Affordable Housing Finance

REGIONAL REPORT

West

Project Serves New Home Buyers

AFFORDABLE HOUSING FINANCE • June 2010

Land trust model preserves affordability

BY DONNA KIMURA

SEATTLE—A cafeteria worker at Microsoft, a woman who works for a nonprofit organization, and a couple with a teenage son have become new home buyers.

They are among the residents at Nova Townhomes, a $4.4 million development for first-time home buyers completed by the Low Income Housing Institute (LIHI) in February.

The 15-unit project utilizes a community land trust model, which means the homes will remain affordable for generations to come, says LIHI Executive Director Sharon Lee.

The Homestead Community Land Trust serves as the long-term steward of the land while the home buyers acquire the improvements and a longterm ground lease.

This arrangement allows subsequent buyers to have an opportunity to purchase an affordable home.

The two-bedroom, two-bathroom homes are aimed at families earning no more than 80 percent of the area median income, or a $61,500 annual income for a family of four. Priced at about $227,800, 14 of the homes had been sold as of late April.

Located near the city’s International District, the property had been vacant city-owned land. After seeking proposals, Seattle officials selected LIHI’s plan and donated the land for the project. The development is in a neighborhood that the city has exempted from property taxes, notes Lee.

Her nonprofit has experience developing both affordable for-sale and rental housing. In this case, it chose to build townhomes because the community wanted to see a continuum of homeownership opportunities in the neighborhood.

Financed with NMTCs

The deal was financed with the help of New Markets Tax Credits (NMTCs).

KeyBank provided a $3.5 million construction loan. Bank officials used NMTCs to buy down the interest rate on the loan to be roughly 4 percent lower than what it normally would have been, says Dinah Thoreson, vice president and senior real estate relationship manager at Key Community Development Banking, a division of the bank.

A better interest rate means that the developer can pass the savings down to home buyers with a lower sales price.

K e y B a n k has received four NMTC allocations totaling $330 million from the Treasury Department to use toward stimulating economic development in low-income communities.

The program permits investors to receive a credit against federal income taxes for making qualified equity investments in designated community development entities (CDEs). Substantially all of the qualified equity investment must in turn be used by the CDE to provide investments in low-income communities. The credit provided to the investor totals 39 percent of the cost of the investment and is claimed over a seven-year credit allowance period.

“When making a NMTC investment, we look for specific community impacts,” says Thoreson. There were several with Nova Townhomes, including the ability to provide opportunities for low- and moderate-income families and to increase the overall permanent affordable housing stock in Seattle through the land trust model.

Several other sources are also involved in Nova Townhomes.

Washington Mutual and JPMorgan Chase helped to get the project started with a $60,000 predevelopment grant.

In addition to contributing the land, the city of Seattle is providing $675,000 toward downpayment assistance for the homeowners. The Washington State Housing Trust Fund provided another $500,000, and the Federal Home Loan Bank of Seattle contributed a $150,000 Affordable Housing Program grant through U.S. Bank and Charter Bank.

The Washington State Housing Finance Commission (WSHFC) is using tax-exempt bond funds to provide permanent financing to assist the townhome buyers.

“In my opinion, the Nova Townhomes are the most affordable, best designed townhomes in the Seattle area,” says WSHFC Commissioner Faouzi Sefrioui. “The proximity to downtown, major transit lines, and employment centers makes them even more appealing.”