Affordable Housing in New York City Globes Real Estate Conference April 2013 Mathew M. Wambua HPD Commissioner 1
Agenda Introduction The Need for Affordable Housing in NYC Responding to NYC s Affordable Housing Needs Historic Evolution of NYC s Role in Affordable Housing Today s Affordable Housing Strategies & Tools Case Study: St Ann s Terrace, The Bronx 2
HPD Overview The Department of Housing Preservation and Development (HPD) is the largest municipal developer of affordable housing in the United States Our mission is to ensure the quality, availability and affordability of housing in New York City HPD: Works with private, public and community partners to build or preserve rental and homeownership housing for low-, moderate-, and middle- income New Yorkers Ensures the health, safety and quality of all NYC residential buildings through Code Enforcement Monitors affordability, financial and physical health of over 300,000 affordable housing units through Asset Management Manages the 4th largest rent subsidy program (Section 8) in the country Workforce of approximately 2,100 Annual budget of approximately $1.2 billion 3
Housing Development Types of Development HPD directly finances affordable housing projects, both multi-family rental and homeownership developments: New Construction Gut Renovation Moderate Renovation HPD-assisted housing is privately owned, not government owned Fulton Avenue, The Bronx, 1993 & 2005 4
Profile of NYC Housing Market New York City has a distinct and diverse housing market NYC Population: 8.2 million people The overall housing market has nearly 3.5 Million households: 1M (31%) are homeownership and 2.5M (69%) are renters Nearly half of the rentals in New York City are rent stabilized/regulated. Average Rental Price for a Market Rate Apartment: $2,232 Bedroom Size Studio $1,973 1 bdrm $2,027 2 bdrm $2,313 3 bdrm+ $2,585 Average price for a home: $786,000 Rental vacancy rate: 3.12% Average Market Rate Rent 5
Need for Affordable Multi-family Rental Housing Housing Vacancy New York City has a citywide vacancy rate of 3.12% Vacancy rates among low-cost units are significantly below the citywide rate, with vacancy rates tightening significantly for quality affordable apartments 6 Net Rental Vacancy Rates, by Rent Category, 2011 5.26 Net Rental Vacancy Rate (a) 5 4 3 3.61 4.32 4.14 3.83 Housing Emergency 2 2.58 1 1.10 0 <$800 $800-999 $1,000-1,249 $1,250-1,499 $1,500-1,999 $2,000-2,499 (c) $2,500 and more Monthly Rent Level (b) Source: U.S. Census Bureau. See 2011 Housing and Vacancy Survey Initial Findings, Table 7 (a)the vacancy rate is calculated by dividing vacant available for rent units that are not dilapidated by the sum of vacant available for rent units that are not dilapidated plus renter-occupied units (dilapidated and not dilapidated). (b)asking rents for vacant units and contract rents for occupied units. (c)since this is a small number of units, interpret with caution. 6
Number of Renter Households 200 190 180 170 160 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 Need for Affordable Multi-family Rental Housing Housing Affordability 50% of NYC renters pay more than 30% of their income in rent. Households under 100% Area Median Income (AMI measured by HUD Income Limits) are far more likely to be spending over 30% 300,000 All Other Renter-Occupied Households** Households Paying >30% of Income Toward Rent* 250,000 200,000 150,000 100,000 50,000 0 % HUD Income Limits (FY2011) Source: 2011 Housing and Vacancy Survey (U.S. Census) * Rent burden defined as household paying 30% or more of gross household income toward gross rent (includes utilities); excludes households living in Public Housing and/or receiving rental subsidy (including Section 8 Voucher, SCRIE, Jiggets, Employee Housing Incentive Program, Work Advantage, or other City, State, or Federal housing assistance as reported by respondent), anyone not paying cash rent, and cases where rent burden could not be computed because of missing or top-coded income or rent data. ** All other households include the total enumerated count of renter-occupied households minus those identified as paying more than 30% of income toward rent. 7
