CREJ

Page 40 — Multifamily Properties Quarterly — February 2021 www.crej.com land trust created permanent miss- ing-middle homeownership options for families making less than 70% of the area median income. We plan to explore CLTs for more permanent, below-market residential and com- mercial buildings. Additionally, financial education programs and social enterprises for community members also can play an important role in develop- ing stronger communities. These capacity-building programs enhance access to capital, and wealth creation opportunities are critical for upward economic mobility and for building financially sustainable neighbor- hoods. Lastly, we are focused on a mix of for-sale and for-rent housing. At the former Loretto Heights campus in southwest Denver, the master plan includes a diverse mix of affordable, missing-middle and market-rate housing. Initial phases include 72 affordable rental apartments built in historic Pancratia Hall for families making between 30% and 80% of AMI. The restoration is being led by Hart- man Ely Investments and is possible because of the scale of the Loretto Heights project as well as significant public and private-sector support. As developers we must be a part of the solution. I have mentioned just a few of the tools in our tool chest. Fol- low along as we work on our next big project, reimagining the Park Hill Golf Course, where we will work to meet the diverse needs of a historically Black neighborhood in which there is so much opportunity. s Ho Continued from Page 36 and state tax credits to ensure that the master developer, Continuum, met the number of affordable units required in its public financing plan. In downtown Westminster, with great public and financial support from the city, we wrapped the public parking garage with 118 affordable units, therefore ensuring that over 20% of the units at the redevelop- ment of the old mall are affordable. In Sloan’s Lake, we partnered with Trailbreak Partners to convert the former St. Anthony Hospital admin- istration building into affordable housing to meet the requirements of the affordable housing plan for the redevelopment of the former hospi- tal site. That deal required a unique structure with the Denver Urban Renewal Authority to capitalize on a tax-increment finance income stream and invest it in the project without negatively impacting the eligible basis of the tax credits. The lawyers did not seem to mind the complexity and corresponding bill- able hours. One other lesson learned is the necessity of great partners. Our developer, equity, lender, governmen- tal partners and, of course, CHFA all have been willing to row in the same direction to get the deals across the finish line. Each one of these projects is truly a public-private partnership and no two are the same. Unfortunately, while the indus- try remains robust, there are more than a few challenges now impact- ing the delivery of affordable units. The construction industry has not been disrupted by technology the way Uber/Lyft disrupted the taxicab industry. To frame our projects, we still get deliveries of piles of wood. Gone are the horses and buggies. But once the wood gets delivered to the site, the process is the same as it was in the early 20th century (and before). Construction price increases due to material and labor costs have not yet responded to market forces and pricing continues to rise. Chang- ing tax laws have an effect. The 2016 presidential election resulted in a decrease in market tax-credit equity pricing almost overnight (well in advance of even any pro- posed tax law). Pricing has yet to rebound. Finally, some local housing authorities view their state-statute- bequeathed property tax abatement as a resource to be used to generate revenues for themselves rather than a tool grow the housing supply. There are several well-intentioned policies being examined. Unfortu- nately, while some may help those who qualify for income-restricted housing, they do so at the expense of attainable market-rate housing by increasing the cost to build through fees and inclusionary housing ordi- nances. The true panacea to the affordable housing crisis would be increasing the inventory of afford- able housing through market forces driving costs down (with an assist by governments and municipalities through efforts to allow “soft” density in exchange for affordable hous- ing). While none of this is easy, it is rewarding. We will continue as an affordable housing developer for as long as we can. s Koelbel Continued from Page 36 $34 million project will be completed in mid-2022 and utilized a very simi- lar financial structure as Sheridan Station. What are the “lessons learned” when a commercial developer of many years enters a new realm (i.e., the LIHTC business)? In a few words, there are many! The simplest part of both business types is building the project (although that has only become more complex and difficult in recent years, particularly during this COVID-19 period). Mile High still uses the tried-and-true real estate maxim “location, location, location” when selecting sites for consider- ation for a LIHTC project. Great real estate makes up for a lot of other problems, and that simple fact does not change when looking at afford- able housing versus market-rate projects. The capital stack in most affordable deals is much more com- plex and varied than in a typical market-rate project. The tax-credit equity alone is usually not enough to fill the sources and uses gap, so it’s not unusual to have as many as four or five different lending sources (the capital stack) to make the proj- ect viable. Also, the