Start with a single apartment property assessed at $20 million, roughly the size of most deals that used a traveling housing finance corporation to come off the tax rolls. At a 2.5% millage rate, that property has been abating about $500,000 a year in property taxes. Doug Banerjee, Senior Managing Director at Greysteel, estimates that after ground lease fees to the Housing Finance Corporation and the rent reductions on set-aside units, about $300,000 of that landed on the bottom line. Capitalize $300,000 at a 6 cap and the exemption was worth about $5 million in value. Now multiply that by 400 properties. Banerjee puts the value at risk across Texas at more than $2 billion.
The deadline that puts it at risk is Jan. 1, 2027. That is when House Bill 21, signed by Gov. Greg Abbott in May 2025, strips the property tax exemption from any HFC-owned property sitting outside the jurisdiction of the city or county that created the HFC unless the local government where the property is located approves the exemption by resolution before Dec. 31.
The bill targeted what became known as “traveling HFCs.” Under Chapter 394 of the Texas Local Government Code, a housing finance corporation created by one city or county could acquire property anywhere in the state and pull it off the tax rolls, according to an analysis by the Texas Real Estate Research Center at Texas A&M University. The local government where the property sat lost the revenue while still providing services to the residents, spreading the cost across the remaining tax base.
HB 21 also raised the bar on affordability. A property must now reserve at least 50% of its units for income-restricted households and at least half the value of the tax exemption must be applied to rent reduction each year with any shortfall paid to the taxing authorities, according to analysis from Baker Hostetler Partner Cynthia Bast. Properties with low-income housing tax credits are excluded from most of the new requirements, though the jurisdictional limits apply to all.
How many properties are affected depends on who is counting. A Yardi Matrix spreadsheet lists 335 traveling HFC properties in Texas primary markets alone, Banerjee said, and he estimates the statewide figure tops 400 once secondary markets are included.
For the properties that miss the deadline, the damage depends on the capital stack.
“Every asset’s debt situation will be different obviously, but the ones that have bridge debt on them will likely have a majority or all of the equity wiped out from the capital structure,” Banerjee said.
Bridge debt is common in this pool and so is deferred maintenance. Most of the properties were acquired in 2021 and 2022, Banerjee said, which means they rode the full rate shock that followed.
“Many of the properties have been neglected by ongoing capital needs because the owners/operators were simply trying to stay afloat and make their debt payments when SOFR went from 0% to 5.25% in a matter of 18 months and stayed at that level until September 2024,” Banerjee said.
That amounts to about five years of skipped capital expenditures. Using a moderate $5,000 per unit across 400 properties averaging 200 units, Banerjee arrives at roughly $400 million in outstanding capex needs, a figure he considers low since many of the properties need far more than $5,000 per unit even if a few newer ones need less.
This is where the economic development story lives. None of it is new construction. The capital HB 21 forces into the market goes to renovating and stabilizing existing workforce housing, most of it Class B and C product in Houston, Dallas and San Antonio submarkets. The question is who deploys it. The tidy version of this story has preservation-minded sponsors stepping in to protect affordability. Banerjee sees a different buyer.
“The preservation play is difficult because that normally requires time for a buyer to be able to put on tax credits to convert assets into affordable properties, so the majority of the buyers we see are opportunistic ones that are seeing lenders take deals back or willing to take haircuts on their loans to not have to take over the operations,” Banerjee said.
Those buyers are pricing in everything at once: the lost exemption, the carrying costs, the deferred work.
“Many of these properties are requiring $20-$30K per unit through a combination of carrying costs and CapEx needs, so the trades are happening 30-60% below previous highs,” Banerjee said.
A sale carries its own trigger under the new law. Existing HFC properties that secure local approval have until the earlier of Dec. 31, 2035, or the first sale or refinancing to comply with the new affordability restrictions, according to Baker Hostetler’s analysis. A recapitalization that keeps the exemption alive therefore brings the 50% set-aside and rent reduction test forward immediately, which shapes what a buyer can underwrite on day one.
The one variable that could still move the deadline is in a Cameron County courtroom. The Texas Workforce Housing Coalition, a group of developers who partnered with HFCs, and Post WB Apartments LLC sued the Bexar Appraisal District in September 2025 with Gibson Dunn & Crutcher as lead counsel. The plaintiffs argue that developers structured financing and business arrangements under the law as it existed and should be able to rely on it. The petition asks the court to declare HB 21 an unconstitutional impairment of contracts and an unconstitutionally retroactive law and to reinstate previously granted exemptions.
As of early September, the case had not been resolved. Owners of more than 400 properties have four months to find out whether the court, a city council or a buyer decides what happens next.
