Texas Affordable Housing Tax Loophole in Full Effect

12 April 2025

Texas lawmakers tried to rein in the use of an affordable-housing tax loophole two years ago, but another is wide open and in use.

For example, Dallas-based S2 Capital recently took advantage of the loophole known as a traveling housing financing corporation to get tax breaks on an asset it’s owned since 2022.

S2 partnered with an affordable housing organization in Pecos, a 13,000-person town more than 400 miles away from Dallas, on a sale-leaseback of the Kendrick Apartments, at 7324 Skillman Street in Lake Highlands.

It sold the property to Pecos Housing Finance Corporation, which leased the ground back to S2, meaning S2 doesn’t have to pay property taxes on the Kendrick. Estimated property taxes on the complex were $1.2 million last year. It has 403 units and was built in 1984.

Freddie Mac said in November it would stop quoting new deals that used this loophole. Texas legislators led by state Sen. Paul Bettencourt closed the loophole for public finance corporations in 2023. Bettencourt’s SB 867, which is still pending, takes aim at the loophole as it relates to housing finance corporations.

S2 didn’t comment on the transaction, but rents are advertised at $960 to $2,160 a month. The landlord is required to reserve at least half of the units for people who make 80 percent of the area median income; 90 percent of units must be reserved for people who make 140 percent of the area median income.

Here’s what else happened in Texas real estate this week.

Dallas office developer Harwood International has encountered distress recently. It saved its Saint Ann Court development from foreclosure in January, but it lost another Uptown Dallas office asset. The 221,000-square-foot Harwood No. 4, at 2828 North Harwood Street, was auctioned on the Dallas County Courthouse steps April 1 and went to Spear Street Capital, which took back the building in a $73 million credit bid, deed records show. That’s $330 per square foot.
On the other side of the table, the buyer of a distressed Houston office complex was revealed this week. Receiver Midland Loan Services sold Ashford Office Park, once owned by troubled landlord Accesso Partners, to LFFP Ashford Portfolio, an entity led by Houston businessman Mohammed Ali Lakhany, state filings show.
Dallas development services did a whoopsie that developers will wind up paying for. A permitting fee error went unnoticed for almost a year and cost the city an estimated $5.5 million, which resulted in budget cuts. That mistake could be reversed with fee hikes.
Data centers are in high demand, and Fort Worth recently agreed to give subsidies to ACS Group for a $2 billion project, but whether Texas’ energy grid can provide the enormous amount of electricity needed for the data center boom is still a question.
Crow Holdings has a deal to sell a 95 percent stake in a 6 million-square-foot Texas industrial portfolio to Blackstone for $718 million. The deal could close this quarter.
Houston developer Ali Choudhri is facing jail time in a Department of Justice probe after a federal judge said he failed to produce evidence the feds have been seeking for three years. It’s unknown what the DOJ’s case is about. Choudhri lost ownership of the 283,000-square-foot TwentyFour25 West Loop South building last year, and lender National Bank of Kuwait later accused him of squatting in the building.

—Rachel Stone