Texas has quietly built one of the most effective housing and tax-policy tools in the country through its Texas PFC ground-lease model, which has become increasingly relevant in multifamily investing. The structure has gained attention because it helps create attainable housing while lowering one of the largest operating expenses for multifamily properties: real estate taxes. This combination has become increasingly important for investors evaluating Texas multifamily opportunities.

The model creates a clear alignment between public purpose and private capital. It allows workforce households to access well-located housing and gives investors exposure to Texas multifamily assets with more predictable operating expenses and long-term tax efficiency.

In the program’s early years, however, not all PFC transactions delivered the level of affordability the law intended. As Steadfast Companies CIO Bill Stoll explained, “The idea behind PFCs was never the issue. What mattered was the way some early deals were structured, because not all of them delivered meaningful affordability.” These early examples led the state to tighten the rules in 2023 so affordability requirements would be clearer and consistently applied.

Today, new PFC applications go through a more rigorous review process than they did during the program’s initial expansion. For investors who are newer to the Texas PFC model, understanding how a PFC ground lease works in practice helps clarify when the structure functions as intended and where its long-term benefits come from.

What follows: an overview of the PFC structure, how tax benefits flow to multifamily assets, what changed under recent reforms, and where Estraya Boerne fits into today’s more selective landscape.

What Is a PFC Ground Lease?

A Public Facility Corporation is a nonprofit entity created by a local government under Texas Local Government Code Chapter 303, forming the core of the Public Facility Corporation structure used in Texas multifamily projects.¹ Long-term ground leases between these PFCs and private operators allow new or existing multifamily properties to receive full property-tax exemption as long as they reserve a percentage of units for households that meet defined affordability requirements².

Affordability in a Texas PFC structure is based on area median income (AMI). Each community designates a specific income threshold — for example, households earning below 80 percent of the AMI — and rents for those units must remain below market levels so the benefit is meaningful and measurable.

In simple terms, a Texas PFC ground lease does three things:

• A local PFC, such as the Housing Authority of Boerne, holds title to the land
• A private operator leases the improvements through a long-term ground lease
• A set percentage of units is reserved for households whose incomes do not exceed the required AMI limits

This framework keeps the community rooted in public purpose while still allowing private capital to operate the asset effectively.

In practice, the PFC typically takes title to the land or property and then leases it back to a private developer or operator for a long term, often 75 years. The private operator handles development, financing, and day-to-day operations. This structure keeps capital flowing into housing production and supports workforce households while easing the municipal cost burden of delivering new units within the broader Texas PFC program³.

How the Tax Exemption Works

Under Texas law, property owned by a PFC and used for qualifying public purposes is exempt from ad valorem property taxes.⁴ For multifamily assets, property taxes often represent roughly a quarter to a third of total operating expenses, and removing that line item meaningfully improves net operating income.⁵ This stability is especially important in Texas, where, according to RealPage Analytics and county assessor datasets⁶ property taxes have historically risen faster than underwriting assumptions and can materially affect long-term performance.

For many investors, this is where the structure becomes most meaningful, because the tax savings and operating consistency function as a counterweight to the volatility often associated with Texas property assessments. At the same time, because the private operator holds title to the improvements under the ground lease, it can generally claim full depreciation benefits on the building, with land excluded from the basis⁷. This pairing of full depreciation with property-tax abatement is uncommon, and it is one reason investors and advisors are paying closer attention to Texas PFC partnerships and the Texas multifamily tax exemption they provide. While the structure increases early-year depreciation at the property level, actual tax outcomes vary by investor and should be evaluated with a tax advisor. Stoll emphasized that point, adding, “We understand how the framework affects the property, but every investor’s situation is different, so our role is to explain the mechanics rather than provide individual tax guidance.”

Why this matters for multifamily:
• Property taxes are typically one of the largest operating expenses in multifamily
• Removing this volatility strengthens underwriting resilience
• It reduces exposure to the annual tax-assessment swings common in major Texas metros

The structure is now gaining momentum in San Antonio, Austin, Dallas, and Boerne, where the need for attainable housing intersects with investor demand for stability and favorable long-term economics³.

New Oversight Strengthens the Model

Early versions of the PFC program grew quickly and, in some cases, without tight enough guardrails.² According to legislative summaries and TDHCA compliance guidance⁸, policymakers grew increasingly concerned that affordability benefits were uneven across markets. Much of the public conversation focused on whether the model was being used as intended, which is why the state sought to re-center the program on measurable affordability.

In response, Texas implemented substantial reforms. Recent reforms, including House Bill 2071 and updated compliance guidance, imposed new reporting and affordability requirements that strengthen the program’s credibility.³

Key improvements include:

• Verified affordability requirements tied to area median income
• Annual compliance audits conducted or overseen by the Texas Department of Housing and Community Affairs
• Clearer public-benefit documentation and reporting standards
• Tighter jurisdictional rules that prevent non-local PFCs from operating far outside their home counties

These updates were designed to protect residents and ensure the public purpose is real and measurable under Texas’s evolving affordable housing regulations. They were also introduced after some earlier PFC transactions delivered tax benefits without offering a proportional affordability benefit to their communities. As Bill Stoll, Steadfast’s CIO, observed, the issue was not the PFC concept itself but inconsistent execution that occasionally prioritized tax treatment over genuine affordability.

For long-term operators with deep compliance infrastructure and decades of affordable-housing experience, the shift is positive. The stricter rules tend to favor established sponsors that already follow conservative underwriting, detailed reporting, systematic income verification, and consistent property-management standards.

