Mixed-income development can be just plain challenging. You want to bring in high-earning millennials without crowding out longtime neighborhood residents, since you need both the dollars that come from affordability subsidies and the rents that come from market-rate apartments. It’s difficult to be all things to all people.
Yet as communities look for models that work, they have increasingly focused on mixed-income housing, according to a paper published this year in the Journal of the American Planning Association (Vale, Lawrence J. and Shamsuddin, Shomon. “All Mixed Up: Making Sense of Mixed-Income Housing Developments,” vol. 83, issue 1, 2017, pp. 56-67.) If a mixed-income development provides solutions for the competing objectives, what are the key strategies that led to success?
Over the past few years, our affordable housing team at Capital One has faced this challenge many times. Capital One Community Finance both lends and invests in mixed-income communities, so we’ve seen the power of three factors.
Design for market rate
When recruiting a market-rate tenant to take a chance on a mixed-income site, design matters. Exterior architecture identifies who lives there—for example, iconic design communicates an upwardly mobile resident profile.
When it comes to the interior, we’ve noticed that development teams can gain an edge with units that are a bit larger. Overall, the trend in market-rate units is toward the micro. Going instead with units that are 10% to 20% larger will allow you the pick of future residents. If dogs are allowed, you have really hit a homerun. It’s all about the value proposition of the property.
The 40-acre Wyandanch Village by the Albanese Organization is one example of an eye-catching mixed-income community. The two buildings of the first phase of the master redevelopment include 180 residential units with open floor plans, granite countertops, and a well-appointed residential lounge. The Long Island, N.Y., community also includes retail, nearby public transportation, and energy-efficient features. It even has an electric vehicle charging station. This all adds up to a value propostition that pulls in new residents.
Get the capital stack right
After the building is designed, the real fun starts. A developer needs multiple sources of capital to fund a mixed-income community, so it’s important to align the requirements associated with all the different funding sources. It’s a classic affordable housing puzzle.
In the Wyandanch example, the challenge was assembling the most advantageous combination of financing, even though funding for commercial real estate, affordable construction, and term lending traditionally would come from different providers. By becoming the provider of each of these sources, we were able to fit the pieces together in a way that minimized costs. Toward that end, Capital One provided Wyandanch Village with a $30 million construction loan and a $14 million permanent loan, as well as a $17 million low-income housing tax credit (LIHTC) equity investment for its first building and a $14.7 million LIHTC equity investment for its second building.
Then, Albanese was able to add to that the great help of New York State Homes and Community Renewal, which awarded LIHTCs as well as HCR Housing Trust Fund Corp., Housing Workforce, and Neighborhood Stabilization Program loans. The town of Babylon, N.Y., then provided HOME funds, along with a payment in-lieu of taxes from its Industrial Development Agency. With these multiple parties working together the mixed-income puzzle for Wyandanch Village was solved.
Find the mixed-income balance
What we hear from successful mixed-income development clients is that a great community is all about the balance of tenants. A helpful way to think about this is to picture a small town. If the community is mostly poor or mostly wealthy, then that is the story that takes over. In a community with balance, each helps the other move ahead. We really encourage mixed-income developments to think carefully about market tenant expectations where a majority of the development’s units will be heavily subsidized tenants. But a well thought-out mix can feel vibrant, like that upwardly mobile small town.
At Capital One, we’ve learned by observing our successful clients and by just getting in there and doing. We hope you will also try your own experiments and add to the new wave of housing opportunities where we all get a chance to blend together.
Laura Bailey is senior vice president of community finance at Capital One.