LIHTC rules are quite complex as to the management of different levels of area median income, what happens with vacant units, and how to deal with different types of vouchers available to supple- ment income levels, and many other requirements. The good news is that LIHTC still is mostly an entrepreneurial business from the standpoint of acquiring the site, designing and constructing the building, and managing the complet- ed project. The big difference lies in the process of obtaining tax credits and complying with myriad rules and regulations that allow the developer to move the project forward to com- pletion and stabilization. The most significant difference, however, is the fact that market-rate projects are developed largely on a build-and-sell model, while LIHTC projects are not really “salable” for some years after completion, for a variety of structural and finance/tax considerations. s Thorn Continued from Page 37 tion costs, particularly tax, legal, gov- ernment and accounting. Almost lost in the deal are the challenges for real estate development. Why go through the brain damage? It is the product type with the least amount of lease-up risk and highest demand of any sector in real estate today. The demand is unlikely to change for decades due to the unmet demand and the constraints on pro- ducing significant numbers of units. The long-term cash flow economics are considerable when taken to scale. The social dividends are extraordinary, the benefits to local economies are mighty, and so is the personal satisfac- tion of having provided housing that is going to make a big difference in the lives of a lot of families for a long, long time – that will be around like the memory of St. Charles. s Woolley Continued from Page 37 affordable living is so much different than in years past. Today affordable housing has the same opportunity as any market-rate property to be high-quality, green, sustainable and everything else seen in market-rate developments. Our goal is to develop, build and manage communities to the same high standards regardless of the target resident population. As a developer of not just affordable housing but also market-rate, on- and off-campus student housing, and military housing, we can leverage the expertise and lessons learned from all housing types to ensure that com- munities built in the future result in a high quality of life for our residents. Our firm is aware of and committed to putting residents’ expectations and needs first. An example of that com- mitment was made manifest when we were redeveloping Jordan Downs, an outdated 1950s-era low-rise public housing development in the Watts neighborhood of Los Angeles. The success of Jordan Downs was made possible by a commitment to trans- parency and engagement, which saw the inclusion of residents of Jordan Downs in the development process in order to ensure that their wants and needs were met in design, that the historical significance of the neigh- borhood was respected, and the val- ues brought to the table by longtime residents and families were honored. The economic woes that the pan- demic has infused into everyday life have added an even greater burden to those already experiencing financial hardship, proving now more than ever that affordable housing needs to be focused and considered. Essential workers should be able to continue to live and work in their communi- ties – and not have to keep moving further away from their jobs to find affordable living arrangements. In 2020, we were able to successfully close financing on 12 affordable proj- ects around the country comprising 1,569 units. The price of the com- modities needed to build has gone up in direct response to the pandemic, but despite this and a variety of other challenges, all affordable hous- ing developers have pushed forward through unprecedented circum- stances to deliver high-quality homes to those who need it most, while continuing to work with our residents to ensure that despite the economic challenges of the pandemic, they will continue to have a roof over their heads. s Zent Continued from Page 38 from Colorado and elsewhere, we pivoted to a model that allowed us to develop 4% bond deals at a time when most others couldn’t get these types of deals to pencil without sub- stantial additional subsidies beyond the low-interest tax-exempt bonds and federal LIHTC. The great part was, at that time, there was plenty of private activity bond authority to go around, so we were able to devel- op without putting a strain on scarce resources. As a result, we have been able to develop 1,204 affordable units so far in Colorado, with plenty more planned for the future. As of this writing, the 4% tax-cred- it rate recently was changed from a floating rate that hovered around 3.09% to one with a floor of 4%. The trend in the 4% tax credit and PAB space in Colorado has been that more developers have been able to get their deals to pencil, to the point of PAB cap becoming competitive. Now that each of these deals will sud- denly earn 30% more tax credits than before, the climate will once again be extremely competitive. However, even though more affordable development is now feasible, that does not mean the demand for affordable housing will be met anytime soon. Though LIHTC development has never been easy, and the additional complication of added competition looms large, our team is equal to the task. We stand ready as ever to continue making a positive impact by developing, con- structing and managing more afford- able housing developments in Colo- rado in the decades to come. s Stoffregen Continued from Page 39