City Requiring Affordable Units ?
Does anyone have any experience with the city requiring a certain percentage of units to be 80% AMI? This is not a tax credit property. We typically do Class A market-rate development across the sunbelt. This time around, part of getting our rezoning approval was to allocate some units as affordable.
Is it best to use a 3rd party to handle the marketing, leasing, qualifying, etc? We're building ~300 units, so appx 30-40 of them will be affordable.
All it states in our rezoning approval is, "a minimum of 10% of the units shall maintain rents that are income-restricted for households earning less than 80% AMI for 15 years from the issuance of CO."
Anything helps, thanks.
If they do that they should give you break on taxes.
They're getting a rezoning. Seems fair
yeah, 80% ami seems fair too.
I’d reach out to a local brokerage or pm shop. They should be able to help with underwriting, application process, marketing etc.
Brokers might be able to give you a high level understanding of the approval (e.g., how long the 80% will stay in place, what AMI is, etc.), but if you're looking for detailed feedback on how to operate the asset, a property manager would be the best place to go.
Your property manager should have dealt with this before and you should be able to lean on them to run the process themselves. It can vary significantly by city/county/state. My guess is that they'll require an initial certification (via paystubs or the previous years tax returns) and once they're qualified you don't have anything else to do.
Only in places like SF do they have annual compliance for the units (which is crazy because you're basically incentivizing those people to never make more money or get kicked out of their home...)
Thanks, this makes the most sense.
I have a call with someone who works in the space. Maybe I'll provide some additional info to this afterward for anyone else that is researching this.
Sounds good, good luck with the project! Hopefully the requirements aren't to onerous.
Check and see if the city you're building in has any regulations regarding the lease up process of 80% AMI units. Be very familiar with these. In our market, the leasing process is run by our local housing agency. We train our leasing consultants how to lease, qualify, and market these units to housing agency standards. Reason we don't hire 3rd party is because we want our asset manager to be able to have direct oversight over the process. Anytime you involve local governments in a process, things get slower. We want to ensure our leasing consultants are engaging with the agency in the proper way to speed up the process, as well as make sure no delays are coming from our end.
We have been forced to do this before. Where I am, it's common for a third-party consultant to handle the marketing and tenant qualifications since it's pretty bureaucratically complex.
Having seen up close how the process works, I've come to think that the whole thing is pretty dysfunctional and stupid:
Developments are hard to permit, which drives up rents. Political activists respond by creating a new category of housing called Affordable Housing and force developers to include it. They drape this housing in regulations and require the oversight of lots of bureaucrats. This means that the approval process takes time and you need to hire more consultants to navigate it. This makes development harder to permit, and prevents some deals from penciling. Which further drives up rents....etc.
For someone who claims to have done this before, you seem pretty ignorant about the details. "Affordable housing" is mandated at the federal level (through the CRA) and it's definition is set at that level. Yes, it is possible that a local municipality might call something "affordable housing" when it isn't truly affordable, but the details of this story, in which the city is asking for units at a percentage of AMI, is pretty clearly using the federal definition.
Moreover, as was made clear, this isn't a case of political activism creating some arbitrary hurdle. The OP's firm wants to upzone their site. They want the city to create (presumably) millions of dollars of value for them. The city wants something in return. Far from being dysfunctional or stupid, it's exactly how something like this should work. Developers get density, and the city gets to house some of it's most vulnerable or rent-burdened population without paying for it.
LOL, whenever you disagree with anything someone says, your first instinct is to attack their competence and intelligence. Yes, I "claim" to have done it because I have, and I'm well aware of the details of how it works, including how AMI is calculated. I said that requirements that affordable units be inserted into projects that would otherwise be permitted as market-rate A) make the process of getting those projects approved more complex and expensive, and B) make some projects that would have worked without the affordables no longer viable, meaning they don't get built at all. Both of those are true.
I work in one region, and I'm sure things are different in other places. But in my area, it is absolutely true that projects that could be permitted as fully market-rate projects nevertheless have affordability requirements inserted into them because affordable housing activists lobby for it during discretionary permitting processes. This happens even when the municipalities in question have numbers of affordable units such that they're not under state or federal pressure to create more affordable units. It happens because people with certain political views want it to happen.
My position is that we'd be better off if affordable housing, as currently defined, were eliminated in exchange for reductions in barriers to entitlements, allowing for more market-rate density.
Editing since I see that my original point maybe wasn't clear: when I said the "new category of housing called Affordable Housing" I was referring to the entire concept of this type of housing at the federal and state level, as well as its being pushed at the local level.
Incidentally, the part about the city housing its most rent-burdened also isn't true when you're talking about suburbs and smaller cities rather than major metros. In my area, at least, there are state regulations that effectively ensure that much of the affordable housing created in these developments goes to people who did not live in the municipality before they moved into the affordable units.
We underwrite these deals all the time on the west coast, it's par for course out here in cities, sometimes there's a tax break sometimes it's just required to build. Check with the city it's in but they should spell out the affordability requirements / time period in the zoning code. Usually it's at least 10 years and sometimes forever.
Any normal management company should be able to handle it, but at least up here they have more paperwork to complete. You have to confirm the tenants income each year to prove they qualify, and up here there are different marketing channels for those units, the city/county keeps a list and assists with it.
As for underwriting, the affordable rents obviously don't increase as much, we assume lower but not zero growth, usually 2%.
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