CREJ

May 2021 — Multifamily Properties Quarterly — Page 43 www.crej.com Affordable Housing D uring its 50-year history, the Loveland Housing Author- ity has created nearly 1,500 affordable housing units. Most were new multifam- ily apartment developments, and a few were created through acquisi- tion and renovation. While the goal to produce high-quality affordable housing has not changed, over this 50-year period LHA has evolved with the industry and become more sophisticated in its approach to development. The level of sophis- tication now required to create affordable housing often rivals or exceeds that of market-rate devel- opment. The most obvious change in affordable housing development is in financing. LHA’s first three proj- ects, completed in 1974, 1976 and 1978, were funded with traditional U.S. Department of Housing and Urban Development direct subsidy programs and mortgage insurance. In the early 1990s, utilizing HUD’s Public Housing Acquisition and Rehabilitation program, LHA created 30 affordable single-family homes. As is typical with HUD’s programs, LHA was dependent on continuing subsidies to maintain and operate these properties. In the mid-1980s LHA created two apartment complexes with traditional funding resources and project-basing Section 8 vouchers. The first complex was a 20-unit development serving single-parent households. The second was a 16-unit complex that was acquired and renovated with significant donations from community part- ners. For LHA, these developments represented the first significant step away from traditional HUD funding. The Low-Income Housing Tax Credit program created by Congress in 1986 significantly changed affordable housing financ- ing. By attracting the participation of institutional investors, hous- ing authorities are no longer dependent on the HUD programs to create new housing. In exchange for tax credits provided by the U.S. Treasury, private equity now funds a significant portion of devel- opment costs, resulting in greatly reduced debt service. This reduction in turn allows for reduced rents. A significant advantage of the pro- gram beyond capital infusion is that the development partnership is able and expected to manage the prop- erty in the same way that a market- rate developer would, supporting itself through rent collection and generating a positive cash flow. The LIHTC program also intro- duced a new complexity to the industry. Teams of financial con- sultants and attorneys are required to create each new development partnership, there are multiple lev- els of program compliance, and the most lucrative 9% tax credit awards have become very competitive. In addition, 4% tax credit awards require bonding capacity, which is not always available. Since 1995, LHA has successfully navigated the complexity of the LIHTC program to fund the majority of new devel- opments as well as to complete large-scale renovations of existing properties. Due to increasing construction and operating cost pressures, each new development seems to have a larger funding gap that must be addressed. To fill this gap, LHA rein- vests its earned developer fees from previous projects, leverages exist- ing assets and relies on funding provided by our partners. Examples are grants provided by the Colorado Division of Housing, fee waivers and Community Development Block grants provided by the city of Love- land, grants provided by local part- ners, and competitive lending from banking partners. It often is said that while not perfect, the LIHTC program is the best funding vehicle available to affordable housing developers, despite its complexities. The Loveland Housing Authority took a big step forward in 2007 and, rather than developing the typical 3- or 4-acre project, broke ground on a master planned 30-acre senior housing campus. Now completed, the Mirasol campus contains 169 apartments in three buildings, 32 traditionally funded single-family and paired homes, and a commu- nity event center. The Green House Homes at Mirasol, an industry- leading and innovative 90-bed Med- icaid-approved skilled nursing facil- ity, completed the campus in 2020. The first phase of the Green House Homes was funded utilizing New Market Tax credits and a generous grant from the Harry and Jeanette Weinberg Foundation with a second phase completed with traditional financing. Looking ahead, LHA will continue to develop larger master planned communities in addition to smaller, more traditional sites. When pos- sible, the master planned com- munities provide increased design flexibility, spread infrastructure costs over more units and allow for multiple product types. In part- Use a market-rate developer mindset when possible Jeff Feneis Executive director, Loveland Housing Authority M ercy Housing Inc. is a national leader in main- taining and increasing the country’s affordable housing stock. Since its inception in Denver in 1981, Mercy Housing has built and preserved more than 24,000 units of affordable housing in 20 states. Once proper- ties are financed, built and leased, MHI offers a range of resident- centered services geared to meeting the needs of the population housed. The mission of Mercy Housing and its affiliates is to create stable, vibrant and healthy communities by developing, financing and operating affordable, program-enriched hous- ing for families, seniors and people with special needs who lack the economic resources to access qual- ity, safe housing opportunities. Mercy Housing Mountain Plains, one of five regional affiliates of MHI, was established in 1993 and serves seven states, including Colorado. With 17 affordable communities in Colorado, MHMP took a hiatus from new real estate development in the region beginning in 2012 to focus on acquisitions and services. In late 2018, new development work was reactivated with the hiring of Regional Real Estate Director Kuhl Brown. In the past two years, Brown has kick-started the pipeline. Cur- rently there are two apartment communities in Denver undergoing resyndications and major renova- tions as well as two new properties in development, one in Denver and one in Fort Collins. Development in 2021 is significant- ly different than what it was 10 years ago. On the bright side, there are more sources of funding for housing from both local and state government, which has helped address the growing need for affordable housing in the region. Addition- ally, Congress passed legislation to make the 4% and 9% credits fixed at those rates, rather than chang- ing monthly, which helped increase the amount of equity that comes to a project and increased feasibility. Income averaging for setting rents is allowing developments to serve households with a broader range of incomes. Given the dramatic escalation of housing costs and the dire shortage of affordable housing, there is more support for its devel- opment by elected officials and the general public. Another change is how projects are designed. MHI has adopted a Green Hope Initiative to reduce consumption of natural resources, reduce waste and create healthier living environments to make its apartment communities energy effi- cient and environmentally sustain- able. On the flip side, as the need has grown, so have construction and operating costs. The growth of homeless households, compounded by the health issues and unem- ployment caused by the pandemic, have escalated the housing crisis. Providing affordable housing with support services to these vulnerable households is critical to positively addressing the problem. So, how are affordable housing developers approaching this chal- lenge? Partnerships, patience and persistence are key to success. Whether they be partnerships with public housing authorities, city government, churches, schools or for-profit developers, the housing challenges of today are too complex to tackle alone. And, working with partners requires flexibility and patience, as well as persistence, to make sure the effort is a win-win for all parties, especially for the residents and the community. Nationally, Mercy Housing has sought new partnerships and joint ventures where development Mercy Housing continues Colorado development Dee Walsh Executive vice president, Mercy Housing Inc. Now completed, the Mirasol campus contains 169 apartments in three buildings, 32 traditionally funded single-family and paired homes, and a community event center. Please see Feneis, Page 45 Please see Walsh, Page 45 Mercy Housing Mountain Plains’ newest project is a partnership with the city and county of Denver. Located on land purchased from the city on East Colfax Avenue, it responds to the neighborhood’s expressed wish to create affordable housing targeted at families at risk of displacement through the rapid gentrification taking place and the need for affordable and quality child care.