HomeMy WebLinkAboutAgenda Packet_SKHHP_ExecutiveBoard_2024_6_14SKHHP Executive Board
June 14, 2024, 1:00 – 3:00 PM
In-person Meeting
In-person attendance at:
Auburn City Hall - City Council Chambers
25 W Main Street
Auburn, WA 98001
Video conference:
https://us06web.zoom.us/j/99857398028?pwd=eXFiMmJpQm1abDZmMmRQbHNOYS8
ydz09
OR by phone: 253-205-0468
Meeting ID: 998 5739 8028 Password: 085570
I. CALL TO ORDER
a.
b.
AND ADVISORY BOARD REPRESENTATIVE
II. PUBLIC COMMENT
III. APPROVAL OF MAY 17, 2024 MINUTES
Motion is to approve the May 17, 2024 SKHHP Executive
Board meeting minutes.
1:11
1:12
Presenter: Brian Lloyd, Vice President of Beacon Development
Purpose: Provide an overview of how affordable housing is
financed.
Background: Beacon Development Group is an affordable
housing consulting firm that works with nonprofits and housing
authorities to facilitate the funding, design, and construction of
affordable housing developments. Beacon Development
manages the entire development process from financing to
construction to handing off the keys. Brian Lloyd has
developed or is currently working on 45+ projects worth more
than $900 million for Beacon.
For review, discussion, no action proposed.
VI. BOARD BUSINESS 2:12
a. GENERAL UPDATES
Presenter: Jeff Tate, Interim SKHHP Executive Support
Purpose: General Updates
Background: An opportunity to receive updates and discuss
items from the May Executive Board meeting, including the
Habitat for Humanity Miller Creek project.
For review, discussion, and Board feedback only, no
action is proposed.
VII. UPDATES/ANNOUNCEMENTS
• July Executive Board meeting – A Conversation on
Homelessness in SKHHP’s work
2:25
2:30
SKHHP Executive Meeting
May 17, 2024
MINUTES
I. CALL TO ORDER
Nancy Backus called the meeting to order at 1:02 PM.
ROLL CALL/ESTABLISHMENT OF QUORUM
Executive Board members present: Nancy Backus, City of Auburn; Merina Hanson, City of
Kent; Traci Buxton, City of Des Moines; Brian Davis, City of Federal Way; Xochitl Maykovich,
King County; Sean Kelly, City of Maple Valley; Eric Zimmerman, City of Normandy Park;
Carmen Rivera, City of Renton; James Lovell, City of SeaTac; Thomas McLeod, City of Tukwila;
Colleen Brandt-Schluter, City of Burien.
Others present: Victoria Schroff, City of Maple Valley; Dennis Martinez, City of Tukwila; Jeff
Tate, SKHHP Interim Executive Support; Dorsol Plants, SKHHP Program Coordinator; Kent
Hay, SKHHP Advisory Board; Laural Humphrey, City of Tukwila; Nicholas Matz, City of
Normandy Park; Nicole Nordholm, City of Des Moines; Dafne Hernandez, City of Covington;
Matt Torpey, City of Maple Valley; Liz Stead, City of Burien; McCaela Daffern, King County; Joe
Thompson, Mercy Housing NW; Chris Bendix, Mercy Housing NW; Obinna Amobi, Mercy
Housing NW.
II. PUBLIC COMMENT
No public comment was provided.
III. APPROVAL OF APRIL 19, 2024 MINUTES
Traci Buxton moved to approve the April 19, 2024 minutes as presented, seconded by Sean
Kelly. Motion passed (11-0)
IV. AGENDA MODIFICATIONS
No modifications to the agenda were made.
V. BOARD BRIEFING
a. MEET THE DEVELOPER: MERCY HOUSING NORTHWEST
Joe Thompson began the presentation by providing some of his background. He has been
President of Mercy Housing NW for the past four years, and when he became President, he
wanted to make South King County a priority for development, and that reality was realized.
South King County is an incredibly culturally rich and diverse area with many residents at risk of
displacement as housing becomes unaffordable for many. He continued that his first month with
Mercy Housing NW was at the Appian Way Apartments in Kent, which inspired a genuine love
for the region. Appian Way is a 150-unit property that Mercy Housing NW has operated for
about thirty years. Currently, Mercy Housing NW has cranes in the ground building in SeaTac
near the Angle Lake Link Light Rail station in conjunction with the ARC of King County.
