Salt Lake City Housing Authority Develops Housing Using LIHTC, Innovative Approaches
By Caitlin Jones & A. J. Johnson
7 min read
Tax Credit Advisor August, 2006: For the Housing Authority of Salt Lake City, necessity has been the mother of invention.
Beleaguered by continual cuts in the federal housing funds it receives, while trying to maintain its public housing stock and try to address growing local affordable housing needs, the authority has turned to the low-income housing tax credit and innovative approaches to fulfill its obligations and be more effective.
One example of this “new way” is Jefferson School Apartments, a two-phase, 168-unit mixed-income apartment complex in Salt Lake City that uses low-income housing tax credit equity, housing authority and private funds, a ground lease, and other features. The first phase had a temporary lease of units to federal employees, prior to becoming a housing credit project.
In a recent interview with the Tax Credit Advisor, Kathy Ricci, Director of Finance for the Housing Authority of Salt Lake City (HASLC), described the Jefferson School development and the authority’s track record of innovation.
Motivation for Innovation
Ricci said cuts in federal public housing funds has forced HASLC to become “more resourceful” to maintain its public housing portfolio and help to address a growing local need for affordable rental housing units. These cuts in federal dollars have been in annual awards to public housing authorities (PHAs) in public housing capital funds, operating subsidies, and other monies, received by PHAs from the U.S. Department of Housing and Urban Development.
“There has never been any public housing construction money for years,” Ricci explained, even though “the need is great.” She indicated that the housing authority has found the low-income housing tax credit to be a “great resource tool” to address this housing need. “If we were going to continue to help low-income people, that was the way to go,” she said.
Ricci said HASLC’s current waiting list – which understates the actual need – include 2,544 households seeking a public housing unit and 1,724 households seeking a housing voucher.
HASLC has 632 total public housing units (296 for families, 336 for seniors), according to Salt Lake City’s 2005-2010 Consolidated Plan. Yet it has close to another 700 housing units that the authority has developed using nonprofit subsidiaries, using a variety of funding sources. Ricci said the authority has the in-house expertise to be able to act as its own developer.
Jefferson School Apartments
Jefferson School Apartments, located on West Temple Street in the city, is actually two separate housing credit projects. Phase I, placed in service in early 2002, used 9 percent housing credits, while Phase II, placed in service in late 2005, utilized 4 percent credits because of the use of tax-exempt bond financing.
Each was new construction, of four 2.5-story walk-up apartment buildings containing 84 units – a mix of one- and two-bedroom apartments. Each also has numerous amenities, including a clubhouse, exercise room, swimming pool, and garages and carports. Each phase was built by a private local developer, Legend Design and Development, which was hired by HASLC through an RFP to do the construction on a design-build basis for a fixed price.
Phase I Characteristics
Phase I of Jefferson School Apartments was planned in large part to help the 2002 U.S. Olympics Committee meet a local need for additional housing units to accommodate visitors to the 2002 Winter Olympics, held in Salt Lake City.
The first user of the new apartment units was the federal Bureau of Alcohol, Tobacco, and Firearms (ATF), whose agents lived in Jefferson School Apartments while providing security and surveillance for the 2002 Olympics. To accommodate the needs of the ATF and its agents, Ricci said the units were furnished, the electrical system upgrade, and other features added. Because of the project’s design, each agent had a bedroom and bathroom.
Ricci said HASLC leased the entire property to ATF for six weeks for a significant sum of money, which the authority used to help finance the development. She said the authority obtained a temporary certificate of occupancy, with the first ATF agents moving in January 2002. Because it was a temporary CO, the project was not considered to be placed in service for purposes of the housing tax credit. After the ATF agents moved out, HASLC obtained a permanent certificate of occupancy – on March 1 – and began lease-up of the apartments to qualified low-income and market-rate tenants.
Phase I is 40 percent housing credit units (36 units total), and 60 percent (48 units) market-rate. The breakdown of the LIHTC units is 26 units reserved for households at or below 53 percent of area median income (AMI); five units, 44 percent of AMI; two units; 35 percent of AMI; and three units, 34 percent of AMI.
Monthly rents range up to $616 for housing credit units and up to $853 for market-rate units.
Ricci said HASLC believes in a mixed-income approach in all its housing credit developments, feeling this generates a “better product” and is necessary for financial success, since rents can be raised if necessary on market-rate units to offset operating cost increases. She said HASLC doesn’t have a standard formula for its projects on the percentage breakdown between housing credit and market-rate units.
Phase I, as does Phase II, has a number of amenities, among them an exercise room, a clubhouse, swimming pool, garages, and carports.
Funding Sources
Phase I, which had a total development cost of approximately $6.1 million, used multiple sources of funds.
This mix included roughly $2 million in tax credit equity from American Express-Utah Equity Fund, L.P.; a $3.4 million permanent loan (8.42 percent fixed, 18-year term, 30-year amortization) from Enterprise Mortgage Investment, Inc., and funded by Fannie Mae; a $146,250 loan (30 years, 5 percent) from the Olene Walker Housing Trust Fund; a deferred developer’s fee of $148,192; and a $407,705 loan (3 percent, 30 years, payable from cash flow) from HASLC.
The housing authority earned the development fee from acting, through a nonprofit subsidiary, as the developer on the project. The subsidiary, Housing Assistance Management Enterprise (HAME), is the general partner in four housing credit projects that HASLC has developed. This includes as the managing member of the limited liability company formed to develop and own Phase I of Jefferson School Apartments.
Partners in American Express-Utah Equity Fund, L.P., are American Express and Enterprise Social Investment Corporation.
Development Fund
According to Ricci, HASLC’s funding for Phase I came from the authority’s development fund, which it can draw upon to help finance housing projects.
She said funding for the development funds comes from several different sources. The chief sources, she indicated, are management fees that the authority receives for properties that are managed by one of the authority’s nonprofit subsidiaries, and proceeds received by the authority from the sale of properties. The authority has proposed, under a pending housing disposition plan, to sell some of its outdated public housing properties and use the proceeds to develop new affordable rental housing. Displaced residents would be given housing choice vouchers.
Ricci said no public housing properties have been sold so far, and noted the plan hasn’t yet been approved.
Some of the monies from the development fund for Phase I also came from proceeds of the authority’s sale of furniture from the Jefferson School Apartment units after the ATF vacated the property, and the ATF lease payments themselves.
Additional financial support for Phase I came from the city and county of Salt Lake, each of which issued a note to the housing authority to finance its purchase of the land used for the project. Ricci said the authority leased the site to the LLC under a 99-year ground lease, the first ground lease by the authority. Ricci said the authority is currently developing a nearly 100-unit housing credit project for the chronically homeless persons.