Impact Equity
By Mark Fogarty
6 min read
Investment by Children’s Hospital Enables Seattle Workforce Housing
Planning a workforce housing development at 65 to 120 percent of area median income ordinarily might mean cutting it off from the possibility of equity investments, since Low Income Housing Tax Credit equity eligibility generally tops out at 60 percent AMI, absent income averaging. But a project going up in Seattle has gotten around that by attracting private equity of up to $8 million from a Seattle hospital.
The investment by Seattle Children’s Hospital is doubling the number of units available for those at or under 80 percent AMI at the Orenda Apartments, a mixed-use development that is the first of four buildings to break ground for an ambitious complex in Southeast Seattle called Othello Square.
Orenda also will include an Odessa Brown Children’s Clinic run by Seattle Children’s, and a 7,000 square foot Tiny Tots Development Center. The two will take up the first two floors of the building, a joint venture private/nonprofit project with Laird Norton Properties and Spectrum Development Solutions. The 35,000 square foot clinic will include pediatric, medical, dental and mental health services. Services will be offered regardless of ability to pay.
The hospital called its investment “impact equity,” meaning “intended to generate a positive social or environmental impact along with a financial return.” This project will be its second Odessa Brown clinic.
Philanthropic Support
The clinic has also received a $20 million donation from Connie and Steve Ballmer, the former chief executive of Microsoft and owner of the NBA’s Los Angeles Clippers.
Other substantial contributions have come from community leaders Jim and Jan Sinegal, Scott and Laurie Oki and Delta Dental of Washington.
Spectrum principal Jake McKinstry says Spectrum has had a long relationship with Children’s Hospital. “One of the things that’s exciting about this project is that Children’s and the Odessa Brown clinic approached us and said they had been looking at Othello Square” since they needed to move closer to the population they serve in South Seattle.
Joint venture partner Laird Norton Properties is a unit of Laird Norton, an interesting family-owned company that dates back seven generations to 1855, starting out as a lumber company in Minnesota owned by two brothers and a cousin. It moved into Seattle about 1950 and expanded into the real estate sector about 2010. McKinstry praises the firm for its long-term focus, “a key part of the success of the campus.”
Construction on Orenda started in the fall of 2019 and hit a momentary snag when the City of Seattle halted all construction projects after the onset of the Coronavirus pandemic, says Kaitlin Boyce, Spectrum development manager. But the firm got the city to classify Orenda as an essential project and work has resumed. Originally completion was set for 2021, and construction delays from the market disruption are expected to be minor, she says.
Construction managers are implementing social distancing protocols, Boyce says. “We can foresee a ten to 20 percent delay due to covid, but we are still targeting a fall 2021 completion,” she says.
The other three buildings at Othello Square (a master development of Seattle nonprofit HomeSight Community Development) will be an opportunity center, a charter school and a 68-unit homeownership project, she says. The development is on 3.2 acres of what has long been an empty lot.
McKinstry said Spectrum specializes in workforce housing, a niche he said is much needed in the expensive housing market of Seattle, especially in a diverse working class/low income neighborhood like the one around Othello Square (a place he grew up just to the north).
“It’s a really incredible area of Seattle, really diverse,” he says.
The Missing Middle
He called workforce housing “the missing middle” between low-income and market-rate in housing, and says “a really big focus of our company has been serving this missing middle niche.”
Orenda units will be studios and one-, two- and three-bedrooms. Seventy-two units in the seven-story structure will go to those earning 80 percent or less of AMI (which ranges from $56,000 to $80,250), with the balance of 176 units going to those at less than 120 percent AMI.
McKinstry said the three-bedroom units at 65 to 80 percent AMI fit a real need as those are very expensive in the Seattle market.
The project is a transit-oriented development, designed for “equitable access for getting to jobs” for residents, he says. Orenda is directly across the street from the Othello Link Light Rail station.
McKinstry says funding for the project, besides the hospital equity (which ended up netting about $5 million) came from a $41 million construction/permanent HUD 221(d)(4) loan. The project also received a multifamily tax exemption from the city, Boyce says.
According to McKinstry, the 221(d)(4)s are “a lot of brain damage to do” but “they allow us to get better leverage on the financing and further the equity investment with our partner.” The Children’s Hospital equity was structured like “dequity,” he adds, at a fixed rate of return for 20 years.
McKinstry expects “a mix” of people from both within and without the immediate neighborhood to become tenants at Orenda.
350 Jobs to Be Created
HomeSight said the 40,000 square foot commercial Opportunity Center is designed to “increase access to economic opportunity, STEM education, small business incubation, cultural celebration and preservation and financial services.” It is also developing the affordable housing units and expects 350 jobs to be created by the project. “Step-up” apartments will be part of the mix.
The affordable housing units will be open to residents earning 80 percent or less of AMI. According to HomeSight, “This five-story mixed-use residential development will have 25 one-bedrooms, 35 two-bedrooms, and eight three-bedrooms, underground parking, bike storage and unit storage spaces. All units will be equipped with water and energy efficient fixtures and appliances, including in-unit washers and dryers.”
The three-story charter school is a project of Washington Charter School Development, Seattle.
The other three buildings (opportunity center, charter school, affordable housing) are projected to be completed in 2021 and 2022, Boyce says. In all, more than 20 groups have been involved in the project.
Story Contacts:
Kaitlin Boyce, Development Manager
Spectrum Development Solutions, Seattle
info@spectrumdevsolutions.com
Jake McKinstry, Partner
Spectrum Development Solutions, Seattle
info@spectrumdevsolutions.com
