Not Just a Search Engine Google Invests in Housing Credit Deals
By Caitlin Jones
6 min read
The name Google is synonymous with the Internet. Starting now, there’s a new association as well – with affordable housing.
Putting its toe into the water, the deep-pocketed company is making equity investments in two low-income housing tax credit projects in California, through Union Bank’s Community Development Finance division. For the bank and the projects’ developers, this new relationship is both welcome and hopefully a sign of the entry of more hi-tech firms to LIHTC investment.
“Google has a very exciting brand name,” says Jonathan Klein, Vice President/Northern California Market Manager for Union Bank CDF. “After the turmoil of the last couple of years people in the industry have been looking for is a way to attract new players into low-income housing tax credits. And we’re hoping that Google has a successful experience here, and will open the door for potentially other players in the technology industry to become more interested in low-income housing tax credits as well.”
San Francisco-based Union Bank, through its Community Development Finance division, is primarily a direct investor in housing tax credits, though it has also syndicated tax credits for other investors. In the current case, it is investing equity raised from Google in two LIHTC projects: Fair Oaks Plaza, in Sunnyvale, in Silicon Valley; and Regency Towers Apartments, in Inglewood, near Los Angeles. Union Bank will asset manage both investments for Google.
Seniors Housing Project
Google is making a roughly $16.5 million equity investment, in exchange for federal and state housing tax credits, in Fair Oaks Plaza, a 124-unit new construction, four-story project set to be completed by October 2011. Located about eight miles from Google’s headquarters in Mountain View, the project is being developed by Mid-Peninsula Housing (Mid-Pen Housing), a prominent Northern California long-time nonprofit affordable housing developer that builds and renovates LIHTC projects.
The project’s one- and two-bedroom apartments, targeted to seniors, will be rented to tenants earning from 25 to 50 percent of the area median income, with 18 units reserved for individuals with mental health issues. The county housing authority will provide project-based Section 8 rental assistance for all 124 units.
Mid-Pen Housing President Matthew Franklin and project manager Alok Lathi described Fair Oaks Plaza as the collaborative product of multiple parties, and said the $40 million project is utilizing multiple funding sources. In addition, to Google’s equity through Union Bank, these include a $18 million construction loan from Union Bank that will ultimately be supplanted by an $8 million permanent loan from the bank; a nearly $6 million deferred payment loan from the City of Sunnyvale capitalized by federal HOME program dollars and local housing mitigation funds; a $6.5 million state grant under the Infill Infrastructure Program; a $2.5 million grant of federal Section 1602 exchange funds from the California Tax Credit Allocation Committee; and a nearly $2 million residual receipt loan capitalized by state grant dollars under the Mental Health Services Act. “Just your standard six-layered deal,” quips Lathi.
Higher Use of Site
Franklin described the project as “a creative and elegant re-use and intensification of an existing site.” For many years, Santa Clara County operated a one-story 16,000 square-foot medical clinic on the site, adjoined by a large parking lot. A few years ago, the county built a modern new three-story clinic on part of the site next to the old clinic.
The county then planned to demolish the old building and pave the remaining land for parking. “Instead,” Franklin says, “what we worked out, with the collaboration of the county and the city, is that we constructed a three-story garage immediately behind the [new] clinic, and rather than repaving the surface lot on the remainder, we’re building our affordable housing there.”
The county owns the entire two-acre site. It leased the parcel for the project to the city, which conveyed it to Foster City, Calif.-based Mid-Pen Housing.
Franklin says the project is in a “fantastic location .First and foremost, it is immediately adjacent to a brand new, state-of-the-art county health clinic, which our seniors will have access to. ” Located on Fair Oaks Boulevard, the site is in “a wonderfully transit-rich and services- and neighborhood amenities-rich street and neighborhood,” he adds.
Even in the current downturn, Silicon Valley is relatively jobs-blessed. But homes prices are still high and Franklin says there’s a “pretty overwhelming” need for affordable rental housing. One sign: Mid-Pen Housing received 1,200 rental applications for a new 68-unit property now leasing up in San Mateo.
Introduction to Google
Google paid 80 cents on the dollar for the federal housing credits and 55 cents for the state credits.
Google officials did extensive due diligence on Mid-Pen Housing, visited some of its existing properties in the area, and took a “hard look” at its property management and its resident services corporation. “They wanted to understand all of it,” said Franklin.
Union bank officials also met with Google executives. A broker introduced Google to Union Bank, which in turn connected Mid-Pen Housing with Google. Union Bank and Mid-Pen Housing have had a long relationship, with the bank providing the debt and equity for a number of the nonprofit’s LIHTC projects.
Union Bank was attracted to the Fair Oaks Plaza deal for several reasons. First, Klein said, is that the sponsor is Mid-Pen Housing, a “terrific developer” with a solid track record. “They do high-quality development and we’ve found them to be a very, very reliable client in all the development work we’ve done with them.”
In addition, Klein noted that the project itself is a “terrific deal,” with an excellent location in the heart of Silicon Valley where there’s “tremendous disparity between market-rate rents and tax credit rents. So lease-up and occupancy should never be much of an issue.”
The third draw, Klein explained, is the substantial public money in the deal. “Knowing that we’ve got other parties with skin in the game always makes the deal attractive for us.”
Klein was hopeful that Google will make additional LIHTC equity investments through Union Bank, but noted there are no firm commitments. “We’re going to do these two deals, see how they go, and go from there.”
