Niche Development: Building Specialized Housing for Market Segments

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10 min read

In the low-income housing tax credit (LIHTC) world, there are plenty of opportunities to develop niche housing projects.

These fill a niche either because of the type of residents they target (e.g., veterans, persons with special needs) or because they are a specialized type of development (e.g., SROs, adaptive re-use of historic buildings). In some states, these kinds of projects may receive extra points or other preferences in the competition for 9% federal housing tax credits.

Just a few examples of niche affordable rental housing developments are “aging in place” senior housing, developments targeted to artists, converted office buildings, and supportive housing.

Aging-in-Place Developments

A major niche today and for many years to come is affordable senior rental housing designed and operated to accommodate “aging in place”– buildings and units with special features addressing the special needs and limitations of older residents (social, physical, etc.) so that they can live longer at a property.

“We’ve got changing demographics,” says Potomac, Md. consultant Louis Tenenbaum, a national aging-in-place expert whose client base includes multifamily developers. “If owners want to keep tenants for a long time, then paying attention, for example, to the physical changes of the tenants and creating spaces that reduce the risk of falls, and allowing seniors to get care easily in their home, may mean you can have tenants much longer.”

According to the U.S. Administration on Aging, the U.S. population 65 and older is projected to grow by 36% between 2010 and 2020, from 40 million to 55 million, after an increase of 15% between 2000 and 2010. Moreover, the 85+ population is projected to increase from 5.5 million in 2010 to 6.6 million in 2020.

At National Church Residences, a nonprofit based on Columbus, Ohio whose portfolio includes numerous LIHTC senior properties that enable residents to age in place, designing and operating developments to achieve this starts from a basic principle. “A lot of it is just common sense and putting yourself in the position of somebody’s who’s aging,” says NCR Senior Vice President/Chief Development Officer Michelle Norris.

“We start with the building being as friendly as we can make it for the seniors,” she says. “And then after that a lot is building layer upon layer of services or attention to health and services as we can over time. Each project becomes unique; some may be more robust than others, depending on where they are, who the partners around us may be, and things like that…But we continue to build and make sure that we’re addressing the ongoing, ever-changing needs of seniors.”

Norris says a critical piece is having a resident service coordinator for a property.

According to Norris and Tenenbaum, design and physical features that can make a property more senior-friendly include:

  • Avoiding lengthy hallways in which apartments are far from the elevator. “You may have some residents with mobility restrictions,” says Norris.
  • Doors with lever handles instead of doorknobs – easier for residents with arthritis.
  • Oven ranges with controls in the front instead of the back.
  • Kitchens with enough space to allow someone with a walker to maneuver around.
  • Bathrooms with plenty of grab bars – in different places – and enough space to allow a support person to work in easily. “I like to put five or six grab bars in the bathroom,” says Tenenbaum, “including vertical grab bars at the entry to the tub, a long bar against the long wall, and a vertical bar to hold as you cross from the tub to the floor area.”

The pair suggested that a senior property should have large amounts of common space to facilitate the delivery of supportive services for the senior residents, as well as social activities. Among these services may be visits by health care professionals, meal services, or a van to provide transportation.

Norris noted that the particular design elements and services at each senior property will be different, and can change over time.

NCR also experiments with different models.

According to Norris and others, one of the niches sorely needed among low-income seniors, but in short supply, is affordable assisted living.

NCR is in the process of converting one of its HUD Section 202 developments – supportive rental housing for seniors – into a building that will be one-half independent affordable apartments and one-half an affordable assisted living facility. “We believe it’s the first one in the country,” says Norris.

To create the new Chimes Terrace, located in Columbus, NCR paid off the existing Section 202 mortgage and divided the property for legal and ownership purposes into two separate condominiums – one for the housing and one for the assisted living. The acquisition and renovation of the independent affordable apartments is being financed in part by equity generated by 9% federal housing tax credits. The acquisition and conversion of the other half of the building into a wing that is a licensed affordable assisted living facility is being financed by a grant from HUD and a loan from a community development institution. Medicaid waivers will be used to help fund the services provided to assisted living residents.

Artist Housing

Artspace, a national nonprofit based in Minneapolis, specializes in developing affordable housing and workspace for artists and their families. Many of its housing developments across the U.S. utilize low-income housing tax credits. One example is a new LIHTC development in New York City (see article on p. 4).

“We were started by the city of Minneapolis and their Arts Commission to try to help find temporary locations for artists in a rapidly gentrifying warehouse district of Minneapolis,” says Artspace Senior Vice President of Properties Greg Handberg. “But that work shifted from just trying to find temporary locations for artists to creating permanent affordable locations for artists. That was because we were seeing the same artists that we were assisting in finding space being displaced several years after they went into that space.”