Why Institutions Are Paying Attention

The same fundamentals drawing institutional capital to affordable and workforce housing, such as predictable income, resilient demand, and measurable community benefit, are present in Texas PFC ground-lease transactions and other tax-efficient real estate strategies.

A Federal Reserve panel in 2025 highlighted how asset managers such as Goldman Sachs Asset Management, Trinity Church Wall Street, and the New York State Common Retirement Fund are increasingly participating in affordable-housing vehicles¹⁰. These institutions evaluate PFC structures with the same rigor applied to traditional multifamily assets and often add an impact lens focused on affordability, tenant well-being, and long-term stewardship. Institutions tend to gravitate toward structures that demonstrate both durability and clarity, and the updated PFC framework increasingly offers both.

For institutional allocators, the appeal of Texas PFC structures often centers on:

• Transparent affordability requirements
• Stable income profiles in high-demand Sun Belt markets
• Long-term visibility through 50 to 75 year ground leases
• Reduced exposure to tax volatility, which many analysts consider a defining risk in Texas multifamily

Institutional interest today is largely focused on well-structured legacy agreements rather than expectations of a broad new wave of future PFC opportunities.

Against that backdrop, the Estraya Boerne structure illustrates how strengthened public-purpose requirements and stable ground-lease economics can work together in practice.

Our Current Offering: Estraya Boerne, Texas

Our current offering, Estraya Boerne, is a 288-unit Class A community located north of San Antonio. Its PFC structure was established under the rules in place at the time of development, and the ground-lease agreement remains in effect for the balance of the original long-term lease, reflecting the stability of the Texas PFC ground-lease structure. It operates under a 75-year PFC ground lease with the Housing Authority of Boerne, which provides full property-tax abatement for the duration of that agreement.

Why this matters here:

Estraya’s PFC framework follows the original agreement approved before the 2023 reform package, while still operating under today’s updated statewide provisions. New PFC applications now go through a more selective review process, so the volume of new approvals is lower than during the program’s early expansion.

This structure supports high-quality, attainable housing in the heart of Texas Hill Country while reducing one of the largest operating cost categories for the property through Texas property tax abatement. The affordability component at Estraya is designed for workforce households such as teachers, healthcare professionals, and public-safety workers, aligning with workforce housing demand across Texas. These are the types of households that often earn too much for deeply subsidized housing yet struggle to find stable, high-quality options in fast-growing Texas markets. Combined with long-term fixed-rate debt and Steadfast’s operational approach, Estraya Boerne demonstrates how thoughtful public-private collaboration can create stable, well-located multifamily assets that serve both residents and investors.

Steadfast’s in-house compliance team manages the income-verification and reporting requirements tied to the affordable units, drawing on decades of experience in both affordable and market-rate housing. Stoll noted that strong compliance is not simply administrative but central to performance. “Operational discipline is often what separates high-performing mixed-affordability assets from those that struggle. Consistent verification and documentation are part of the investment’s long-term durability,” he said.

Looking Ahead

Texas’s PFC ground-lease model has evolved into a disciplined, transparent framework that aligns community needs with investor priorities. With its combination of cost efficiency, regulatory clarity, and institutional interest, the PFC structure is emerging as one of the most compelling approaches to delivering tax-efficient multifamily housing today.

While fewer new PFC opportunities are likely to emerge going forward, long-term agreements like Estraya’s demonstrate how a well-designed framework can remain durable, predictable, and effective over time.

To learn more about how this model is being put into practice, explore Steadfast Direct’s current offering, Estraya Boerne.

Disclaimer: The information provided in this article is for informational and educational purposes only. It is not intended to serve as investment, tax, or legal advice, nor should it be interpreted as an offer to buy or sell any security. Private real estate investments carry significant risks, including the potential loss of principal, and are intended for accredited investors who understand and can bear those risks. Any discussion of tax treatment relates solely to the property-level structure and does not reflect or predict individual investor outcomes. Tax implications vary based on each investor’s circumstances, and readers should consult their own financial, legal, and tax advisors before making any investment decision.

Sources

¹ Texas Local Government Code §303.042; Statutory framework establishing Public Facility Corporations and their powers.

² Entrepreneurship & Community Development Clinic, University of Texas School of Law (2020); Public Facility Corporations and the Section 303.042(f) Tax Break for Apartment Developments.

³ National Housing Crisis Center (2024); Texas Public Facility Corporations: Right-Sizing Property Tax Incentives to Increase Housing Affordability.

⁴ Texas Tax Code §11.11 — Public Property Tax Exemption; Governs tax exemption for public property used for qualifying public purposes.

⁵ Green Street Advisors & National Apartment Association; Multifamily operating expense benchmarks reflecting property taxes as a major share of OPEX.

⁶ RealPage Analytics (2024–2025) & County Assessor Datasets; Research and tax‐assessment data showing historical volatility and above-trend property tax growth in multifamily markets.

⁷ IRS Publication 946 — Depreciation of Buildings; Guidance on depreciating residential rental property and improvements.

⁸ Texas Department of Housing and Community Affairs (TDHCA) — Compliance Manuals (2023); Compliance requirements and affordability verification standards for housing programs.

⁹ Texas House Bill 2071 (2023); Legislation reforming Public Facility Corporation requirements, affordability standards, and reporting obligations.

¹⁰ Federal Reserve Bank of New York — Affordable Housing Roundtable (2025); Panel discussion addressing institutional investment in affordable and workforce housing strategies.