Responding to NYC s Affordable Housing Needs In 2003, Mayor Bloomberg created the New Housing Marketplace Plan (NHMP) to respond to the challenge of affordability. The goal of the Plan is to finance the creation or preservation of 165,000 affordable units by the close of the 2014 fiscal year. Initial Focus of the NHMP: 1. Finding new land for affordable housing Re-zoned neighborhoods Partnered with the public housing agency to produce units on unused public housing land 2. Harnessing the private market to create affordable housing Created the $230 million NYC Acquisition Fund Reformed tax abatement projects and created inclusionary zoning Tapped the tax abatement and tax-exempt bond market 3. Creating incentives to develop housing for new populations Financed moderate- and middle-income units Developed units for formerly homeless individuals and families 4. Preserving government-assisted affordable housing Preserved middle-income units Created new tools to keep projects affordable 8
Responding to NYC s Affordable Housing Needs Over the course of the NHMP, HPD has invested in over 145,000 units across New York 9
Number of Renter Households Responding to NYC s Affordable Housing Needs The NHMP has financed units across the spectrum of affordability: most for residents between 40-80% of HUD Income Limits The majority of the new construction developments financed are projects that accommodate households with low, moderate, and middle incomes 350,000 300,000 Units Financed Under the New Housing Marketplace Plan Households Receiving Other Housing Assistance* Households Receiving Voucher Households in Public Housing 250,000 200,000 150,000 100,000 50,000 0 40% < 40-80% 81-120% 121-170% 171-200% Income Target (% HUD Income Limits) 10
NYC s Evolving Housing Programs Robert Moses launches various housing development plans New York City Housing Authority (NYCHA) established to provide decent, safe and sanitary housing for the poor Massive NYCHA development twothirds of all NYCHA s dwelling units Towers In The Park design; rapid public housing construction NYC fiscal crisis; urban flight & abandonment Howard Cosell declares on national television that The Bronx is burning. NYC Housing & Development Administration (HDA) established. ETPA passes and rent regulation becomes tied to having a housing emergency HDC founded; HDA becomes HPD; HPD begins to manage huge portfolio of buildings taken through tax foreclosure In rem Mayor Koch announces the Ten Year Housing Plan At height of crisis in 1980, HPD owns 101,532 In rem units; HPD becomes the largest non public housing landlord in New York and the country NYCHA uses capital dollars to upgrade, preserve existing properties, address needs of changing population Mayor Bloomberg launches New Marketplace Housing Plan (NHMP) NYC reaches NHMP halfway point NYC population exceeded its pre- 1970 size for the first time and became most populous in its history Mayor Bloomberg updates New Marketplace Housing Plan 11
NYC s Role in Affordable Housing HPD s development tools encourage public/private partnerships that make the most of government dollars to create or preserve quality, affordable housing HPD-assisted housing is privately owned, not government owned All development models are oriented towards inducing individual investors to invest in projects that benefit the public Models rely on compensating for classic market failure by: Lowering transactional risk Increasing investor returns 12
Tools for Financing Affordable Housing Capital Subsidies for Developments Debt Equity Land Incentives that Enhance Net Operating Income Revenue Expense Other Tools Policies and Statutes to Encourage Investment 13
