SitusAMC White Paper Explores Rules and Risks of Texas Housing Bill 21 for Multifamily Lenders and Investors

Texas House Bill 21, signed into law in May 2025, introduces significant changes to property-tax exemptions for multifamily and student housing properties operating under Housing Finance Corporation (HFC) structures. The legislation imposes stricter affordable-housing requirements, new compliance obligations and additional local government oversight, potentially affecting property values, investment returns and financing decisions. In a new white paper, SitusAMC examines the implications of the law for property owners, developers, investors and lenders, including the financial risks associated with losing valuable property-tax exemptions. 

“For many multifamily investors, property-tax exemptions are a critical component of their underwriting assumptions and expected returns,” said Niles Almarinez, MSFA, Director, Equity Advisory & Asset Surveillance, Strategic Advisory Solutions, SitusAMC. “House Bill 21 introduces new requirements that could materially change those assumptions, particularly for properties operating under HFC partnerships outside their sponsoring jurisdictions.” 

The legislation seeks to ensure that HFC-related tax benefits translate into meaningful affordable housing benefits for tenants and local communities. Among its provisions, property owners must reserve specified percentages of units for income-qualified tenants and generally provide rent reductions equal to at least 50% of estimated property-tax savings or make applicable shortfall payments. The law also establishes new requirements for local government approvals, tenant protections, recordkeeping and independent annual compliance audits. 

For existing HFC properties, compliance timelines vary, with certain local approvals required before January 1, 2027. Failure to meet applicable requirements could jeopardize property-tax exemptions, creating substantial financial exposure for investors whose business plans depend on those benefits. 

The potential consequences extend beyond higher property taxes. Reduced rental income and additional compliance costs could lower net operating income (NOI), diminish property values and weaken debt-service coverage ratios. These pressures could also complicate refinancing, reduce investor distributions and create unexpected capital requirements, forcing owners and investors to reconsider whether to hold, refinance or sell affected assets. 

“Investors need to understand how changes in property-tax treatment and affordable-housing requirements could flow through to cash flow, valuations and financing,” Almarinez said. “Evaluating these risks at the property and portfolio levels can help investors anticipate potential shortfalls, assess their options and make more informed decisions about capital allocation.” 

SitusAMC helps investors, lenders and asset managers navigate these challenges through independent underwriting, due diligence, portfolio surveillance and strategic advisory services. Its teams assess property-tax exemption assumptions, review HFC ownership and approval documentation, evaluate sponsor performance and model the potential impact of changing taxes, rental income and financing costs on property values and investment returns. 

Download the white paper to learn more about the implications of Texas House Bill 21 for multifamily investments. For assistance evaluating HFC-related exposure, assessing compliance risks and navigating the law's financial implications, contact Niles Almarinez, Director, Equity Advisory & Asset Surveillance, Strategic Advisory Solutions, SitusAMC, at nilesalmarinez@situsamc.com.