SAHA Affordability and Financing Questions

1. What is the affordability mix at 100 Labor Street? How was it financed?   

ANSWER: 80% market rate and 20% affordable.   It had a huge financial gap that would make a similar structure unworkable for the ponds.  It was financed with a HUD insured mortgage.  SAHA owns the entire development (not a tax credit transaction). 

2. Can you explain why North Pond has to be 100% affordable? Based on research, we have found that 4% LIHTC is available for apartments that have 40% of units at 60% AMI or 20% of units at 50% AMI

ANSWER: A vast majority of 4% tax credit developments have average rents at or near 60% AMI.  Prior to rule change allowing “income averaging”, nearly all 4% tax credit developments had rents where 100% of the units were at 60% AMI.  Income averaged developments can provide units at rent levels below 60% AMI, but they have to be offset by units at 70% and 80% AMI.  Because of the calculations and differences in rent levels between 30% and 80% units, income averaged developments rarely can improve the feasibility by providing units below 60% AMI.  Also, it is very difficult to achieve higher than 60% rents in an income averaging transaction. Any reduction in affordability on any development jeopardizes financial feasibility, but in the case of the North Pond lot the few number of units (~100) makes it extremely difficult to finance, even with 4% credits.  The economies of cost and income versus expenses on smaller developments make them much more difficult.  This is why you see so many 4% tax credit deals around the 300 unit range.  Bigger developments are able to overcome some of the financial difficulties that small developments present.  Deviating even slightly from full 60% rents on the North Pond lot renders it effectively infeasible.  Even at full affordability, the development will need some creative ideas to make it feasible.   If, for instance, we added 10% market rate units (so 90% affordable at 60% AMI), that would drive tax credit proceeds down way beyond infeasibility.  In other words, just not possible. 

3. The LIHTC helps for construction/capital. One concern is how does that building get managed and maintained if the rents are approximately 50% of market rents? What provisions are made so that the building can be a long-term asset to the neighborhood?   

ANSWER: All tax credit projects are managed long term by professional management companies, and usually by affiliates of the Guarantor.  As you probably know, these developments must deliver credits to the investor over a 15 year period so the properties must be maintained at a consistently high level over that time period and of course beyond to remain in compliance and operating at a high level.  All tax credits developments are vigorously underwritten to ensure proper financing assumptions yield a profitable and therefore a well maintained property.  Lenders and investors also require significant levels of ongoing reserves to ensure the properties continue to operate successfully over the long term.  Also consider that unlike “market rate” housing, tax credit developments require significant personal guarantees from the Owner/Developer.  These guarantees ensure that partners within the development are personally responsible for property operations and compliance long term.   This unique structure is a far better proposition for surrounding communities as the Developer partners are required to commit long term and cannot back out of those commitments.  A market rate deal could be built and sold to anybody, and there are literally no “rules” in place to ensure long term compliance.  And as you’ve seen the quality of tax credit developments rivals most market rate products.   

4. Will the new master plan have to be approved by HUD? Neighbors recall that the HUD process last time took a long time to get approved.  
ANSWER: Yes, for the YMCA and Admin buildings.  

5. Is there a phasing plan to the new master plan? 
ANSWER: Yes.