Mercy Housing NW serves over 6,000 people daily by providing safe and stable housing. In the
past few years, they have developed about 1,300 units of family housing, 700 of which are in
King County. Mercy Housing NW has a similar number of units in its development pipeline over
the next five years.
In addition to affordable housing development, Mercy Housing NW provides resident services
once those communities welcome someone home. This makes them unique compared to other
developers, and the aim is to take the stable platform the unit provides the family to help them
address a challenge or a goal. Services are offered in five distinct areas: health and wellness,
housing success and stability, economic empowerment, and community building, both in
development and in the surrounding community. One service area that Joe Thompson
highlighted at the Appian Way apartment is the Mercy Scholar program, which focuses on
second-generation residents to provide education wrap-around support to amplify the
opportunities for academic success. The Mercy Scholar program will be offered at the South
King County locations currently under construction.
Obinna Amobi reviewed the Burien Family Housing project in Burien, funded as part of the 2022
SKHHP Housing Capital Fund. The project is a partnership between Mercy Housing NW and
Mary's Place, and the site will include an emergency family shelter. Mercy Housing NW and
Mary's Place have successfully partnered on two other projects in King County, the Allen Family
Center and Cedar Crossing. Cedar Crossing includes 20 units set-aside for families with
children with complex medical challenges, including those from Mary's Place Popsicle Place
program. These families are mainly referred from the Seattle Children's Hospital and have
unique challenges securing affordable housing.
Burien Family Housing is a redevelopment of a site Mary's Place has been operating since
2018. A set of shared principles has guided the development since the beginning of 2021.
These principles include, “Center equity and opportunity to address the crisis of family
homelessness. Innovation and use of best practices to create a well-planned community for
residents, including children and families, as well as the broader Burien community. Ensure
long-term financial and program stability plan. Concept and program formed with input from the
community and people with lived experience.”
The intent is for the Burien Family Housing project to serve as a model for a way to address the
homelessness crisis. Frequently, unhoused families are left behind in the present system and
face challenges such as long wait lists or having to accept housing that moves them away from
their community support. This project will enable families that have moved through the Mary's
Place shelter to stay in their community. The 90-unit project comprises two-, three-, and four-
bed units that can serve families making between 30% to 60% Area Median Income (AMI).
Thirty-four units will be set aside for families transitioning from the Mary's Place shelter on-site.
The project has received a commitment of 34 Section 8 vouchers from King County to service
the set-aside units. Families will receive case management and on-site support, including the
Mercy Scholar program and Mary’s Place Kids’ Club. The emergency shelter on-site will be able
to serve up to 75 families at one time.
The project began in 2021, and much of the funding has been achieved. Mercy Housing NW is
awaiting the pursuit of a 4% LIHTC allocation. Permitting is underway, and the goal is to start
construction in early 2025. The emergency shelter construction will likely begin at the same time
as the housing construction.
Chris Bendix reviewed the Kent Multicultural Village (MCV) project in Kent, funded as part of the
2023 SKHHP Housing Capital Fund. The project began about a year ago in response to Sound
Transit’s offer of the transit-oriented development (TOD) site and is on the same block as the
future north entry of the Kent/Des Moines Link Light Rail station. The site is also across the
street from Highline Community College. This project was started through a partnership with
Open Doors for Multicultural Families, the same way the Burien project had an essential
partnership. Open Doors' mission is to support families with at least one household member
living with a disability, and it specializes in helping families newly arrived in the United States. In
2022, Open Doors served over 2,500 clients out of three locations in King County.
Open Doors largely set the vision and guiding principles of the project and their ambition to
create housing that meets the specific needs of families with intellectual and developmental
disabilities (IDD). The hope is to create an inclusive and diverse mixed-use community with the
support families need and easy transit access. Open Doors has been hoping to bring this idea
to reality for years, and the Mercy Housing NW partnership was a real opportunity to do it.
The project will have 20% of the units set aside for residents with IDD, and Open Doors will
relocate their office and program space to the location. These units will exceed minimum ADA
requirements and seek to be as usable and accessible as possible. Open Doors will include a
space to provide community services and will operate an inclusive early learning center on-site
to serve the needs of children with IDD. The site will also include neighborhood retail on the
corner leading to the Link Light Rail entrance, and the project will activate the station area with
public plazas and recreation space.
