GREEN SCENE

Deeper In Debt - In a Good Way

BY BENDIX ANDERSON

AFFORDABLE HOUSING FINANCE • July 2008

LAFAYETTE, COLO. Nothing says “green building” like $1 million in solar panels. It’s impossible to miss the panels at Eagle Place Townhomes.

Nearly every window at the 60-unit property wears a bluish-silver rectangle of photovoltaics like a visor. The 322 solar awnings provide 67 kilowatts of electricity to the apartments and give the living spaces shade in the summer while allowing in sunshine in the winter.

The panels also cost nearly $17,000 per apartment. To pay for them, local developer Peak Properties found a clever way to make the other, less visible sustainable development ideas at Eagle Place support a big piece of the project financing.

“We were able to get another $500,000,” said Lex Coen, vice president for Peak Properties.

The key was changing the property’s utility allowance. Federal law sets a formula for figuring the maximum rents that tenants can be charged, including utilities. So Eagle Place has a “utilities allowance” subtracted from these maximum rents. The larger the allowance, the less projected income for the property, which can then support less debt.

Thanks to a long list of energy-saving design features, from improved windows to better insulation, the apartments at Eagle Place will consume about half the energy used by a conventional apartment property, according to Peak Properties.

To lower the utility allowance to match this low level of consumption, Peak Properties worked through a chain of agencies. The Department of Housing and Urban Development (HUD) allows the Boulder Housing Authority (BHA) to set its own utility allowances. Peak Properties negotiated with the BHA to use a model for an energy-efficient utility allowance created by Dallas-based utility research company Nelrod Corp. and approved by state officials.

The lowered utility allowance meant Peak Properties could charge an extra $28 per unit in monthly rent. That works out to $20,000 a year in extra income for the 60-unit property.

The increased income supported a $500,000 loan from the Colorado Division of Housing made through the BHA. The loan covered half of the cost of the panels. Eagle Place also received a $300,000 solar rebate from Xcel Energy, a local energy company. The rest of the $1 million cost came out of the $220,000 in equity the project earned from the sale of federal energy tax credits to MMA Financial.

Peak Properties just closed the permanent financing for the $12.3 million property, which was finished in September. In addition to the solar financing, it received $6.2 million in equity from the sale of federal lowincome housing tax credits to MMA Financial. PNC MultiFamily Capital provided a $4.1 million HUD 221(d)(4) loan. BHA also provided a $1 million soft second loan funded by the St. John’s Foundation.

With HUD’s blessing, Peak Properties plans to use reduced utility allowances to allow it to go deeper into debt on its future green developments.