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The City of Portland, Oregon

Portland Housing Bureau

Solving the unmet housing needs of the people of Portland.

Phone: 503-823-2375

fax: 503-823-2387

1900 SW 4th Avenue, Suite 7007, Portland, OR 97201

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Housing Development Subordinate Loan


The Housing Development Subordinate Loan (HDSL) is a subordinate loan that provides public financing to fund development costs for new or existing affordable rental and mixed-use projects, or projects for economic development activities directly related to affordable housing. The HDSL is intended to fund the difference between the projected project costs and available sources of construction or permanent financing to the extent the HDSL is supportable from operating revenues.


The HDSL provides construction and/or bridge financing, that either partially or fully converts to term financing.  This loan generally has below market interest rates and more flexible terms which are made available in exchange for public benefits and to increase project feasibility.  The HDSL is designed to work in conjunction with other public and private financing sources when projects will predictably generate sufficient cash flow (after payment of operating expenses, required reserve contributions and required senior debt service) to allow regular periodic payments on the HDSL.

The following summary outlines the general product characteristics available to Project Sponsors within the construction, bridge and permanent loan period.  A more detailed description of loan terms, specific to the HDSL, is outlined in the Product Specific Guidelines section below. 


Funding for this loan may be through tax increment financing (TIF), city or federal funds. Borrower shall comply with any and all requirements related to the funding source.  For example, TIF funds must be used for infrastructure and physical improvements (including tenant improvements) of real estate projects within an Urban Renewal Area.  Federal and other city funds come with their own fund-specific restrictions and obligations.


Interest Rate:  Up to 3%. The interest rate is determined by specific project requirements and subject to PHB approval. The Housing Investment Committee (HIC) may recommend an interest rate in excess of 3% if market conditions warrant.

Term:  Maximum of up to 24 months  

Repayment:  Deferred payment until end of construction period, interest accrues.

Other Terms:  See Permanent Loan Period


Maximum Amount:  No maximum amount. Based on Ordinance No. 183826 passed by City Council on May 26, 2010, PHB Director may approve up to $2 million; Commissioner in Charge approval is required up to $3 million; City Council must approve amounts in excess of $3 million.

Interest Rate:  Up to 3%. The interest rate is determined by specific project requirements and subject to PHB approval. The Housing Investment Committee (HIC) may recommend an interest rate in excess of 3% if market conditions warrant.

Term:  Up to 30 years

Repayment:  Amortization period is 30 years, with some flexible options available, subject to PHB approval

Debt Coverage Ratio (DCR):  Minimum 1.25[1] in Year 1

Loan to Value (LTV):  Total secured amortizing debt may not exceed 100% LTV



Project Sponsors who meet the following criteria may be eligible to receive an HDSL:

  1. The Project Sponsor may be either for profit or non-profit. 
  2. The Project Sponsor must own the subject property or have site control.
  3. Other financing sources for the project, including primary debt, must be maximized. 
  4. Designated Affordable Units must be affordable for 60 years (as required by Title 30 of the City Code).


Note: PHB funds are limited. PHB may not be able to provide loans to all eligible projects.


Eligible Project Sponsors: A For Profit or Eligible Non-Profit with ownership or site control[2] of land or a rental property may apply for an HDSL.

Eligible Projects: A project providing rental housing or community facility directly related to housing that furthers the goals and objectives in Portland’s Comprehensive Housing Plan, Consolidated Plan, Urban Renewal Area plans or other applicable policy directives is eligible for an HDSL. 

Interest Rates: Interest rates during the construction and permanent loan periods are set up to 3%.  In cases where PHB is providing a portion of the loan funds through a credit facility with a private lender or other government entity, the Project Sponsor may receive an interest rate based on PHB's cost of funds and/or the ability of the project to repay debt.

Loan Term:

  1. Construction Loans carry a maximum 24-month term or until the permanent loan funds are available, whichever period is shorter. Construction interest may be paid monthly or at the end of the construction loan period, subject to underwriting. 
  2. Permanent Loans carry a maximum 30-year term or the length of the amortization period, whichever period is shorter. 

Repayment Terms: HDSL repayment terms are structured to balance the goals of (1) maximizing participating financing; (2) assuring that the project is sustainable; and (3) providing for timely repayment of public funds.

HDSL loans are structured as fully amortized 30-year loans unless there is mutual determination that an alternative schedule is more appropriate for the project. Alternatives may include, but are not limited to, a longer or shorter term, a deferred payment period, or a balloon as part of the structure.

Participating Financing: Project Sponsors must seek maximum participating financing on the best terms available.  Interest rates for superior loans should be at the current market rate or better for the financing type.  Generally, the combined debt coverage ratio for all participating financing (other than PHB financing) should be no greater than 1.25 to 1.00 in Year 1 for superior loans.  The combined loan to value ratio (LTV) for all senior financing will be evaluated by PHB in order to determine that leverage has been maximized for the project.  PHB evaluates bond-financed projects against current bond underwriting requirements.

Security/Collateral: An HDSL is secured by the subject property. Security may take the form of a mortgage, a deed of trust or a participation agreement with another public or private lender.


Updated March 2015

[1] May increase depending on project specific risk factors

[2] An agreement with the City of Portland is acceptable if the City is an owner of land for the proposed development.