Affordable Housing Finance

REGIONAL REPORT

West

Standing Tall

AFFORDABLE HOUSING FINANCE • June 2010

A 23-story affordable development opens instead of condos

BY DONNA KIMURA

Affirmed Housing Group President James Silverwood says a key to the large project was early planning with all of the partners, including Turner Construction, the general contractor that delivered the project on time and on budget.

SAN DIEGO—Three years after plans for a luxury condo project fell through, a landmark affordable housing development has opened on the site.

The downtown project was initially conceived as a 22-story, 184-unit condo project by KB Home, but the national home builder backed out as the real estate market tanked.

That created an opening for Affirmed Housing Group to step in and boldly propose building 229 affordable apartments for low-income residents.

The San Diego-based developer has made good on its plans by opening Ten Fifty B in May. The $90 million, 23-story building is believed to be the tallest affordable housing development on the West Coast.

“We took the existing design and asked ourselves how can we take this project that lends itself to condos and homeownership and make it work,” says President James Silverwood.

His team redesigned some of the proposed private areas into common spaces on the seventh and ninth levels. In addition, each floor was reduced by about eight inches, allowing another story to be added, which let developers increase density without exceeding the building’s 240-foot height limit.

“Because the project was still at an early stage, it allowed for some flexibility,” says Silverwood.

The original project had received initial approvals but had not begun construction.

Affirmed Housing also weighed whether the project should be a mixedincome development or if it made financial sense to include some for-sale condominiums on the top floor and its to-die-for views of San Diego.

Working with Centre City Development Corp. (CCDC), the public nonprofit created by the city to oversee downtown redevelopment, developers settled on making all the units affordable to residents earning between 25 percent and 60 percent of the area median income.

Rents will be roughly one-third to one-half of the pricey market-rate apartments in the area. Monthly rents for a two-bedroom apartment will be as low as $535.

In a case of things working out in the end, Ten Fifty B has attracted about 850 applications and more than 3,000 inquiries. At the same time, nearby condo projects have struggled to fill their buildings.

To help finance the development, CCDC authorized a low-interest loan of $34 million.

“It’s a trendsetting project for us,” says Jeff Graham, CCDC’s vice president of redevelopment, explaining that it’s a high-rise development catered toward families with children, providing them with a unique urban environment.

There are 32 two-bedroom units and 72 three-bedroom units. The rest are one-bedroom units and studios.

Financing comes together

The planets aligned to make all the apartments affordable, says Graham, citing how several different financing pieces came together.

Boston Capital and AEGON USA Realty Advisors provided $34.7 million in 4 percent low-income housing tax credit equity.

“It is our largest investment to date with one of our long-term general partners,” says Brenda Champy, senior vice president, director of acquisitions, at Boston Capital.

The 23-story Ten Fifty B, which celebrated its grand opening in May and is believed to be the tallest affordable housing development on the West Coast, has spectacular views of downtown San Diego.

She notes that the project is on the cutting edge of green development and represents the highest level of local commitment from city and state officials.

The project had several key factors, including a prime location, good affordability for residents, and an experienced development team, adds Linda Hill, vice president in AEGON’s community investments group. The large size of the transaction was also a plus for the investor.

U.S. Bank purchased tax-exempt bonds in order to fund a $48 million loan to the development during the construction and permanent phases.

Under the financing structure, the bank retains the bonds as collateral together with holding a deed of trust on the property.

At conversion, the bonds will be redeemed from $48.5 million to an $8 million permanent loan.

“This project is a shining example of what can be accomplished when the public and private sectors come together to enhance our communities,” says Kyle Hansen, an executive vice president at the bank.

The state Department of Housing and Community Development provided about $10 million in Multifamily Housing Program funds and about $4 million in Transit Oriented Development program funds.

A smart project

Ten Fifty B is Affirmed Housing’s most ambitious project to date.

“The location and the project are so compelling,” says Silverwood, explaining how they align with key smart-growth concepts.

First, it is transit-oriented, sitting a block from a trolley stop and near several bus lines. Although the development features subterranean parking, developers were able to negotiate a reduction in the number of required parking spaces, which they hope will further lead to the use of public transit.

Designed by Martinez + Cutri, the nonsmoking building is also one of the greenest developments in the city with extensive photovoltaic panels to produce electricity to light the common areas, floors made with recycled materials, energy-efficient windows, and low-flow water fixtures.

Developers plan to seek Leadership in Energy and Environmental Design gold certification for the building.

“It’s a livable project,” says Silverwood, explaining that most apartments have a balcony, and there are terraces for children to play and residents to enjoy the sunny Southern California weather.

The building is also only a few blocks away from a high school and San Diego City College. It’s also an easy walk to Balboa Park, home to the San Diego Zoo and numerous museums. Who’s to say that a luxury development wasn’t built after all?