REGIONAL REPORT

WEST

Overcoming Land Costs

BY DONNA KIMURA

AFFORDABLE HOUSING FINANCE • April 2008

In a sign of how challenging and expensive it is for affordable housing developers to buy land in the West, several new loan programs are being unveiled this year to help developers through the critical early stages of building their projects.

These funds will help in the acquisition of land and predevelopment of projects in the West, where land costs are among the highest in the nation.

In California, the Los Angeles Housing Department (LAHD) and Enterprise, a leading housing organization, expect to launch their New Generation Fund in April. The revolving fund, which can be used for acquisition and predevelopment efforts, will be sized at between $150 million and $200 million.

"The point of the fund is to enhance, stabilize, and elongate our pipeline," said Mercedes Marquez, general manager of LAHD, which has provided $10 million to the fund's guarantee pool.

Marquez said the fund is a collaboration of lenders, philanthropic organizations, and the public sector. The fund is expected to help finance approximately 15,000 units over 10 years.

Fund details were still being finalized at press time, but the key benefits to developers include preferential interest rates and speed in executing a loan, according to Jeff Schaffer, Southern California director of Enterprise.

If a project falls within certain guidelines, the processing of its loan will be expedited, Schaffer said. The New Generation Fund will support both affordable homeownership and rental projects in Los Angeles. Under the set guidelines, loans of up to $10 million will be available, which is larger than the loans typically provided by community development financial institutions. There's also an opportunity to go even larger in loans with additional review by the credit committee, Schaffer said.

The loan program helps to fill a gap in the financing puzzle, Schaffer said.

Citi is serving as an agent bank, and major fund investors include Wachovia and Fannie Mae. Other banks and local and national foundations will also participate.

Other loan programs

The city of Los Angeles and the Corporation for Supportive Housing (CSH) have closed on a separate $30 million fund to make acquisition and predevelopment loans at below-market rates for supportive-housing projects.

At the end of February, fund leaders were working on underwriting their initial deals, which will likely be located in the San Fernando Valley.

Affordable housing developers will be able to borrow up to $3 million to build supportive housing in the city.

CSH is providing $3 million for the fund, and the city has made a $5 million investment, which is leveraging money from the state, banks, foundations, and others. The fund is expected to finance at least 1,500 new units of supportive housing in Los Angeles.

These loans are a sign of what other cities are going to have to do, noted Marquez. "No one sector has the capital that is necessary, but by working together it makes it easier for the commercial lending sector to make these loans at what are advantageous rates and conditions for affordable housing developers," she said.

A pilot Land Acquisition Program (LAP) has also been launched in Washington. In a program description, the Washington State Housing Finance Commission (WSHFC) said the revolving loan program will assist organizations in the state to purchase land for either multifamily or single-family affordable housing. The intent of the program is to respond quickly when developers need to secure sites when they become available in markets where there is an urgent need for affordable housing and competition for limited developable sites.

"We have a tight market in the Northwest," said Kim Herman, executive director of the WSHFC. The program, which was established by the state Legislature, helps developers to think about and start work on two or three projects down the road, he said.

The housing developed under the LAP will target populations at or below 80 percent of the area median income. Plans call for rental properties to have 30-year affordability restrictions. Loans may be outstanding for eight years, but it is anticipated that most loans will be repaid within four to six years. The projects have to go into development within five years.

North Main Village is the first mixed-use, mixed-income project in downtown Milwaukie, Ore. Developed by KemperCo, LLC, the approximately $16 million project features 64 affordable apartments, 33 market-rate units, and retail space. Oregon Housing and Community Services provided a $4.1 million long-term loan using its Risk Sharing Program, a taxexempt bond financing program. Enterprise Community Investment, Inc., is the equity partner, and Bank of America provided a letter of credit.

The 48-unit Courtyards at Mililani Mauka is a recently completed affordable housing development in Mililani, Hawaii. Castle & Cooke Homes Hawaii, Inc., developed the approximately $11.6 million project in partnership with Pacific Housing Assistance Corp. and the Hawaii Housing Finance and Development Corp. The development, which used about $10 million in federal and state low-income housing tax credits, is located in Castle & Cooke's master-planned community of Mililani Mauka.

Wasatch Advantage Group recently held a grand opening for Hayward Village Senior Apartments in Hayward, Calif. The 151-unit development serves seniors with incomes topping out at 50 percent and 60 percent of the area median income. The approximately $25 million development was financed through a combination of low-income housing tax credits and tax-exempt bonds. The nonprofit Hearthstone Housing Foundation was a partner in the deal.

Entrata is a new affordable housing development in Pittsburg, Calif., developed by Domus Development of San Francisco in partnership with the Pittsburg Redevelopment Agency. The $12 million building includes 28 apartments and commercial space. Thirteen of the apartments are reserved for low-income residents. Financing included 4 percent low-income housing tax credits syndicated by Alliant Capital and tax-exempt bonds. Several clocks in the courtyard show the time in Pittsburg's sister cities around the world.

Sunny View Apartments, a 113-unit affordable housing development in Merced, Calif., celebrated its grand opening this year. Designed to meet the needs of working families, the community offers three- and four-bedroom apartments. Simpson Housing Solutions, LLC, developed the $21 million project along with partner AMG & Associates. Western Community Housing, Inc., is the general partner. Low-income housing tax credits were used, as well as funding from Citi and the city.

Residences at Trolley Park in Aurora, Colo., was completed in November. The 38-unit urban infill project was developed and constructed by the Aurora Housing Authority and leased within 45 days. Financing for the $8.8 million project included low-income housing tax credits allocated by the Colorado Housing and Finance Authority and syndicated by MMA Financial, and grants from the Federal Home Loan Bank of Topeka and the city of Aurora.