The project includes 240 affordable housing units serving households ranging from 30% to 60%
of AMI. The community space and office for Open Doors will be 25,000 square feet, providing
more space for the agency than its current location. Project Feast is communicating with Mercy
Housing NW to occupy the 4,500 square feet of retail space and will provide dining and culinary
skills training and food service. The site will emphasize multicultural design and art and is
intended to feel like a place where all people are welcome and want to spend time.
The Kent MCV is in design and predevelopment until mid-2025. Construction is expected to
begin in the third quarter of 2025 and be completed in the third quarter of 2027.
Mercy Housing NW has been working in King County on several projects. Angle Lake Family
Housing, located in SeaTac, is a 130-unit affordable housing project adjacent to the Angle Lake
Light Rail station that broke ground in 2023. Like the Kent MCV, the project includes set-asides
for people with IDD. Mercy Othello Plaza is in Seattle and has 108 affordable housing units
adjacent to the Othello Light Rail station. Othello Plaza was built to prevent displacement of the
community. Cedar Crossing is a 254-unit affordable housing project adjacent to the Roosevelt
Station in Seattle. It was a partnership with Bellwether Housing.
Traci Buxton asked where the public plaza on the Kent MCV site design was in relation to
Pacific Highway and the transit station. Chris Bendix said the plaza will start at the corner of
Pacific Highway and 236th Street and expand back toward the transit station in a triangle
pattern.
Traci Buxton asked if there were conversations about installing a pedestrian bridge over Pacific
Highway aligning with the entrance to Highline Community College. Chris Bendix said that his
project would not be making changes to the public right of way but didn't know if other agencies
had discussed the possibility of a pedestrian bridge.
Thomas McLeod commented on the number of three- and four-bedroom units in the Burien
project, noting that South King County sees only a few family-sized units. He asked how many
family-sized units were available in the affordable housing market. Obinna Amobi responded
that there was only a little available to his knowledge, and the reason so many units were
included at the Burien site was due to the partnership with Mary's Place, which identified a need
for family-sized units.
Thomas McLeod asked if there was a demand for four-bedroom units. Obinna Amobi responded
that it depends on whom you ask, but Mercy Housing NW is regularly asked to include them in
its projects. The Burien site is potentially the first project Mercy Housing NW has that includes
four-bedroom units. Chris Bendix added that they will add four-bedroom units at the Kent site to
help accommodate multi-generational families. Joe Thompson added that Mercy Housing NW is
seeing increased demand for the larger units.
Obinna Amobi discussed some of the challenges Mercy Housing NW has seen, including an
increase in the homelessness crisis in South King County. This has impacted how the
community perceives and responds to potential affordable housing projects in our region. An
opportunity in South King County has been increased capital funding made available through
agencies such as SKHHP. Shorter permitting times will also help projects move forward
promptly and cost-effectively.
Chris Bendix added that the Department of Commerce's program Connecting Housing to
Infrastructure (CHIP), which helps local governments offset the cost of utility and other
infrastructure improvements that otherwise the developer would be required to pay, has been
helpful. By working together, both the developer and local jurisdiction can benefit from the
program, and he highly recommends learning more.
VI.BOARD BUSINESS
a. 2024 QUARTER 1 REPORT
Jeff Tate highlighted the importance of the quarterly reports, which bring updates to the SKHHP
member city councils and other government officials. These reports demonstrate the significant
traction SKHHP has achieved in such a short period of time. The Quarter 1 report is structured
around the 2024 Work Plan and Budget goals and was included in the meeting agenda packet.
Jeff Tate continued by acknowledging the substantial effort into the City of SeaTac officially
joining SKHHP in the first quarter of 2024. SeaTac brings a new revenue source to combine
with the City of Maple Valley's first contribution to the Housing Capital Fund. With support from
the Executive Board, the Staff Work Group shepherded the 2023 Housing Capital Fund
recommendations through each of the member city councils and is implementing a similar
process to bring the 2025 Work Plan and Budget forward for adoption.
