Affordable Housing Institute : US

[Continued from yesterday’s Part 1.]

Now, for the money story:

 

“Tonight, on the money programme, we’re going to talk about money.

Lots of it. On film, and in the studio.”

 

In Part 1, we saw that Phoenix Park required one of the government factory’s two products: law, in the form of economic domain to assemble land, create neighborhood and site security, redesign the street flow, add social amenities, and impose community through private management. With that first product (law) came government’s second product (money), in gloriously diverse profusion:

 

“Follow the money.”

We start with boosting Net Operating Income providing income subsidy, in the form of Section 8:

Another crucial factor was the city housing authority’s successful negotiation of a Housing Choice Voucher contract that covered 80% of the units, said Anna Moore, SHRA’s executive director. The contract allowed the project to capitalize approximately $5.4 million more in conventional debt while allowing existing and new tenants to pay only 30% of their income toward rent.

 

 

As I’ve demonstrated elsewhere, affordable housing always costs government money, and this particular case had a very large cost-value gap, as shown by this table recompiling AHF’s sources and uses:

Like Boston’s Dartmouth Hotel, which I profiled a year ago, redevelopment is very expensive, so as befits a complex and costly property, Phoenix Park uses every drawer in the toolbox, and several tools from each drawer:

• Hard debt. Less than 19% of the total sources come from hard debt — and even that debt will have a slight advantage as it was tax-exempt. Each lender holds a normal first mortgage, with an average of $52,800 per apartment. That’s material but pales before the development’s total requirements.

• Soft debt. It’s hard to count how many government lenders were involved, although it appears to be at least eight, all at the level of city or state or their related agencies. Among them they have provided $125,800 per apartment, 45% of the total development cost.

• Soft equity. While this all comes from one source — an efficiency benefit of the national market for LIHTCs — the equity raised combines both the Federal LIHTC and its California piggyback state tax credit (slides 16 and 17).

Put them all together, and Phoenix Park’s total development cost is eye-popping — $281,400 per apartment. But recognize that within that figure are all of the following costs that have nothing to do with the individual apartments:

• Acquisition of over 100 homes that will have no post-acquisition value.
• Demolition of those homes; restoration of their sites.
• Site security, CPTED measures, and probably some street reconfiguration.
• Construction of a 10,000 square foot community center.

We also have the other costs of neighborhood transformation, such as accumulating inventory while parcel assembly was underway:

Acquisition was so costly and risky that SHRA had to raise $18.2 million from local sources and subordinate them to $6 million in predevelopment funds from the Bank of America, said Anne Moore, SHRA’s executive director. [These totals are in the $24.2 soft debt funding. — Ed.]

As Affordable Housing Finance summed it up:

Unique feature: Putting the deal together required strong political will to use eminent domain and commit a large amount of local funding early on.

There it is — the twin products of government: laws in the form of eminent domain, and money in the form of … well, money.

 

“You can keep your Marxist ways

But it’s only just a phase!

For it’s money-money-money makes the world

Go round!”

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