Tools for Financing Affordable Housing Capital Subsidies for Developments Debt Tools Tax-Exempt Bonds ($650 MM) Taxable Bonds ($350 MM) Direct City Capital General Obligation Bonds ($200 MM - $300 MM) Direct Federal Capital HOME Dollars ($100 MM) HDC Corporate Reserves ($150 MM) Equity 9% tax credits ($150 MM) 4% tax credits ($250 MM) Land Low cost of land 14
Tools for Financing Affordable Housing Incentives that Enhance Net Operating Income Revenue Rental Assistance Federal Section 8 Program Cross Subsidy with Mixed-Income Rents Retail and Commercial Space Expense Real Estate Tax Exemption and Abatements Legislation and Policy Community Reinvestment Act (CRA) Federal statute that requires bank that have depositors in low-income neighborhoods to reinvest in in those same neighborhoods Inclusionary Zoning Increased floor area in exchange for the provision of permanently affordable housing Urban Renewal Legal authority to undertake planned and coordinated activities to redevelop entire neighborhoods 15
Housing Development Long-term affordability In exchange for low cost of capital and financing, development partners must restrict units to specific income bands Annual Income for Household of 4 50% of AMI $42,950 $967 100% of AMI $85,900 $1,934 Monthly Rent for 2 Bedroom Apartment HPD puts in place regulatory agreements to keep housing units affordable Regulations typically restrict properties for 30 years and in some cases in perpetuity Enforcement HPD s Asset Management team monitors developments to make sure developers are meeting the requirements of the regulations Litigation Ability to foreclose on the mortgage of the developer 16
Aerial view of St. Ann s site as of July, 2009 17
Site for St. Ann s Terrace Former Brewery 1993 18
St. Ann s Terrace, opened October 2011 641-unit mixed-income development 19
EAST 159 TH STREET EAST 156 TH STREET St. Ann s Terrace: Project Site Plan Approximately 640 affordable units will be developed in eight buildings labeled A through H on a 3.1 Acre 3-block site bounded by E.156 th Street, St. Ann s Avenue, E.159 th Street and Eagle Avenue. Jackson acquired the site in June 2007 for $24MM with $3MM of equity and a $21MM Citibank loan. Buildings A, B, H & C, D, E closed on construction financing on June 25 th, 2009. EAGLE AVENUE Building E Community Garden Buildings F&G 160 low-income units at or below 60% AMI and approximately 160 additional parking spaces proposed for development at a later date. Community Recreation Area Building H Building D Building C Building B Building A Low-Income Buildings CDE: 314 Units, Including: 3 Units at 50% AMI, 308 Units at 60% AMI* & 3 super units; 51 Parking Spaces and 11,300 SF of Retail *Includes 95 Units reserved for formerly homeless tenants Mixed-Income Buildings ABH: 166 Units, Including: 42 Units at 60% AMI, 122 Units at 80% AMI & 2 super units; 135 Parking Spaces and nearly 35,000 SF of Retail 20
Development Partners Developer/Borrower JV between Jackson Development Group and Joy Construction Lenders NYC Housing Development Corporation and NYC Department of Housing Preservation and Development Construction Letters of Credit Providers CDE Low-Income: JP Morgan Chase with Capital One ABH Mixed-Income: JP Morgan Chase with HDC (Potential HDC take-out participants are Goldman Sachs and Bank Leumi) Low-Income Housing Tax Credit Provider (CDE Low- Income Only) Syndicator: Hudson Housing Capital Investor: Capital One at $.85 raise Permanent Credit Enhancement Provided by SONYMA or REMIC for the top 20% of the 1 st Permanent Mortgage on each deal. 21
CDE Low-Income Financing SOURCES- Construction Total Per Unit % of Total Notes HDC Tax-Exempt Bonds $49,100,000 $156,369 50.08% 4.29% Blended HDC LAMP 2nd Sub. Loan $20,770,000 $66,146 21.18% 1.25% I/O; *Over Standard 55k/DU 421a Fund Loan $0 $0 0.00% Comes in at Permanent HPD City Capital + HOME $15,488,712 $49,327 15.80%.50% I/0; Max HOME for 11 Units Developer Loan to Project $1,382,618 $4,403 1.41% Not typical for LIHTC Deal Tax Credit Equity $1,809,798 $5,764 1.85% 6% of total Tax Credit equity Deferred Developer Fee $9,500,000 $30,255 9.69% Represents 100% of fee TOTAL SOURCES $98,051,128 $312,265 100.00% SOURCES- Permanent