VII.UPDATES/ANNOUNCEMENTS
Jeff Tate reviewed a memo in the meeting agenda packet with an update on the Habitat for
Humanity Miller Creek project located in Burien, awarded $300,000 from SKHHP in the 2022
Housing Capital Fund. The number of units and the affordability levels for the units SKHHP is
funding has stayed the same, but there is an administrative and financial shift the project is
making. The Executive Board was asked," When changes to projects such as these occur
(which is likely in future projects as well), how informed or involved does the Board want to be?
Does the Board want to approve these types of changes, or are these administrative changes
that can be handled by the Executive Manager when contracting?”
As a first step, Merina Hanson suggested elevating concerns to the jurisdiction receiving the
project, including the Executive Board representative.
Traci Buxton asked if there was a reason someone should be concerned about the change. Jeff
Tate responded that there could be a couple of reasons. One was the potential narrative that
SKHHP funds are only covering three units for $300,000, but SKHHP's contribution is part of the
funding package that enables the construction of twenty affordable homeownership units. No
legal risk or other challenges have been identified at this time.
Traci Buxton asked if action was needed. Jeff Tate responded that the Executive Board didn't
need to take action and that this was an opportunity to update the board and answer questions.
Nancy Backus confirmed the timeline for SKHHP staff's response. Jeff Tate confirmed there
was time, and any concerns or objections would need to be addressed before signing the
contract in fall 2024.
VIII.ADJOURN
Nancy Backus adjourned the meeting at 2:08 PM.
Brian Lloyd, Vice President
Beacon Development Group
brianl@beacondevgroup.com
AFFORDABLE HOUSING 101
SKKHP EXECUTIVE BOARD 6 14 24
Session Outline
Introduction What is it?Process Funding Financial Feasibility The Future Conclusion
Session Outline
1.What is affordable housing?
How is it defined?
Who does it serve?
Who provides it and why?
2.What’s the process?
3.How is it funded?
Local, state, federal
Capital and operating
4.How do you make it pencil?
Development sources & uses
Operating pro forma
5.How does the future look?
2
Our Experience
3IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion3
Project Experience Project Types
Projects Units Value
Completed 104 6,637 $1,576M
Under
Construction
6 540 $255M
Fully Funded 4 283 $123M
In Development 1 45 $2.8M
Total 115 7,505 $1.9B
Family 58 projects
Agricultural Workers 27 projects
Sustainable Building 32 projects
Historic 8 projects
Senior 36 projects
Special Needs 37 projects
Acquisition/Rehab 30 projects
Urban/Mixed Use 37 projects
Introduction What is it?Process Funding Financial Feasibility The Future Conclusion
What is Affordable Housing?
4
Agricultural worker
family housing
Varney Court
Housing Authority of the City
of Pasco and Franklin County
Introduction What is it?Process Funding Financial Feasibility The Future Conclusion
What is Affordable Housing?
5
Senior Housing
Pearl at Oyster Bay
American Baptist Homes of the West
Introduction What is it?Process Funding Financial Feasibility The Future Conclusion
What is Affordable Housing?
6
TOD / Mixed Use
Plaza Roberto Maestas
El Centro de la Raza
Introduction What is it?Process Funding Financial Feasibility The Future Conclusion
What is Affordable Housing?
7
Historic Buildings
Agnes Kehoe Place
Spokane Housing Authority
What is Affordable Housing?
Introduction What is it?Process Funding Financial Feasibility The Future Conclusion8
Senior Housing
MarketFront
Pike Place Market PDA
HopeWorks Station Phase 2
Introduction What is it?Process Funding Financial Feasibility The Future Conclusion9
Special Needs
HopeWorks Station Phase 2
HopeWorks / Housing Hope
Colby Avenue Youth Center – Cocoon House
Introduction What is it?Process Funding Financial Feasibility The Future Conclusion10
Special Needs
Colby Avenue Youth Center
Cocoon House
1.Residents pay at most 30% of their income in housing costs
Rental Housing Cost = Rent + Utilities
Ownership Housing Cost = Principal + Interest + Taxes + Insurance
2.Includes a wide range of housing types
Shelter – night to night or permanent beds
Special Needs – homeless, disabled, etc
Veterans
Farm worker
Working “poor” minimum wage, 30% to 50%
Workforce 60% to 100%
Ownership – Single Family, Townhouse, Condo
3.Percentages – Area Median Income (census data)
0 – 30% = Extremely Low Income
30 – 50% = Very Low Income
50 – 80% = Low Income (60% is maximum for tax credits)
80 – 120% = Moderate Income
Introduction What is it?Process Funding Financial Feasibility The Future Conclusion
What is Affordable Housing?
