Prior posts have addressed: when housing is not affordable; when renters are cost-burdened or severely cost burdened; what factors make housing in a particular area unaffordable; how affordable housing is created; and federal and state programs that provide the subsidies needed for affordable housing.
In this post we will look at a case study of OCV’s 21-unit Fisterra Gardens Townhomes (FGT) project.
Planning for FGT began in June 2016. Design had been completed and funding sources were in place by April 2018. Construction began in May 2018 and ended in May 2019. The construction loan was paid off and the permanent loan was funded in November 2020.
FGT consists of 21 units including six studio units in one two-story building and fifteen townhome units in four separate two-story buildings, consisting of three one-bedroom units, 9 two-bedroom units, and 3 three-bedroom units. Total square footage, including the rental office, is 16,093.
Total costs for FGT were $6 million. The sources used to fund those costs were:
- Limited partner tax credit equity from Alliant Capital: $2,098,000
- General partner equity from OCV: $ 46,000
- OHCS Lift loan: $ 798,000
- OCV Senior Subordinated Debt: $ 422,500
- OCV Junior Subordinated Debt: $1,540,500
- Washington Federal permanent loan: $ 850,000
- Deferred SDC Charges (City of Yachats): $ 46,000
- Deferred Development Fee: $ 197,000
- Total sources: $6,000,000
The total cost per unit for FGT was $286,000; and the total cost per square foot was $373. These costs are significantly higher than for comparable construction in market rate housing, because of: (a) the fees and costs associated with the tax credits and the private activity bonds were $216,800 higher than the fees would have been in a transaction with only conventional bank financing; and (b) construction costs were $80,000 higher than in a conventional transaction due to required performance bond costs and duplicative costs for an owner construction representative. Combined, the extra amount is $296,800. That is an additional cost of $14,133 per unit or $18.44 per square foot.
FGT’s 21 units are set aside for households earning at or under 60% of area median income. At the inception in 2019, 60% of Lincoln County area median income was for a one-person household, $24,180; for a two-person household, $27,600; for a three-person household, $31,080; and for a four-person household, $34,500. At the inception in 2019, maximum rents including all utilities were studio apartment, $604; one-bedroom, $657; two-bedroom, $777; and three-bedroom, $897. FGT was fully leased and occupied by June 1, 2019. It has remained full since then with a wait list of 50-100 for 21 occupied units.
For the first full year, 2020, rents were $158,000, operating expenses were $83,000 (53% of rents), and net cash flow after debt service was $10,000 (only 6.4% of rents or a return on total equity of 47/100 of one percent for the year).