Total Per Unit % of Total Notes HDC Tax-Exempt Bonds $21,435,000 $68,264 21.86% 6% All-in Long Term Rate HDC LAMP 2nd Sub. Loan $20,770,000 $66,146 21.18% 0% yrs. 1-15; 2.75% yrs. 16-35 421a Fund Loan $3,140,000 $10,000 3.20% HDC subsidy if 421a not available HPD City Capital + HOME $15,488,712 $49,327 15.80%.25% I/O Deferred into balloon Developer Loan to Project $1,887,613 $6,012 1.93% Not typical for LIHTC Deal Tax Credit Equity $30,163,300 $96,061 30.76% Pays ST Bonds and Dev. Fee Deferred Developer Fee $5,166,503 $16,454 5.27% TOTAL SOURCES $98,051,128 $312,265 100.00% $4.33MM - $1.89MM Developer Loan = $2.44MM Net Paid Fee 22
CDE Low-Income Financing USES- Const. & Perm. Total Per Unit % of Total Notes Acquisition Cost $6,000,000 $19,108 6.12% $17 PSF (Part of $24MM Total) Construction Cost $64,829,832 $206,464 66.12% $177 Per Residential SF; Average $77 PSF on Retail/Parking Soft Cost $17,721,296 $56,437 18.07% $49 PSF, w/o Developer Fee Developer's Fee $9,500,000 $30,255 9.69% $26 PSF TOTAL USES $98,051,128 $312,265 100.00% FINANCING NOTES Financed with Fixed-Rate Tax-Exempt Bonds and Subsidy through HDC s Low Income Affordable Marketplace Program (LAMP) and HPD s Low Income Rental Program (LIRP) Acquisition Cost distributed by what each project could support (not proportionate) 420c will abate 100% of taxes on residential for the loan term w/ a Special Area ICAP abatement on retail/parking improvements for 25 years. 23
ABH Mixed-Income Financing Financed with HDC Fixed-Rate Tax-Exempt Recycled Bond Proceeds and Subsidy through HDC s New Housing Opportunities Program (New HOP) and HPD s Mixed Income Rental Program (MIRP). Extended 421a benefits for residential and Special Area ICAP for retail/parking will abate taxes on improvements for 25 years. USES-Const. & Perm. Total Per Unit % of Total Notes Acquisition Cost $11,200,000 $67,470 16.18% $40 PSF (Part of $24MM Total) Construction Cost $46,882,039 $282,422 67.74% $185 Per Residential SF; Average $80 PSF on Retail/Parking Soft Cost $11,123,754 $67,011 16.07% $40 PSF- No Developer Fee TOTAL USES $69,205,793 $416,902 100.00% Acquisition Costs not distributed proportionately, but rather by what each project could support. SOURCES-Const. & Perm. Total Per Unit % of Total Notes HDC TE Recycled $25,830,000 $155,602 37.32% 5.5 % Base, 6.2% at Perm HDC Second Mortgage $14,110,000 $85,000 20.39% 1% Interest Only (I/O) HPD 3rd City Capital $13,898,350 $83,725 20.08% 1% I/O 100% Deferred @ Perm. Reso A Funds $1,500,000 $9,036 2.17% 0% Interest Developer Equity $13,867,443 $83,539 20.04% New HOP Program requires 10% TOTAL SOURCES $69,205,793 $416,902 100.00% 1 st Perm Loan term restricted to 28 years by Recycled Bond Legislation Constraints. Amortization based on 35 yrs. 24
Lessons Learned Shoot big! Set a large numerical goal for the production of affordable housing Government must put their own capital into developments at municipal and national level Create a statutory environment that aligns private sector motives with public benefit interests Via Verde, The Bronx, 2012 25
APPENDIX
2013 Area Median Income Levels and Rents for New York City The U.S. Department of Housing and Urban Development (HUD) determined that 100% Area Median Income (AMI) in New York City in 2013 is $85,900 for a family of four. Family Size 40% AMI 50% AMI 60% AMI 80% AMI 100% AMI 1 $24,080 $30,100 $36,120 $48,100 $60,200 2 $27,520 $34,400 $41,280 $55,000 $68,800 3 $30,960 $38,700 $46,440 $61,850 $77,400 4 $34,360 $42,950 $51,540 $68,700 $85,900 The following chart lists the maximum gross monthly rent levels allowed on units that received New York City Tax-Exempt Bonds and/or Low-Income Housing Tax Credits. These rents include an electricity utility allowance. AMI: 40% AMI: 50% AMI: 60% AMI: 80% AMI: 100% Max Gross Rent Max Gross Rent Max Gross Rent Max Gross Rent Max Gross Rent Studio $602 $752 $903 $1,202 $1,504 One Bed $645 $806 $967 $1,288 $1,612 Two Bed $774 $967 $1,161 $1,546 $1,934 Three Bed $893 $1,116 $1,340 $1,786 $2,232 27