11
What is Affordable RENTAL Housing?
30% AMI 50% AMI 60% AMI
Yakima $22,560 $37,600 $45,120
Spokane $24,030 $40,050 $48,060
King/Sno $39,570 $65,950 $79,140
WSHFC Income Limits (2023): 3 person household
Introduction What is it?Process Funding Financial Feasibility The Future Conclusion
13
What is Affordable RENTAL Housing?
30% AMI 50% AMI 60% AMI
Yakima $22,560
$564
$37,600
$940
$45,120
$1,128
Spokane $24,030
$600
$40,050
$1,001
$48,060
$1,201
King/Sno $39,570
$989
$65,950
$1,648
$79,140
$1,978
WSHFC Rent Limits (2023): 2 bedroom units
Introduction What is it?Process Funding Financial Feasibility The Future Conclusion
Introduction What is it?Process Funding Financial Feasibility The Future Conclusion
Who Provides Affordable Housing?
14
Housing Authorities
Non-profit / social service organizations
Public Agencies
Private Market
I. Project Definition & Feasibility
1515IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
1.Who are you going to serve?
What’s the market? (i.e. the need)
What makes you the right provider?
Impact of prioritizing populations?
2.Due Diligence
Survey, Phase I, title report, design studies
I. Project Definition & Feasibility
1616IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
3.What are the costs?
Site Acquisition Financing & Soft Costs
Construction/A&E Replacement & Operating
Reserves
4.What are the likely development and operating
sources?
Local subsidy and support
Tax credits: Are you competitive? What’s the equity
calculation?
Rent levels
I. Project Definition & Feasibility
1717IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
II. Funding Applications
1818IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
1.Applications are required to: City, County, State,
Finance Agency. Common application helps, but
each has a different addendum/focus.
2.Will you get an award:
Local capital subsidy, then State capital subsidy, then
operating subsidies, then tax credits!!!
Current system headed in direction of being population
based, vets, etc.; not project oriented, less predictable,
timing uncertain
Challenge is to conserve $ while trying to get to yes
II. Funding Applications
1919IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
III. Design and Permits
2020IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
III. Design and Permits
1.Design a functional, bullet-proof building that can be built at
rock bottom construction costs
2.Meet all funding requirements
Green/Sustainable
Prevailing Wages and Labor Standards
Program space
Lender preferences
Historic, Neighborhood, or other constraints
3.Line up permits with closing of all subsidies and the tax credit
partnership
2121IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
IV. Closing
2222IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
1.Meet the requirements of 3 – 5 different lenders
simultaneously
2.Get 3 – 5 different attorneys to agree on anything
3.Priority Agreement
Who’s on First? What’s on Second?
4.Manage guarantees (if possible)
Construction completion
Tax credit delivery
Operating deficit
IV. Closing
23IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
23
Funding Sources (Capital Stack)
State Housing Trust Fund
•Application
•Note
•Deed of trust
•Loan agreement and assignment for security
purposes
•Regulatory agreement
•Subordination agreement
•Compliance
2424IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
V. Construction
2525IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
V. Construction
2626IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
1.Try to find a contractor you trust with your life
2.But one that’s hungry and willing to do high quality work for as little
overhead and profit as possible
3.Try to find a contractor who can navigate all the subsidy requirements:
Green Requirements
Prevailing Wage and other labor standards
Hire Section 3 and WMBE firms
Meet apprentice program requirements
4.Meet tax credit and investor delivery deadlines despite weather and
unforeseen site conditions
VI. Lease-Up & Management
27IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
1.Lease-Up
Deliver units according to the schedule you set with the
investor 12 – 18 months earlier so you don’t lose equity
Lease up to fully qualified households who meet all the
income and lease guidelines and will be stable happy
residents
2.Management
Then starts the hard part – operating a financially and
socially stable housing community for the long term
Next Class: Affordable Housing Management 101
VI. Lease-Up & Management
28IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
1.What is affordable housing?
2.What’s the process?
3.How is it funded?
4.How do you make it pencil?
5.How does the future look?