Artspace’s LIHTC buildings are comprised of “live/work” residential units that have extra room for a studio, and arts-oriented common spaces, such as a gallery to display residents’ artwork, meeting space, and low-rent office space for arts or cultural organizations.

Artspace either acts as the sole general partner on its projects or partners with a local organization, typically a nonprofit, in a joint venture. The impetus for its developments is usually a request from a local community.

In Artspaces’ housing developments preference in occupancy is given to artists and their families. Prior to initial lease-up, a newly formed selection committee evaluates applicants to determine their eligibility. After the building is leased up, artists are still given preference in filling vacant units.

Artspace defines artists very broadly, as individuals committed to and participating in the arts, even if they don’t earn their living this way. These include painters, sculptors, dancers, actors, musicians, writers, filmmakers, photographers, and others.

Artspace’s projects not only provide affordable housing and work space for artists and their families but also achieve other goals that the community might have, such as revitalization of a particular neighborhood or job creation. “The reason we do it is because of the arts,” says Handberg. “But the reason folks ask us has to do with a whole bunch of different positive public sector impacts.”

Office Building Conversions

Dominium, a for-profit developer based in Minneapolis, has developed some LIHTC projects targeting artists while hitting another niche – the conversion of former office buildings into apartments.

Much of Dominium’s business is creating apartments through the acquisition, rehabilitation, and adaptive re-use of historic buildings originally used for commercial purposes.

Metropolitan Artist Lofts, opened by Dominium in late 2012, is a completed office building conversion project in the arts and entertainment district in mid-town St. Louis that is targeted to artists. The development features 72 affordable one- and two-bedroom apartments, created from the historic rehabilitation of a vacant, eight-story, 100,000-square-foot building

constructed in 1908 that once had medical offices. Dominium financed the acquisition and rehabilitation largely with equity generated by federal and state housing and historic tax credits.

At present, Dominium is in the pre-development process for a project to convert the Arcade-Wright Building in downtown St. Louis into apartments. The structure is actually two conjoined, vacant historic office buildings – one including a retail arcade – that were constructed in 1907 and 1913.

Dominium partner Jeff Huggett said historic former office buildings can be good candidates for conversion to residential rental use because they often have traits that the company’s customers – renters – like. He said they usually have large windows that let in lots of light; are often in downtown or central locations near amenities, services, jobs, and public transportation; and their layout sometimes fosters some “funky unit designs” that make the apartments unique and special. Historic credits also generate extra equity.

In some cities, projects converting vacant or underutilized downtown office buildings to apartments are helping to not only provide additional housing and foster an active round-the-block downtown but also soaking up excess office space. In some downtowns, office building conversions are frequently to market-rate apartments or mixed-use developments.

Supportive, Special Needs Housing

Another niche is developing rental properties that provide affordable housing and supportive services to persons with special needs, such as formerly homeless individuals, persons with substance abuse issues, or persons with disabilities (e.g., disabled veterans).

Jonette Hahn, a partner at CohnReznick LLP in its Baltimore office, sees two different models of special needs LIHTC projects. These include developments in which all of the units are for persons with special needs, such as for persons with disabilities, and properties in which only some of the apartments are for persons with special needs and the rest are for a general renter population.

“When you do a 100% special needs project, you’ve got to have very specialized management and extensive services programs and a provision for services and a service plan,” says Hahn, noting these are frequently built and operated by nonprofits that are both developers and service providers. But she indicated that mixed-tenure projects, in which only a portion of the units are for special needs residents, are viable by for-profit developers as well as nonprofit developers that are not service providers. Such sponsors can always create a linkage with a local service provider, Hahn says.

Many states have set-asides, provide extra points, or have other preferences in their 9% LIHTC programs for special needs or supportive housing projects. Hahn also noted that SSI II payments to severely disabled persons can provide funds for services as well as housing.

Other new variations on the theme are emerging as well.

For example, Don Bernards, a partner at Baker Tilly Virchow Krause LLP in its Madison, Wisc. office, described a different kind of project his firm worked on recently – one not using low-income housing tax credits.

In the village of Waunakee, near Madison, a for-profit developer and a nonprofit partner (Movin’ Out) are constructing a building that will include 63 market-rate apartments, 15 supportive housing units for extremely low-income persons with special needs, and 4,000 square feet on the ground floor for a commercial tenant that could be a source of jobs for some of the special needs residents. Movin’ Out will coordinate services for these residents.

According to Bernards, funding sources for the $7.5 million project include a first mortgage from the state housing finance agency, a second mortgage from a community development financial institution, federal HOME funds, and private equity. The village sold the land for the project to the developers for one dollar.

Bernards said the state agency mortgage program allows up to 20% of the space in a funded project to be for commercial use.

Aging-in-Place Resource

A rich source of information on aging in place and on professionals, organizations, and service providers in the field is the Web site of the National Aging in Place Council.

The organization’s Web site is at http://www.ageinplace.org.