before assuming post-reform rules.
Is the project a covered PFC multifamily development?	Check Section 303.0421, Section 303.0425, TDHCA monitoring status, and exclusion language.
Does it have public housing, RAD, tax-exempt bond, LIHTC, or other assistance that changes monitoring treatment?	Do not apply generic PFC monitoring rules to excluded or differently regulated deals.
Is the PFC operating within sponsor boundaries or required approval area?	Test local approval and "traveling" PFC risk.
Are restrictions recorded for the required term?	A board memo without enforceable restrictions is not enough for underwriting.

Affordability And Rent Mechanics

For covered PFC structures, HB 2071 moved the old broad 50% at 80% AMI concept into a more specific affordability framework. The standard PFC mix is:

Unit category	Income limit	Rent limit
Lower-income units	Not more than 60% AMI	Monthly rent capped at 30% of 60% AMI, adjusted for family size.
Moderate-income units	Not more than 80% AMI	Monthly rent capped at 30% of 80% AMI, adjusted for family size.

The statutory mix and bedroom distribution matter. The underwriter should build a unit matrix by bedroom count and restricted tier, then prove that the lower-income and moderate-income unit percentages are distributed across bedroom categories as required.

PFC restricted rent schedule =
  unit type
  + bedroom count
  + restricted tier
  + AMI limit
  + statutory rent cap
  + utility allowance / recurring-charge treatment
  + controlling agreement

Do not model the PFC benefit as if all units can be leased at unrestricted market rent. The tax exemption is tied to an affordability bargain.

Acquisition Versus New Construction

PFC underwriting diverges sharply between occupied acquisitions and new construction.

Structure type	Core underwriting test
Occupied acquisition	Show required rent reduction and, where applicable, rehabilitation / renovation / reconstruction / repair commitment or local approval path.
New construction	Show that the development would not be feasible without PFC participation and that restrictions/benefits are enforceable.

For occupied acquisitions, HB 2071 requires the underwriting assessment to support a rent-reduction result on income-restricted units tied to estimated ad valorem taxes avoided for years 2 through 4 after acquisition. That means the acquisition memo should include both a resident-benefit calculation and a tax-savings calculation.

PFC acquisition public-benefit bridge =
  estimated taxes avoided without exemption
  x statutory required rent-reduction percentage / period
  compared with actual restricted-unit rent reduction

If the public-benefit bridge is weak, the deal may still look attractive in a sponsor pro forma while failing the policy and exemption-risk test.

Approval And Disclosure Controls

PFC deals should be underwritten on a calendar, not only on a sources-and-uses schedule.

Key controls:

taxing-unit notice before approval;
public hearing or local governing-body approval where required;
sponsor/PFC board approval and conflict review;
independent or qualified underwriting assessment where required;
publication of underwriting assessment and compliance information where required;
recorded restriction or equivalent enforceable instrument;
annual TDHCA/appraisal-district audit submissions for covered developments.

The approval packet should identify the approving public entity, not just the private sponsor. If a deal depends on a PFC created by an entity outside the project locality, make the local approval and geography analysis explicit.

Audit And Exemption-Loss Risk

Covered PFC users must submit annual audit reports prepared by an independent auditor or compliance expert. The audit tests compliance with Chapter 303 requirements and identifies the difference between restricted rents and estimated unrestricted market rents.

Underwriting implications:

audit cost is an operating/compliance expense, not a closing footnote;
TDHCA summary reports and corrective-action reports can become diligence items for buyers and lenders;
unresolved noncompliance can create exemption-loss risk;
auditor rotation/qualification rules can affect annual compliance workflow;
rent-roll, income-certification, bedroom-mix, and market-rent support should be retained in auditable form.

Capital Stack Treatment

The PFC tax benefit can support feasibility, but it should be sized conservatively.

Model line	Treatment
Baseline property tax	Model conventional taxable scenario by jurisdiction and rate.
Post-PFC burden	Include any remaining taxes, PILOT, ground rent, public-entity fee, audit cost, compliance staffing, and reserve requirements.
Required resident benefit	Deduct required restricted rent reduction before treating savings as property-retained value.
Debt sizing	Ask whether lender includes all, part, or none of the tax benefit in underwritten NOI.
Exit value	Apply a transferability and political-risk haircut unless buyer can assume the structure and public entity consents.

Use Texas Public-Entity Property Tax Exemption Underwriting for the shared tax-benefit bridge.

IC Red Flags

The memo says "PFC exemption" but cannot identify the PFC sponsor, public facility user, statute, and recorded restriction.
The project is outside the sponsor's geography and local approval is unclear.
The model capitalizes full tax savings while the structure requires large tenant rent reductions or public-entity payments.
The rent roll does not show restricted tier, bedroom count, gross rent, utility allowance, and market-rent comparison.
The underwriting assessment is missing, stale, conflicted, or unpublished where publication is required.
TDHCA monitoring or corrective-action reports show unresolved failures.
The lender or buyer cannot assume the public-entity structure without consent.

Texas PFC and HFC Affordable Housing Structures
Texas HFC Affordable Housing Structures
Texas Public-Entity Property Tax Exemption Underwriting
Texas CHDO and HOME Set-Aside Mechanics
Affordable and Workforce Housing Underwriting
LIHTC Calculation Mechanics
Texas Geography Hub
Texas Investment Hub

Sources

Source: Texas PFC and HFC Affordable Housing Structure Research 2026-05-05

Provenance

Created during the 2026-05-05 PFC/HFC deep-dive expansion using subagent-assisted repo graph review and official Texas HB 2071, TDHCA, and Legislative Budget Board source support.