Perpetual Affordability: AMCAL, Community Land Trust Partner on Model Apartment Community in Irvine

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In the Southern California city of Irvine, where most rental housing is owned by one company, the new Alegre Apartments will be something of a rarity – a multifamily housing development that will be perpetually affordable.

The reason: the combination of a local inclusionary housing ordinance, a partnership between a for-profit developer and a community land trust, and low-income housing tax credits.           Under construction since November and expected to be completed in the spring of 2015, the $42.6 million project will consist of four buildings containing 104 high-quality apartments.     AMCAL Multi-Housing, Inc., a major apartment developer/owner with offices in Irvine and Agoura Hills, Calif., and Las Palmas Foundation, a nonprofit whose participation will entitle the project to property tax abatement, are the co-general partners. Another partner in the tax credit partnership is the Irvine Community Land Trust, a nonprofit that acquires land in the city of Irvine on which permanent affordable ownership, rental housing, and special needs housing is built. Alegre Apartments will be the Land Trust’s first affordable multifamily rental housing project.

The city of Irvine (pop. 229,000), southwest of Los Angeles in affluent Orange County, has substantial demand for affordable apartments, according to Arjun Nagarkatti, president of AMCAL, and Mark Asturias, executive director of the Irvine Community Land Trust.       “We’ve barely started construction,” says Nagarkatti, “and already have people calling asking about the property and whether they can be on a wait list.”

Unique Rental Market

The need is especially great because of the unique rental market in Irvine, a master planned community. “The Irvine Company owns probably 90-plus percent of all the apartments in the city of Irvine because it’s the underlying major landowner,” says Asturias.

The site of Alegre Apartments, in the Cypress Village neighborhood, is surrounded by market-rate apartment communities built and owned by the Irvine Company.

The city has an inclusionary housing ordinance that requires companies developing new for-sale or rental housing in Irvine to provide some affordable units. The Irvine Company, to meet its obligation for a new for-sale housing project nearby, donated a piece of vacant land to the city rather than building the affordable units itself. The city in turn conveyed the site to the Irvine Community Land Trust with the condition that affordable housing be constructed on the property.

The Land Trust selected AMCAL Multi-Housing to develop affordable rental housing on the site through a competitive process attracting 34 respondents that were narrowed down to seven finalists submitting design proposals.

Ground Lease Features

The Land Trust is renting the land to the tax credit partnership through a ground lease that has restrictions assuring the permanent affordability of the apartments. The ground lease is for 99 years – an initial term of 59 years plus two 20-year extensions.

The partnership will make an initial $500,000 payment once the project is completed and achieves stabilized occupancy and minimum annual lease payments of $10,000 that rise over time to the extent of available cash flow.

By leasing rather than having to buy the land, which was appraised at $8.35 million, the developer was able to make the project pencil out at affordable rents.

In addition to providing the land, the Land Trust, which was created by the city, helped AMCAL get through the local entitlement process quickly.

The California Tax Credit Allocation Committee awarded nearly $2.5 million in 9% federal low-income housing credits for the project in June 2013. Bank of America Merrill Lynch is the tax credit investor, providing nearly $27 million in equity at a credit price, says Nagarkatti, of $1.10 per dollar of tax credit. The bank is also providing construction financing.       Other permanent funding sources are a first mortgage from the California Community Reinvestment Corporation, two deferred payment soft loans from the Land Trust capitalized with federal HOME and CDBG dollars, a deferred payment soft loan made on behalf of Orange County using state Mental Housing Services Act (MSHA) program monies, and a deferred developer fee.

Larger Units Than Usual

The 104 apartments – ranging from one to four bedrooms – will be larger than those in the typical LIHTC projects that AMCAL develops, says Nagarkatti. They also have more upgrades, such as a washer and dryer in each unit comparable to those in market-rate communities.

The one-bedroom apartments will be about 665 square feet; the two-bedrooms, 934 square feet; the three-bedrooms, 1,100 to 1,177 square feet; and the four-bedrooms, nearly 1,400 square feet. The three-story buildings will have elevators and interior corridors, and the development, which is seeking LEED Gold certification, will have many green features, including charging stations for electric cars and bicycle storage areas.

“AMCAL came to us with a project design that met a lot of our expectations,” says Asturias. “We had high expectations that the project would look like, feel like, and operate like a 100% market-rate development charging high-income rents.

“We were developing a site next door to 1,600 rental apartments that the Irvine Company had developed recently…and we wanted this project to look like those so there wouldn’t be a big discrepancy in design.”

All but one of the apartments, for an on-site manager, will be housing credit units that are rented to households making no more than 30%, 45%, or 50% of the area median income (AMI). The current annual income limit at 50% of AMI is $36,150 for a two-person household and $45,150 for a four-person family.

Eleven one-bedroom apartments will provide permanent supportive housing for homeless or formerly homeless individuals with mental disabilities. State MSHA dollars are funding part of the cost of these units.

Initial monthly net rents, after subtraction of a utility allowance, will be $224 for the one-bedroom units; $543 to $936 for the two-bedroom units; $587 to $1,023 for the three-bedroom units; and $629 to $1,100 for the four-bedroom apartments.

Asturias said a 2013 survey of the nearby conventional apartments found the two- and three-bedroom units renting from $1,600 to nearly $3,000 per month.

LifeSTEPs, a nonprofit organization, will provide a wide range for services for all of the residents of Alegre Apartments, which will be managed by FPI, Inc. Families Forward, a nonprofit based in Irvine, will also offer services to local families.

Model Project for Others

The development represents the first time that AMCAL Multi-Housing and the Irvine Community Land Trust have worked together, according to Nagarkatti and Asturias, who believe the project and partnership are replicable in other communities.

“I think this is a model for future projects,” says Nagarkatti. “Working with the Land Trust made the process so much easier and quicker for us…Time is really what kills, what takes a long time in these low-income housing tax credit projects. This has truly been our fastest-moving project.”

Says Asturias, “AMCAL really did its homework in trying to understand who we are, what our expectations were, and what we were hoping to achieve, and they were the ones who came in with the best proposal.”

Sources and Uses Summary
Permanent Sources  
Low-Income Housing Tax Credit Equity (Bank of America Merrill Lynch) $26,982,795
Permanent First Mortgage (30 years, 6.18%) (California Community Reinvestment Corp.) $4,450,600
Irvine Community Land Trust (HOME Soft Loan) (3%, 56 Years) $416,930
Irvine Community Land Trust (CDBG Soft Loan) (3%, 56 Years) $837,673
Irvine Community Land Trust (Land) $8,350,000
State MSHA Funds Soft Loan (3%, 25 Years) $1,286,835
Deferred Developer Fee $300,686
Total Sources $42,625,519
   
Uses  
Land $8,370,000
Construction $22,705,762
Design/Engineering $1,313,888
Building Permits, Impact Fees $5,565,776
Financing Costs (Interest, Fees) $1,306,478
Operating Reserve $233,561
Other Soft Costs $1,130,055
Developer Fee $1,999,999
Total Uses $42,625,519

 

Sidebar

What Is a Community Land Trust?

Community land trusts (CLTs), around since 1968, are independent nonprofit organizations that acquire, own, and lease land that is occupied by affordable ownership or rental housing serving low- to moderate-income households. With for-sale housing, they rent the land for a nominal fee through a ground lease to households who own their home, which they have purchased for a below-market price. The lease limits the resale price of the home to assure affordability to future buyers. CLTs also use long-term ground leases for affordable multifamily rental housing developments.

Detailed information and a directory of active CLTs by state are at http://www.cltnetwork.org