Housing 101
29IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
1.Local, State and Federal Resources
Capital Side – subsidize cost of construction and development
Operating Side – subsidize operations, maintenance, and
services
2.Local – City & County
Entitlement Cities & Counties – pass-through of CDBG and HOME
funds
Local property tax levies
City of Seattle, City of Bellingham, City of Vancouver
King County Veterans and Human Services Levy
2060 & 2063 for services – recording fees
Regional consortia – ARCH
1590 (1/10 of 1% WSST) and 1406 (retain portion of WSST)
Philanthropy & Alternative Lending
How Is It Funded?
30IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
How Is It Funded?
31IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
3. State
Housing Trust Fund
$200M in the 2007 – 2009 budget
$130M in the 2009 – 2011 budget (100 + 30)
$137M in the 2011 – 2013 budget (50 + 67)
$51M for 2013 – 2015 biennium
$49M for 2015 – 2017 biennium (21 + 28)
$100M for 2017 – 2019 biennium
$175M for 2019 – 2021 biennium
$714M for 2021 – 2023 biennium
2021 = 180M HTF + 94M rapid acqstn; 2022= 114M HTF + 240M
rapid acqstn + 86M other
$527.5M for 2023 – 2025 biennium
2023 = 400M HTF; 2024 = 127.5M HTF
How Is It Funded?
3. State (contd)
Direct Appropriations (40m +15M in 2023-2025 budget)
CDBG Housing Enhancement –non-entitlement communities
2060 & 2063 & 1277– recording fees, state portion
Real Estate Excise Tax – local housing option
TIF light – tax increment financing
American Rescue Plan Act of 2021 (ARPA)
–Rental assistance
–Rapid acquisition of existing properties
32IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
4. Federal
Housing & Urban Development
202/811 Capital/operating programs
HOME & CDBG
McKinney for homeless services
Public Housing Authorities
Section 8 Vouchers, VASH Vouchers, RAD Vouchers
FHA – federally guaranteed loans
National Housing Trust Fund (WA ~16M in 2021)
US Dept of Agriculture – Rural Development programs
How Is It Funded?
33IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
And last but not least…
Which Federal Agency runs the nation’s largest housing
production program?
How Is It Funded?
34IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
What is the Low-Income Housing Tax Credit?
35IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
What is the Low-Income Housing Tax Credit?
Began with Tax Reform Act of 1986
Section 42 of the Internal Revenue Code
Federal tax incentive to encourage private investment
Tax credits are now the primary vehicle for low-income rental housing construction and rehabilitation in the U.S.
3 Million units of housing since inception
36IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
What is the Low-Income Housing Tax Credit?
Dollar for dollar reduction in federal tax liability
10 year credit period; 15 year recapture period; 15+ exit
Investors purchase the tax credits by providing equity for the construction or rehab of housing
9% (competitive) vs. 4% (automatic w/ bond cap)
Money comes from CRA investors (banks) and economic investors (insurance companies, Google, Verizon)
Syndicators vs. Direct Investors
Money is equity, not debt, returns are from benefits, not cash
37IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
Owner
(Limited Partnership)
Sponsor/Developer
General Partner .01%
Investor(s)
Limited Partner 99.99%
Housing Equity
Tax
credits
Tax savings
over 10 years$10,000,000
$9,500,000
× $0.95 per credit
Credit to Equity
Example : $1,000,000 in Credit
38IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
Owner
(Limited Partnership)
Sponsor/Developer
General Partner .01%
Investor(s)
Limited Partner 99.99%
Housing Equity
Tax
credits
Tax savings
over 10 years$10,000,000
$8,500,000
× $0.85 per credit
Credit to Equity
Example : $1,000,000 in Credit
39IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
Why can’t affordable housing work without all these subsidy programs?
Development Side
1.Conventional Real Estate Development:
Total Project Cost = Debt + Owner Equity
Debt paid by rental income
Equity re-captured by Owner through cash flow, appreciation, and sale of asset
2.Affordable Real Estate Development
Reduced rents mean little or no debt
Non-Profits: no Owner equity or re-sale of assets
Investor equity based on sale of tax credits
Gap funding from public sources for the difference
How Does It Pencil?
40IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
Why can’t affordable housing work without all these subsidy programs?
