Colorado Real Estate Journal - March 18, 2015
With vacancies dropping, rents rising and the baby boomers aging, the need for affordable rental senior housing is more essential than ever. Senior tenants on fixed incomes struggle with market-rate rent increases and must seek out affordable alternatives, typically in scarce supply. However, recent legislative and funding changes have provided new capital sources for affordable housing, including senior housing projects to help increase the supply of affordable housing in the Denver metro area and across Colorado. Taking a look from this perspective can augment the ongoing and necessary discussion of how to best provide affordable homes for seniors. The Colorado Legislature sponsored the reinstatement of the Colorado state lowincome housing tax credits as an additional tool to provide adequate financing for affordable housing communities across the state. As the agency overseeing the state credit, the Colorado Housing Finance Authority matched the reimplemented Colorado state low-income housing tax credit program with its noncompetitive federal 4 percent low-income housing tax credit process. The goal is for more projects to be financed viably with the noncompetitive 4 percent credit, relieving some of the competitive pressure for the valuable, but very limited, federal 9 percent low-income housing tax credit. Under the new state low-income housing tax credit program, up to $5 million of annual tax credits can be awarded for 2015 and 2016 with the hopes that the Legislature will extend the program in future years. The credit is earned over six years and can result in $1 million to $2 million of additional equity investment in a typical 60- to 90-unit affordable project. The per-credit pricing of the state low-income housing tax credit is typically lower than comparable federal low-income housing tax credit pricing. The results come from the tax credit partnership deducting state income taxes from federal taxation, thereby reducing the state credit value (e.g., 50 cents per $1 of state low-income housing tax credit compared to 95 cents to $1 per $1 of federal credits). On Feb. 6, Denver’s mayor announced a $10 million revolving loan fund to address the city’s crisis of available housing. The Denver Post reported, “[t]he new loan program is funded by $6 million from the city and county of Denver, $3 million from the Colorado Department of Local Affairs and $1 million from the Colorado Housing and Finance Authority … The new fund will target projects that are eligible for but may not receive [competitive] low-income housing credits from CHFA.” For senior affordable developers these new sources are potential incentives for accelerated development. However, a corresponding increase in construction costs, as much as 1 percent per month over the past year, has taken away from the incentive provided by these new capital sources. The most competitive affordable developer continues to be one who can differentiate his project from other projects by being responsive to and integrated into the local community. This entails neighborhood collaboration from the project genesis, and a project that originates from a series of defined community needs, which will achieve the desired outcomes needed by federal and state financing programs. Differentiated projects are also well-designed projects. Projects designed for senior tenants take into account the specific needs of the aging population. Identifying and working with experienced architects and builders who understand the senior demographic expresses well-thought-out and targeted ideas to the funding agencies. Seeking to use low-income housing tax credit financing requires a developer to learn the competitive CHFA process, and ongoing compliance requirements, while also considering the low-income housing tax credit investor’s underwriting needs. Lowincome housing tax credit applications are strengthened as much as possible if CHFA can establish that the investor vetted the developer and that all underwriting assumptions are in accord with CHFA’s published thresholds. Developing housing for special needs populations also can be key to competitiveness, and having a portion of the units specifically set aside for veterans or seniors with disabilities may distinguish a given project from its competition. Target specific groups with caution, however, because if you set aside units for households with a very low area median income or a special needs population, the project sponsor must include robust resident services to successfully integrate these tenants into the development.