Hand spun capital: tax credit alternatives
- By Wendy Broffman
- Published July 2009
Nonprofit affordable housing developers with strong established banking relationships and the savvy to explore alternative financing sources are finding a competitive edge in overcoming the challenges of today's credit and equity markets. They are turning to new and traditional financing options to deliver much needed affordable and mixed-income rental communities where a dearth of that product exists today.
One conventional source is a ground lease, which offers developers long-term possession of a site without the up-front costs associated with purchase. Abode Communities is in pre-construction planning on two joint-use projects slated to rise on land owned by the Los Angeles Unified School District (LAUSD). The joint-use and the long-term ground lease will help to reduce Abode Communities' development costs.
Despite the credit freeze, the 40-year-old Los Angeles-based nonprofit architect, developer and manager of affordable housing has four projects in the early phases of development, in addition to the joint- use projects with the LAUSD, and continues to seek new opportunities.
"The industry has lost 50 percent of its equity investment and we've definitely had to pull back a little on our pipeline expectations, but our pipeline remains relatively robust. Because we have strong relationships with local government, banks and with investors, we feel we will be able to sustain what's going on in the market over the next 18 months," said Abode Communities President Robin Hughes.
Abode Communities began life as the Los Angeles Community Design Center (LACDC), a volunteer architectural firm, during the community design center movement of the 1960s, one of around 15 or 16 such groups created throughout the country as a way for the architectural profession to engage in the civil rights movement.
During that time, community design centers were established in urban locations where professional architects could best provide pro bono services to neighborhood groups and local government working around community development issues. A number of them emerged from universities. The then-LACDC was created through the School of Architecture at the University of Southern California Los Angeles and evolved over the years from an architectural to a planning firm, hiring its first employee in 1973 and beginning affordable housing production in the mid-1980s.
"We've continued our community-based approach somewhat, but today we primarily design and develop affordable housing for our own portfolio as the developer, architect and property manager and have four programming areas that serve as business lines within our organization," said Hughes.
Those business lines are the architectural group, made up of professionally licensed designers and architects that primarily do work for the company's own portfolio, the development team that builds affordable rental housing, the property management company that manages affordable housing for its own portfolio and third-party clients, and a resident services group. "We bring resident services onsite at all our developments and have childcare centers at five of our projects," said Hughes.
The multi-disciplinary firm currently owns and manages 1,400 units and has acted as a development partner or consultant in the production of another couple of thousand.
Its projects are aimed at transforming and revitalizing neighborhoods, while providing safe and stable homes for low- to moderate-income renters.
An example is the firm's 2007 rehabilitation of Las Brisas, a housing project built in the 1960s in Signal Hill, Calif., that turned a decaying crime-ridden neighborhood into a vibrant affordable community that blends with the character of the area's market-rate housing.
Abode Communities' two-phase Las Brisas development, done in collaboration with the City of Signal Hill, made such an impact on the surrounding locale that Huell Howser featured the project on his television show, California's Communities, on June 4, 2009. In addition to the 152 apartments reserved for households with incomes no greater than 60 percent of the area median income, the project includes a community center, a public park and the Las Brisas Child Care Center, gifted by the S. Mark Taper Foundation, with space for 145 children and operated by the Long Beach Community Improvement League.
The community center features programs for residents and a neighborhood police station staffed by a Signal Hill police officer.
The new construction includes myriad energy efficient designs, including skylights that reduce the need for electrical lighting in the classrooms, a feature that helped the development's first phase earn the 2006 California Redevelopment Association Award of Excellence.
Abode Communities is scheduled to break ground mid-February 2010 on 1.35 acres in Los Angeles' Glassell Park submarket for a project that, much like Las Brisas, will contribute workforce and low-income rental housing to another area that, up until late last year, had serious crime problems.
Comprised of 35 two-bedroom and 15 three-bedroom affordable rental units in a four-story building above two levels of underground parking and a 13,300 sq. ft. early education center with a 10,000 sq. ft. outdoor classroom, the development is expected to help further stabilize the largely working class neighborhood located about five miles north of downtown. A 1,200 sq. ft. teacher education/community room will unite the two distinct uses and be available to teachers and staff during school hours and for after-school and evening activities, while children residing at the housing will be able to enjoy the school's playground after school hours.
"This is the first time the LAUSD has undertaken a joint-use project like this and the public has shown an outpouring of support for the development," said Tom Aschar, AIA, project architect at Gonzalez Goodale Architects, the 30-year-old Pasadena-based firm that is lead architect for the project.
Financing for the $27 million Glassell Park project includes $12 million from the sale of low income housing tax credits, a $2.6 million grant from the State of California, from funds dedicated to infill infrastructure, and a traditional bank mortgage of $2.3 million. Another $2.6 million is expected from the city's affordable housing trust fund.
A $2.8 million capitalized rent for the long-term ground lease with the school district is being funded by a loan from LAUSD to Abode Communities and will help defray much of the typical holding costs associated with development. In addition, the LAUSD is contributing roughly $4.5 million of straight equity to the project for design and construction, because one of the two levels of subterranean parking will provide 59 spaces for the employees of the new early education center and an existing elementary school that is located immediately across the street. Fifty-five parking spaces on the other level will be for residents.
Abode Communities was chosen for the project in an RFP several years ago after the school district worked with the Southern California Association of Nonprofit Housing to figure out how it could play a role in the creation of affordable housing. "At the time the district was building all these schools throughout the city and, unfortunately, having to take housing stock down in order to make room for new schools," said Hughes. "This joint-use initiative provided an opportunity for LAUSD to create new housing for their workforce and low-income residents at large," she added.
After studying the school sites with surplus land and realizing they could not give land away for non-school uses, the district entertained the concept of using that surplus for joint use between affordable housing and some component of their education program.
"The Glassell Park parcel was one of the multiple sites our trade association was selected to work on with the district to do financial and site feasibility before the district issued a request for proposal and our organization responded. We were pleasantly surprised that they picked us based solely on the strength of our proposal. We got a phone call saying we were selected. They since have issued two others and we were just selected on the last one, in Hollywood," said Hughes, referring to a future joint-use project on school district land that will include 60 units of mixed-income rental housing, a portion of which will target teachers who work at district schools.
Because regulations require the district use contractors and architects prequalified to build schools, Abode Communities enlisted Gonzalez Goodale Architects -- the school architect -- to serve as lead architect on the Glassell Park housing component, as well. "The school component must obtain design approval through the state architectural division. However, the housing component will be approved and permitted locally by the City's Department of Building and Safety, which is fortunate for us," said Lara Regus, Abode Communities project manager.
To allow the joint use the site was split in two. The northern half that will house the apartments and parking is irregularly shaped and has a 23-foot grade change from one side of the lot to the other, necessitating extensive excavation, re-compaction and a massive amount of dirt moving. "We were able to site the building in a way that maximizes all of our natural resources and limits solar heat gain, which is a critical part of the development's sustainable design, while complementing the layout of the school. Obviously both developments are independent, but we do have joined access capabilities," Regus said.
Onsite resident services will include tutoring and other school enrichment programs for the youth in the building and an adult- targeted computer lab to help with job readiness. "We have a partnership with the local Archdiocesean Youth Employment Services, which offers job readiness and training programs for young adults age 14 to 21 that will be extended to residents at the Glassell Park Community. We also have partnerships with Metro North, Work Source and Glendale Adventist Medical Center, the latter of