Development Side
1.Conventional Real Estate Development:
Total Project Cost = Debt + Owner Equity
Debt paid by rental income
Equity re-captured by Owner through cash flow, appreciation, and sale of asset
2.Affordable Real Estate Development
Reduced rents mean little or no debt
Non-Profits: no Owner equity or re-sale of assets
Investor equity based on sale of tax credits
Gap funding from public sources for the difference
How Does It Pencil?
41IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
Financing Comparison
$14M Bank Debt
$6M Owner Equity
$20M Conventional Deal
42IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
Why can’t affordable housing work without all these subsidy programs?
Development Side
1.Conventional Real Estate Development:
Total Project Cost = Debt + Owner Equity
Debt paid by rental income
Equity re-captured by Owner through cash flow, appreciation, and sale of asset
2.Affordable Real Estate Development
Reduced rents mean little or no debt
Non-Profits: no Owner equity or re-sale of assets
Investor equity based on sale of tax credits
Gap funding from public sources for the difference
How Does It Pencil?
43IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
Financing Comparison
$14M LIHTC Equity
$2M Bank Debt
$ City
$ County
$ State
$0
Owner
Equity
$20M Affordable Deal
44IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
Operating Side
1.Conventional Real Estate Development
Market Rents - Operating Expenses = Net Operating Income which drives debt
Net Cash Flow goes to Owner as Return on Investment
2.Affordable Real Estate Development
Reduced Rents based on income targeting
Operating Expenses same or higher based on population being served
Projects serving 50% - 60% AMI may be able to break even or support a small amount of
debt
Projects serving 30% and below can’t break even, so need operating subsidies
How Does It Pencil?
45IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
Operating Side
1.Conventional Real Estate Development
Market Rents - Operating Expenses = Net Operating Income which drives debt
Net Cash Flow goes to Owner as Return on Investment
2.Affordable Real Estate Development
Reduced Rents based on income targeting
Operating Expenses same or higher based on population being served
Projects serving 50% - 60% AMI may be able to break even or support a small amount of
debt
Projects serving 30% and below can’t break even, so need operating subsidies
How Does It Pencil?
46IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
Cash Flow Comparison
Market
Rents
Operating
Expenses
Debt
Payments Cash Flow
Conventional Deal
47IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
Operating Side
1.Conventional Real Estate Development
Market Rents - Operating Expenses = Net Operating Income which drives debt
Net Cash Flow goes to Owner as Return on Investment
2.Affordable Real Estate Development
Reduced Rents based on income targeting
Operating Expenses same or higher based on population being served
Projects serving 50% - 60% AMI may be able to break even or support a small amount of
debt
Projects serving 30% and below can’t break even, so need operating subsidies
How Does It Pencil?
48IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
50% - 60% Deal
Cash Flow Comparison
Restricted
Rents
Operating
Expenses
Debt
Payments Cash Flow
49IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
Cash Flow Comparison
30% and below
Restricted
Rents
Operating
Expenses
and
Supportiv
e Services Subsidy
(i.e. S8,
O&M,
Service $)Break
Even
50IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
Sample 9% Project: 75 Units
51IntroductionWhat is it?Funding Financial Feasibility The Process The Future Conclusion
Sample 9% Project 75 Units
USES Ttl Dev Cost Elig Basis
Land & Related Cost 1,000,000
Construction Contract 24,375,000 24,175,000
Contingency & Sales Tax 4,875,000 4,875,000
Furnishings 100,000 100,000
Architect and Engineer 1,706,250 1,706,250
Surveys & Construction Testing 100,000 100,000
Permits & Impact Fees 750,000 750,000
LIHTC Fees 120,000
Construction Loan Fees & Expenses 100,000 100,000
Construction Loan Interest 750,000 250,000
Legal & Closing 85,000 85,000
Perm Financing Fees & Expenses 50,000
Insurance, Accounting, Lease-Up 250,000 200,000
