Can Opportunity Zones (OZs) play a lead role in workforce housing development? The answer from Cincinnati: a resounding yes.
Work commenced this summer on a $50 million mixed-use project called Willkommen (German for welcome) in the city’s storied Over-the-Rhine community. Financing for the mixed-income project includes a diverse set of sources, including low-income housing tax credits (LIHTCs), New Markets Tax Credits, historic tax credits, city assistance, along with Opportunity Zone capital.
The deep stack aims to add a vibrant new dimension to the historic district’s low-income, workforce, and market-rate housing opportunities.
Transformational Effect
How vibrant? “I believe it’s transformational,” says Katie Westbrook, development manager at the nonprofit Cincinnati Center City Development Corp. (3CDC). 3CDC and The Model Group are Willkommen’s co-sponsors. The scope is ambitious: 163 apartments spread across 20 sites, including the renovation of 16 historic buildings and the construction of four new structures on empty infill sites. Rents are set to be affordable for those earning from 50% to 104% of the area median income (AMI).
The community’s designation as an Opportunity Zone proved critical. Signed into law as part of the Tax Cuts and Jobs Act of 2017, Opportunity Zones have received mixed reviews for their investment utility. “Over the last year there have been a lot of questions raised about whether the Opportunity Zones truly benefit disinvested communities,” explains Karen Przypyszny, managing director for special initiatives at Chicago-based National Equity Fund (NEF), the syndicator in the Willkommen project.
The Over-the-Rhine project, however, demonstrates how well the program can work, when the right partners come together with shared priorities for community gains.
Jason Chamlee, vice president of mixed-use projects at The Model Group says OZ funding “… substantially reduced the cost of capital. It’s equity instead of debt. Opportunity Zone funding made the numbers work.”
Westbrook says workforce housing was a central priority from project concept to closing, a span of about four years. “The people who work here, should live here,” she says.
Workforce Challenge
That goal has its challenges. The practical reality is many developers and lenders shy away from workforce housing projects because the rent levels don’t support the debt required to advance the project. For example, there is no LIHTC equivalent for workforce housing.
How did the Willkommen team use OZ funding to fill the agency vacuum? Przypyszny and the development team say several factors worked in their favor:
- Impact Focus. “It was always about ‘What does this neighborhood need?’ says Chamlee. If that meant an innovative financing structure was required to solve the missing middle issue, so be it.
- Quality Partners. Working with NEF, Fifth Third Bank Community Development Corp. committed $7.2 million in OZ capital, a comparatively new and creative way to support housing development for 80% AMI renters.
- Higher Purpose. Przypyszny says the team at NEF believes OZ financing can “… help to create more workforce housing. It requires investors with the vision and willingness to take a solid return, but not a maximum one, in order to drive a positive community impact, investors like banks with CRA obligations or, possibly, family offices.”
Today, Willkommen construction is well underway, despite the pandemic. It will offer significant benefits to Over-the-Rhine residents, with new housing and commercial space expected to open by the end of 2021.
As for Przypyszny’s NEF team, it has just closed with Fifth Third on a development for a new workforce housing project in Charlotte, North Carolina.
Learn more about how to leverage Opportunity Zone funding opportunities for workforce housing development.
