Quick Take: Public facilities corporations (PFCs) are nonprofit entities sponsored by local governments to develop multifamily housing with tax-exempt benefits. Common in Texas, PFCs eliminate property taxes, boosting net operating income and property value. Origin leverages PFCs through strategic partnerships to enhance returns while meeting affordability requirements in high-demand housing markets.
In the world of real estate investing, public facilities corporations (PFCs) stand out as an effective vehicle for developing multifamily housing projects while receiving significant tax benefits. Primarily leveraged in Texas under Chapter 303 of the Local Government Code, PFCs facilitate public-private partnerships that deliver meaningful tax incentives to developers while ensuring commitments to affordability. These corporations are sponsored by local entities such as cities, counties or housing authorities. And they address critical housing needs and provide compelling financial benefits to investors.
What Are Public Facilities Corporations?
PFCs are nonprofit organizations established by local government sponsors. They finance, acquire, build, renovate or manage public facilities, including multifamily housing properties. Typically, a housing authority forms a PFC, which then partners with a private developer. The PFC takes ownership of the property. Because it is publicly owned, the property becomes exempt from property taxes. However, through a long-term ground lease, the private partner retains operational control and receives the property’s cash flow, while agreeing to a set of affordability commitments.
These commitments benefit the community by increasing the supply of affordable housing without requiring new taxes or public debt. In exchange for property tax exemptions, developers commit to reserving units for lower-income residents, helping essential workers live closer to where they work and strengthening neighborhood stability.
The approval process and complexity of each PFC vary. But it typically takes from three to six months from the initial application submission to final approval. This timeline accounts for required steps under state law including negotiations, public hearings and board or council approvals. A sponsor—such as a city or a housing authority—first establishes the PFC via board resolution on its incorporation. The developer then presents the proposal, negotiates via a memorandum of understanding, and obtains PFC board approval. That might involve public input. Once approved, the PFC takes title to the asset and leases it back under a long-term agreement, with affordability terms documented.
Enhancing Net Operating Income Through PFCs
A primary benefit of incorporating a PFC in a multifamily development is the direct boost it provides to a property’s net operating income, or NOI. NOI is the essential measure of profitability and is an important calculation in valuing real estate. Here’s the formula: gross revenue minus operating expenses.
The exclusion of property taxes is a key benefit of a PFC. Property taxes in Texas can represent a significant burden in multifamily investments. By achieving a 100% property tax exemption via PFC ownership, this is eliminated as an expense—and that immediately elevates NOI. This reduction in operating costs allows more savings to contribute to the bottom line.
To put this in perspective, consider a multifamily property valued at $80 million facing a 2% effective tax rate. Without PFC benefits, annual taxes would total $1,600,000 ($80,000,000 × 0.02). Under a PFC structure, taxes fall to zero, and that $1,600,000 in yearly savings flows straight to NOI.
PFCs also create long-term value by increasing the property’s value. Let’s use the example of the $80 million property. At a 5.5% cap rate, the $1,600,000 tax savings can potentially add $29,000,000 to the property’s value ($1,600,000 / 0.055).
Origin’s Competitive Edge: Relationships and Execution
Origin currently has seven PFC vehicles across our portfolio, including five common equity and two preferred equity deals. Our ability to source, navigate and execute these opportunities lies in our deep-rooted relationships with established sponsors in Texas markets. We strategically utilize PFC structures to drive long-term value—benefits that ultimately flow through to our investors.
