The demand for more affordable housing continues to rise throughout the D.C. region.  An entire toolkit of programs and mechanisms are available for affordable housing production at the local level.  Of concern are cuts at the federal level that will limit HUD money for deals and potential tax reforms.  At the recent ULI Washington Real Estate Trends Conference, Ray Skinner guided a discussion with private developers, real estate advisors and governmental officials gathered to discuss how they are creatively relying on multiple joint venture approaches, and creative financing to fill financing gaps and thereby build more affordable and workforce housing units in the Washington region.  

Brian Robinson of Baker Tilly set the stage for the discussion by describing the new frontier in building affordable housing under the current economic climate.  Robinson said “there is a need to find new sources of funding for affordable housing given the federal law changes to the corporate tax rate (from 35% to 21%), federal historic tax credits and federal and state historic rehabilitation credits.”  A new funding tool, resulting from recent changes in federal laws, is the opportunity zone program, which offers investors multiple incentives for putting capital to work in rebuilding economically distressed communities.  The Omnibus Spending Bill (2018) also presents opportunities including a boost in the Housing Credit allocation for the next four years. Another key aspect of the Omnibus Spending Bill is that it establishes a third minimum set-aside election, an income averaging option, in the Low Income Housing Tax Credit (LIHTC) program. Income averaging allows LIHTC developments to serve a broader range of incomes, including higher income levels of workforce housing, to as much as 80% of the Area Median Income (AMI).  Local funds are also playing a more important role and have become a critical piece in developments’ capital stack, with local government funds in some deals contributing a significant proportion of proceeds to a project’s total development costs. New financing challenges are coupled with a higher interest rate environment and lower equity pricing.

Vicki Davis, of Urban Atlantic, highlighted the challenges and upsides of building affordable housing, utilizing Urban’s projects for her examples.  Vicki described that now, more than ever, funding for deals is complex and must come from many different sources – a virtual “stone soup”.  Every deal is different, but funding sources come from doing joint developments, using Low-Income Housing Tax Credit (LIHTC), Housing Investment Trust Funds, Pilots, EB-5 loans and other avenues.  Urban is part of a team currently working on the redevelopment of Walter Reed.  As part of this redevelopment, they are currently producing an affordable senior housing development.   Walter Reed is a mixed income community with this component financing including a 9% LIHTC award, and Housing Investment Trust Funds, debt and equity.  When tax laws changed mid-way through the project, Urban helped make up the gap in financing with additional debt. This deal adaptively re-uses and converts an old barrack’s dorm for affordable senior housing with services.

Another Urban project is the Bixby. The Bixby is a joint development effort of Urban and Forest City Washington and DCHA.  .  This deal was financed through bond financing, LIHTC, land equity and other loans.   With the joint venture and financing, Urban was able to respond to the needs of the community and create many 3-4 bedroom units.  Creatively, the team evaluated the practicalities of having more families in a multifamily community.  Urban added outdoor entrances to allow families to enter from the street, thereby reducing noise levels within common hallways.

David Cristeal, Housing Director at Arlington County Department of Community Planning Housing and Development was able to synthesize the challenges and opportunities through a discussion of Arlington’s experiences.  David discussed how early on in the process, Arlington is discussing affordable housing, by including the conversation in Arlington’s development of its master plans.   Arlington wants people to participate and see how they fit into its planning processes.

Arlington County approved Union on Queen, a mixed income community that preserved part of the existing development and also allowed additional units (as identified in the Fort Myer Heights North Plan).  This project, a partnership with the owner, Wesley Development Corporation and Bozzuto, included additional development rights and both public and private funds, with a $6.8 million dollar loan from the County and federal LIHTC. The community includes 193 units, 76 income restricted units, and 117 market rate units.

Arlington is finding that they are able to produce affordable housing through the planning tools such as the use of bonus density, as well as through financing mechanisms, including its local loan fund (Affordable Housing Investment Fund).  Over the past 8 years, 2,000 affordable housing units have been built or preserved in Arlington, with approximately 1,600 units coming from its loan fund and approximately 400 from its planning tools.

The panelists ended their discussion with their ‘take aways’ of what has been helpful in closing the financing gap in uncertain times.   They include:

1. When starting a transaction, start early with financial partners, including FHA, Fannie and Freddie and syndications.
2. Have early conversations with local officials to help serve as the conduit for gap financing.
3. Be open to creative solutions and having a myriad and multiple funding sources.
4. Understand the changing tax laws for benefits and potential pitfalls.
5. Include local communities in planning processes to ensure they are a partner in the process and can see themselves in evolving communities.

To listen to an audio recording of this, please click here

Please see PowerPoint Presentation links below:
Victoria S. Davis, President, Urban Atlantic Development
Brian Robinson, Baker Tilly
David Cristeal, Director, Arlington County Housing Division

Moderator:  Ray Skinner, President and Chief Executive Officer, East Baltimore Development, Inc.

Panelists:   Victoria S. Davis, President, Urban Atlantic Development
Brian Robinson, Baker Tilly
David Cristeal, Director, Arlington County Housing Division

Recap written by Stacy Plotkin Silber, Principal – Lerch, Early & Brewer