MINNEAPOLIS - Many homeless veterans in this Midwestern city had nowhere to go after short-term stays in transitional housing, often ending up back on the street. Because of poor rental or criminal histories, they were often unable to find permanent housing they could afford.

Community Housing Development Corp. (CHDC) built the 140-unit Veterans and Community Housing development in south Minneapolis to fill this gap with low-cost permanent housing that offers some services.

Completed in late 2006, the facility is located across the street from a Department of Veterans Affairs (VA) hospital, within walking distance for the many residents who need to access medical care, mental health services, or social activities there.

Project supporters were looking for a way the development could operate exclusively from project rents, and that meant having no debt service requirements, according to J.L. Pope and Associates, the asset management firm for CHDC. Private-activity bonds and the accompanying 4 percent LIHTCs would have come with repayment obligations. Instead of using that source, the developers tapped into a portion of the $90 million in general obligation bond authority Minnesota lawmakers had designated for meeting the state’s goal of ending homelessness.

To use that bond financing, the developer, CHDC also had to find a local government or agency to own the development and lease it back to CHDC. “It’s difficult to find public agencies who are willing to and are allowed to own this kind of housing and then be hands off,” said Rachel Robinson, an associate consultant with J.L. Pope and Associates. Hennepin County became the landowner.

The $10.6 million the developer accessed through the bond financing was provided in the form of a 20-year soft loan forgivable at the end of the term and with no debt service payments required in the interim.

That allowed CHDC to keep rents for the 138 studio apartments at $385 per month, well below the lowest market rents in Minneapolis and affordable to individuals earning no more than 30 percent of the AMI.

The median income for single adults, the population targeted by the development, is $55,000 in the Twin Cities. Veterans and Community Housing does not limit residency to veterans, although the developers worked out an agreement with the VA, which owns the land and leased it to the developer, to keep the project’s population at 51 percent veterans or higher. Individuals living in the facility must agree to remain sober, according to Robinson. “Most of them see that as an amenity,” she said of the rule banning drugs and alcohol from the community.

The development includes three rehabilitated structures, which were built in the 1920s to house doctors working at the VA hospital across the street, and two new construction buildings. Two of the apartments are one-bedrooms measuring 450 square feet and the remainder are 380-square-foot studios.

Other funding for the project came from the city of Minneapolis in the form of a $660,000 deferred-interest loan; Hennepin County, which contributed $400,000 from its Affordable Housing Incentive Fund; and $310,000 in trust fund grants from the Minnesota Housing Finance Agency.

Additional project information, as provided in application by the nominator.

Q. Why does the nominated project deserve to be recognized based on the award criteria of this contest?

A. The Veterans and Community Housing (VCH) provides permanent, affordable housing to a single adult population of homeless and near-homeless individuals, with a preference for veterans. Many of these tenants have been through a cycle of shelters and transitional housing, and have been unable, due to poor rental or criminal history, to find a long-term housing solution that they can afford. While participation in supportive services is not a requirement for residency at VCH, the property’s unique management philosophy includes the fostering of a sober community and available supports for tenants who need them. The tenants live in an unstructured community in a private apartment. In this way, VCH fits the definition of a “step-up” community.

VCH was built on federal, unincorporated land. Federal land is traditionally very difficult to develop, as site control requires a land lease approved by the federal Veterans Administration and Congress. Through diligence and support from the local VA offices, the VCH land lease was accomplished and agreements put in place.

Hennepin County challenged the traditional role of counties in development of affordable housing by agreeing to act as the owner of the new housing development. In order to use the general obligation bond financing, the project needed to be owned by a public entity. With confidence in CHDC’s ability to develop and operate the buildings under a long-term operating lease, Hennepin County’s commissioners agreed to become directly involved in development of this opportunity.

VCH incorporates Sustainable Design features. The building uses an innovative heating/cooling system that re-circulates air and saves energy while allowing individual controls. The property is located directly on the Twin Cities’ first rapid transit line, which was completed in 2005 and connects the airport and Southern Minneapolis with downtown. This access to transit is a key attraction for residents, many of whom do not have cars.

Q. How does this project represent an innovative solution to a specific development challenge?

A. The VCH project started with the vision of Jimmie Lee Coulthard, a Vietnam veteran whose life’s work has been to advocate for homeless veterans in need. Mr. Coulthard spent years pushing to find a permanent solution for Minnesota’s homeless veterans, caught in the cycle of transitional housing and substance abuse treatment facilities. The Twin Cities severely lacks affordable housing for sober individuals, especially veterans, so many would go from the sober house to the streets, only to find themselves using drugs or alcohol again. Mr. Coulthard attributed this problem to a lack of “step-up” housing that would provide minimal supports, and also have more privacy and security than a shared housing situation.

Though this project had very broad support from the community and public officials, and meets the state’s goals for housing homeless individuals, acquiring site control and finding an appropriate funding source for the project were extremely challenging.

The intended population is very low-income and cannot pay market rents in the Twin Cities. With long-term operating subsidies for affordable housing a thing of the past, the development team had to find a way to keep rents affordable to individuals earning less than 30 percent of the area median income while being financially sound. In order to operate exclusively from project rents, the project needed to operate without debt service. Low income housing tax credits were not a good fit for the VCH proposal, and did not meet the MHFA’s goals for tax credit allocation in the year it was developed.

The project financing was introduced and sponsored by state legislators on both sides of the political aisle, and funding with general obligation bonds was granted. To carry out the financing, the project needed to be developed in partnership with a public entity. Hennepin County stepped up to act as owner of the development. This would not have been possible without the support of Hennepin County’s Board of Commissioners.