Developer Fee-Sponsor 2,000,000 900,000
Reserves 376,250
Syndication Costs 125,000
36,762,500 33,241,250
Sample 9% Project: 75 Units
52IntroductionWhat is it?Funding Financial Feasibility The Process The Future Conclusion
9% LIHTC CALCULATION -- A
Calculated Credit Amount x applicable % (9%)
x 130%
# units x 27,640
x 10 years
x 99.99%
Total Equity Investment 19,069,693
SOURCES -- A
19,069,693
State HTF 5,000,000 14%
7,346,933 20%
950,000 3%
1,000,000 3%
3,395,874 9%
Total Sources 36,762,500
Total Costs 36,762,500
-
Sample 9% Project: 75 Units
53IntroductionWhat is it?Funding Financial Feasibility The Process The Future Conclusion
9% LIHTC CALCULATION -- B
33,241,250
Calculated Credit Amount x applicable % (9%)
x100%
# units x 21,262
x 10 years
x 99.99%
Total Equity Investment 14,668,994
SOURCES -- B
LIHTC Equity 14,668,994
State HTF 5,000,000 15%
Local Funding (County or City)7,346,933 23%
Deferred Developer Fee 950,000 3%
Other (FHLB, Philanthropy, etc)1,000,000 3%
Private Debt 3,395,874 10%
Total Sources 32,361,802
Total Costs 36,762,500
Surplus (Shortage)(4,400,698)
Sample 9% Project: 75 Units
Introduction What is it?Funding Financial Feasibility The Process The Future Conclusion
Operating Proforma 1 2 3
Max Rent Utility Net
Units Tax Credit Allowance Rents inflation: 2.5%
1 BR - 30% AMI 15 770 88 682 122,760 125,829 128,975
1 BR - 50% AMI 15 1284 88 1196 215,280 220,662 226,179
2BR - 30% AMI 18 924 109 815 176,040 180,441 184,952
2BR - 50% AMI 17 1541 109 1432 292,128 299,431 306,917
3BR - 30% AMI 5 1068 129 939 56,340 57,749 59,192
3BR - 50% AMI 5 1987 129 1858 111,480 114,267 117,124
Gross Rents 75 974,028 998,379 1,023,338
Rental Subsidy
Laundry or Other Income 3,000 3,000 3,075 3,152
Vacancy (430)(48,701)(49,919)(51,167)
EFFECTIVE GROSS INCOME 928,327 951,535 975,323
Sample 9% Project: 75 Units
Introduction What is it?Funding Financial Feasibility The Process The Future Conclusion
Operating Expenses inflation: 3.5%
Utilities & Garbage 150,000 155,250 160,684
Grounds & Maintenance 75,000 77,625 80,342
Replacement Reserve 26,250 27,169 28,120
Management Off-site 70,000 72,450 74,986
Management On-site 135,000 139,725 144,615
Other Operating 100,000 103,500 107,123
Services 30,000 31,050 32,137
Total Op Expenses 7,817 586,250 606,769 628,006
NET OPERATING INCOME 342,077 344,766 347,317
Debt Coverage Ratio 1.25 1.25 1.26 1.27
Debt Service 273,661 273,661 273,661
Cash Flow 68,415 71,105 73,656
1.Inflation Reduction Act
New affordable investments (Green investments)
2.COVID – ARPA
State and local funding
Design and operations impacts
3.Inflation on EVERTHING
Cost of Construction
Utilities, Taxes, Insurance
Wages, Salaries
4.Resource demand still outpacing funding
State budget – education, behavioral health
Federal budget – funding for vouchers v. capital expenditures
What Does the Future Hold?
56IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
5. Fraying safety net
Increased needs for those already in housing
Complexity of homelessness
6. Anti-tax sentiment
Fewer dollars for services
Increasing competition for organizational dollars
6. Tax Credit market
Softening investor interest; interest rate impacts
Limited Market Size; Tax reform
7.Public awareness
Increasing focus but public awareness behind the curve
What Does the Future Hold?
57IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
Session OutlinePolicy Directions / Connections
Future Resource Opportunities
•Health Care
•Medicare/Medicaid
•Medical system expense reduction
•System Connected Housing
•Incarceration system
•Mental illness system
•Emergency services – ER visits
•Education
•Improved performance/ attendance
58IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
Parting Thoughts
1.Very difficult to do this work alone. Find partners with
experience who can help get the deal done.
2.Work with all the resources available.
3.Be creative but make sure the fundamentals are sound.
4.Do not work the numbers until the deal works. Work the
deal until the numbers work.
5.Remember that real families and individuals will benefit
from this work.
59IntroductionWhat is it?Process Funding Financial Feasibility The Future Conclusion
Thank You for supporting Affordable Housing
http://beacondevgroup.com