CREJ

February 2021 — Multifamily Properties Quarterly — Page 37 www.crej.com Affordable Housing M ile High Development is a Denver-based commercial and multifamily residen- tial developer that has evolved since the 1980s as a mixed-use developer, with projects such as Colorado Center at Inter- state 25 and Colorado Boulevard, consisting of office, retail, theater and entertainment tenants (600,000 square feet); Lakewood City Com- mons, in partnership with Opus, a mixed-use and public-private mix of big-box retail and a new City Hall for the city of Lakewood (500,000 sf); the Wellington Webb Municipal Office Building, another public-private project and home to Denver city government (700,000 sf); and the co- development project at the Denver Art Museum expansion, a mixed- use, condominium, retail and hotel (the Art Hotel). In 2008, Mile High Development and Koelbel and Co. were preparing to develop a for-sale condominium project on a site at I-25 and Yale in central/southeast Denver when the historic collapse of Lehman Brothers led the country into the Great Reces- sion. The developers were approached by a group that included the Urban Land Conservancy, Urban Ventures and Enterprise Community Part- ners, a national nonprofit leader in the affordable housing industry, who suggested that we consider an affordable housing project on the site for the proposed condo proj- ect, and finance it with low-income housing tax credits, something nei- ther Mile High nor Koelbel had done before. This was a major departure for both firms, and the reorientation into this new world was daunting. However, Enterprise had developed a model for an “Introduc- tion to Affordable Housing” charrette, which brought together many experts in LIHTC, and this group met for a full day with Mile High and Koelbel staff to educate them on the basics of LIHTC. Long story short, over the ensu- ing months in 2008 and 2009 we decided to abandon the condo proj- ect in favor of a 50-unit, 9% LIHTC project that eventually morphed into a senior project and received a tax-credit allocation after four trips through the allocation process conducted by Colorado Housing and Finance Authority. We could not have picked a worse time from the standpoint of LIHTC metrics, as tax-credit pricing was in a free fall at the time, finally settling at a level approximately 30% below current tax-credit pricing. Fortunately, Con- gress provided funding to CHFA and the U.S. Department of Housing and Urban Development filled that gap for many affordable projects during that time frame. With considerable assistance and encouragement from CHFA, the city and county of Denver, and many other institutions and individu- als, we completed that first 50-unit project in 2011. The Apartments at Yale Station, the first LIHTC transit- oriented development project, has been fully leased since it opened and still is operating smoothly and is fully leased today. We have since developed or co-developed five more LIHTC projects, recently complet- ing the 133-unit Sheridan Station Apartments project at 10th and Sheridan on the West Line adjacent to the Regional Transportation Dis- trict parking garage. This $41 million project, developed in a joint venture with Brinshore Development, uti- lized tax-exempt bond financing and 4% LIHTC federal and state tax credits, as well as investments by CHFA, the city and county of Denver, state Division of Housing, private construction loan financing and tax credit investment by U.S. Bank, and permanent financing by Freddie Mac. Mile High and Brinshore also recently broke ground on the Capitol Square Apartments in Denver’s Cap- itol Hill neighborhood. This 103-unit, Tackling considerable but worthwhile challenges George Thorn President, Mile High Development, gthorn@milehigh development.com O ur company history in affordable housing started with our first project in 1993 (not the 1858 platting of St. Charles at the confluence of Cherry Creek and the Platte). We purchased the vacant Bayly Under- hill Manufacturing building at 20th and Arapahoe streets to provide affordable loft condos as an alter- native for artists who were being displaced from the original Lower Downtown lofts with few amenities located in largely vacant historic warehouses. Our finished price list averaged $93 per square foot with the average loft being 1,400 sf. What we learned was that even the most successful artists in need of more affordable housing could not qualify for a mortgage. The exception was an ex-military pho- tographer who could get a Veterans Affairs loan. Instead, we found a market for policemen, firemen, nurses, teachers, restaurant workers, a few retirees and a few young pro- fessionals. It is not unlike the profile of the tenants for the workforce apartment buildings we are build- ing today using federal and state low-income housing tax credits. The difference today is that there is not a market-rate, for-sale option for our tenant population downtown. For the better part of the decade between 1993 and 2003, our com- pany developed loft-style condo- miniums in historic buildings for entry-level buyers – many first-time homeowners. In 2004, our Benjamin Moore project at Broadway, Larimer and Walnut streets was required to set aside 10% of the 40 units in the building for sale to families whose incomes were at or below 80% of the Denver area medi- an income. The lack of affordable housing downtown was beginning to reach crisis lev- els. We calculated the lost profits for the required four condos and con- vinced Denver to allow us to build a 23-unit project on land we donated as part of our master-planned project. Using fed- eral low-income housing tax credits, our 23-unit, family oriented, afford- able apartment building provided for families earning 30% to 50% of the area median income. Having had experience with projects using the Historic Preservation Investment Tax Credit, we were undaunted by the complexities of placing the low- income housing tax credits along with the added complexity of work- ing with nonprofits to raise gifts and grants for the capital gaps that would allow the project to serve the neediest of families. We had non- profit and business cheerleaders as well as community supporters who raised the money and volunteered to support and mentor the family resi- dents and who helped us complete the building in 2006. It was such a fulfilling and rewarding way to use our real estate development experi- ence for a great social outcome that we committed to making afford- able housing one pillar of our future development program. We still are “passionately urban,” but we are equally passionate about providing transformative housing options for our resident communities. We are at work on developing our seventh affordable community since 2006. Following are four major challeng- es to private-sector developers: 1. Land: We need cheap land. We must buy land for at least a 50% dis- count to market-rate buyers. 2. Entitlements: Most of our land buys require rezoning. If it is zoned for multifamily, we can’t compete. There is government resistance to changing commercially zoned, higher-tax-paying land to residen- tial lower-tax-paying land. We need density plus/minus 40 units to the acre. We often need economic devel- opment help or other subsidy from communities as our sites often lack the infrastructure for multifamily development. We need community support, which is difficult due to the misperception of affordable hous- ing. Think: crime, traffic, parking, and burdens on schools and police lowering property values, etc. These are the misconceived issues with affordable housing and the industry is doing a much better job of docu- menting the fact that the opposite is true. 3. Limited and competitive tax credit allocation: In this most recent round of tax credit awards there were twice as many applicants as awards. Only three private-sector developers received awards while the balance went to housing author- ities and nonprofits. 4. Complex financial structures and intense scrutiny: The financial structure of LIHTC is complex and accompanied by very high transac- Navigating 4 issue private-sector developers face Charlie Woolley Founder and president, St. Charles Town Company LLC, charlie@ stcharlestown.com Please see Thorn, Page 40 Eaton Street Apartments in Westminster Van Meter Williams Pollack Del Corazon Apartments on Morrison Road in southwest Denver offers 14 units at 50% area median income, six at 40% AMI and 177 at 60% AMI. Please see Woolley, Page 40