When a program proves effective, the affordable housing industry embraces it. The Payment in Lieu of Taxes program is one such example demonstrating how public-private collaboration can yield measurable results for residents while leveraging existing tools within the affordable housing toolkit.
A PILOT agreement is a legal arrangement between a property owner and the local government that allows negotiated payments in place of standard property taxes. In return, the developer commits to maintaining affordability and advancing community goals such as reinvestment, sustainability, and long-term neighborhood stability.
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In Baltimore, the Affordable Housing PILOT program—administered by the Department of Housing and Community Development—supports developments owned by nonprofits and the Housing Authority. By reducing property taxes for the duration of affordability, this tool makes deeply affordable projects financially viable—bridging the gap between rising construction costs and limited rent levels, while ensuring the city continues to receive predictable revenue.
NHPF recently completed a 100-unit senior apartment community in the Park Heights neighborhood under the City’s PILOT program. The reduced tax structure ensures long-term housing stability for seniors—making a project that would otherwise be financially infeasible possible. By lowering operating costs and improving project viability, the PILOT enabled NHPF to deliver high-quality, energy-efficient housing that meets seniors’ needs while revitalizing a key corridor of the Park Heights community. This collaboration illustrates how targeted tax policy can unlock transformative development, turning underutilized land into thriving, affordable housing that strengthens neighborhoods for generations
Through our experience with the PILOT model, we have identified best practices for structuring a successful PILOT deal:
1. Bridge the affordability gap
Structure PILOT agreements to provide ongoing property tax relief for the full duration of the project’s affordability period. This sustained reduction in tax burden helps preserve affordable rents, support long-term operational stability, and ensure financial feasibility.
2. Unlock financial feasibility
Leverage PILOTs as a critical financing mechanism to close the gap between rising development costs and constrained rental revenues. Coordinate with local partners to ensure the structure maximizes both project viability and public benefit.
3. Drive equitable neighborhood revitalization
Target PILOT-supported housing in areas poised for revitalization but vulnerable to displacement. Align PILOT benefits with local anti-displacement policies and community input processes to ensure revitalization strengthens, rather than displaces, existing residents.
4. Promote inclusive growth
Structure PILOT agreements to advance local hiring and workforce development opportunities. Establish clear performance measures and reporting standards to highlight the program’s role in creating shared economic benefits and community advancement.
5. Build long-term partnerships
Approach PILOTs as tools for collaboration, not just financial mechanisms. Engage early with municipal officials, community boards, and resident leaders to co-create transparent agreements that reflect shared goals and promote accountability throughout the project lifecycle.
6. Be creative when capitalizing the PILOT
Work closely with municipalities and tax advisers to explore structures that allow the PILOT to be capitalized. When properly structured, this approach can provide municipalities with an upfront payment while enabling developers to include the PILOT in eligible basis, generating additional equity and improving project feasibility.
7. Create lasting impact
The result isn’t just new buildings—it’s the long-term transformation of communities. Through intentional design, local partnerships and sustained investment, these developments anchor affordability, promote inclusive growth and create pathways for resident success. Over time, the impact extends beyond the property line, elevating surrounding neighborhoods, supporting local economies and ensuring that the community continues to thrive for generations.
It is always a win-win in affordable housing when the equitable solution is also the financially sound one.
Gabrielle Hapi is development manager for NHPF.
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