 |
 |
|
Preserving Affordable Housing Amid Silicon
Valley’s |
|
As affluent computer programmers, technology experts, and entrepreneurs flock to Santa Clara County in California’s Silicon Valley, affordable housing is becoming scarce. Low- and moderate-income families have difficulty locating places to live in the high-tech boom area. EAH, Inc. (formerly Ecumenical Association of Housing), a nonprofit housing developer, is combining traditional financing tools—low-income housing tax credits and tax-exempt bonds—in a new way to preserve the area’s existing affordable housing. Market rents for a 2-bedroom apartment in Santa Clara County start at $1,139—$400 more than the state average. The inflated market poses a threat to existing affordable housing by tempting apartment owners to convert their reasonably priced or subsidized Section 8 units to market-rate housing. Recently, EAH, TRI Capital, Edison Capital Corporation, the city of San Jose, Santa Clara County, and the Morgan Hill Redevelopment Agency teamed up to save two 25-year-old housing developments—Don de Dios in San Jose and Village Avante in Morgan Hill—from being converted to market-rate apartments. A combination of tax-exempt private activity bonds, low-income housing tax credits (LIHTCs), Federal Housing Administration (FHA) insurance, and local funding helped finance the acquisition and renovation of the two projects, preserving 182 rental units for low- and moderate-income families. Experience pays off. Acquisition of Don de Dios and Village Avante started in 1996 when the owner of the two developments approached EAH. Rather than put the properties on the market, the owner preferred to sell directly to EAH because of the organization’s proven track record with low-income housing projects. Without EAH’s intervention, both Don de Dios and Village Avante would have been prime locations for market-rate apartments. The 70 garden- and townhouse-style apartments at Don de Dios and the 112 townhouse-style units at Village Avante are conveniently located close to schools, jobs, and shopping. EAH’s 30 years of experience in developing and preserving affordable housing made it well suited to take over Don de Dios and Village Avante. "We have probably done more preservation projects than any other nonprofit on the West Coast," says Lauren Brewer, senior project manager at EAH. Started in 1968, the nonprofit has developed a wide variety of affordable housing for families, seniors, and special needs populations. During the past 10 years, EAH has renovated 12 affordable housing developments, preserving 1,800 units for low- and moderate-income families. EAH needed funds for the purchase and renovation of the two developments. The nonprofit organization decided to fund a portion of the project with private activity bonds—tax-exempt bonds issued by a government authority—that usually finance private industrial and economic development projects. From experience with these bonds on two earlier projects, EAH knew there were two major benefits. First, the private activity bonds’ tax exemption lowers the interest rate, reducing project costs. Second, affordable housing projects using private activity bonds automatically secure 4-percent LIHTCs under 1986 tax credit legislation. But before EAH could count on the tax credits, it had to receive bond approval from the California Debt Limit Allocation Committee. Since affordable housing financed with private activity bonds is a priority in California, EAH was able to secure the right from the state to sell $10.8 million in bonds—$4.05 million for Don de Dios and $6.75 million for Village Avante. Each state distributes a limited number of LIHTCs each year; in California, the total is $1.6 billion. With LIHTCs growing in popularity, housing developers face stiff competition for the 9-percent tax credits. EAH, in contrast, chose to use the 4-percent tax credits guaranteed by the use of private activity bonds. Edison Capital Corporation chose to invest in the projects to receive the tax credits to reduce its federal income taxes. The sale of the 4-percent LIHTCs provided $1.25 million in tax-credit equity for Don de Dios and $2.55 million for Village Avante. To issue the private activity bonds, EAH worked with TRI Capital—a San Francisco mortgage lender experienced in affordable housing and in working with FHA insurance and HUD programs. TRI acted as EAH’s lender, working with an underwriter to sell the private activity bond to finance the first mortgage for both projects. The 40-year loans are backed by FHA insurance, which reduced the risk. With FHA insurance, the bonds received the highest rating (AAA), which lowered interest. "TRI’s experience was especially important in attaining FHA insurance once the bond allocation was received," comments Brewer. After receiving state approval, EAH had only 90 days to sell the bonds to finance the loans. EAH and TRI had all of the financing complete and paperwork ready, so the bond sale and property acquisition took place in a timely manner. The city of San Jose, Santa Clara County, and the Morgan Hill Redevelopment Agency also contributed important pieces to the financing puzzle. For Don de Dios, the city provided the second mortgage worth $1.74 million, using funds earmarked for redevelopment. The Morgan Hill Redevelopment Agency loaned EAH $1.54 million in redevelopment funds for Village Avante, and Santa Clara County provided $910,000 in federal HOME funds for project renovation. Preserving low-income housing. Renovations at Don de Dios and Village Avante will be complete in February 2000. Under the new financing structure, rents at Don de Dios and Village Avante will increase slightly, but remain lower than the market rate. Rents target a variety of income levels: At Don de Dios, rents are set at 40, 50, and 60 percent of area median income (AMI); at Village Avante, rents correspond to 30, 50, and 60 percent of AMI. At Village Avante, rent for a 2-bedroom apartment ranges from $431 for a family earning 30 percent of AMI to $905 for a family earning 60 percent of AMI. To prevent the displacement of current residents, EAH is phasing in the new rents over 5 years. Residents will receive special HUD rental assistance vouchers, used in conjunction with affordable unit preservation. Renovations include siding and roof replacements, landscaping, enhanced lighting, and community center improvements. Installation of new cabinets and flooring are almost finished. Renovation costs totaled $1.5 million for Don de Dios and $3 million for Village Avante. With the projects near completion, EAH is searching for more preservation projects and plans to use private activity bonds and tax credits. TRI is also working with other housing developers on similar project financing. For more information, contact: Lauren Brewer, Senior Project Manager, EAH, Inc., 2169 East Francisco Boulevard, Suite B, San Rafael, CA 94901, (415) 258-1800. Also see: "Tax Credits, Bonds Help Save At-Risk Housing," Affordable Housing Finance, Vol. 7, No. 7, July/August 1999, pp. 32, 70.
|