Request for Committee Action
A briefing memo explaining the purpose, background, and impact of the requested action.
MPHA Scattered Site Family Housing Expansion Project Deferred Loan Request (RCA-2022-00725)
ORIGINATING DEPARTMENT
To Committee(s)
| # | Committee Name | Meeting Date |
|---|---|---|
| 1 | Business, Inspections, Housing & Zoning Committee | July 26, 2022 |
Action Item(s)
| # | File Type | Subcategory | Item Description |
|---|---|---|---|
| 1 | Action | Loan | Authorizing a loan of up to $5,800,000 to Family Housing Resources LP or an affiliated entity for the Minneapolis Public Housing Authority Scattered Site Family Housing Expansion Project, to be sourced with up to $4,000,000 ARPA Round 1 funds, $600,000 General Fund, and $1,200,000 in local match provided via the Affordable Housing Trust Fund. |
| 2 | Action | Loan | Authorizing the execution of necessary loan documents related to project awards. |
Ward / Neighborhood / Address
| # | Ward | Neighborhood | Address |
|---|---|---|---|
| 1. | Ward 1 | Windom Park | 1030 Lowry Ave NE, Minneapolis, MN |
| 2. | Ward 3 | Beltrami | 339 Pierce St NE, Minneapolis, MN |
| 3. | Ward 5 | Harrison | 400/404 Logan Ave N, Minneapolis, MN |
| 4. | Ward 5 | Harrison | 500 Knox Ave N, Minneapolis, MN |
| 5. | Ward 5 | Jordan | 2807/2811 Emerson Ave N, Minneapolis, MN |
| 6. | Ward 5 | Jordan | 1906/1910 25th Ave N, Minneapolis, MN |
| 7. | Ward 5 | Willard-Hay | 1600/1606 Penn Ave N, Minneapolis, MN |
| 8. | Ward 6 | Seward | 2015 23rd Ave S, Minneapolis, MN |
| 9. | Ward 6 | Seward | 2021 24th Ave S, Minneapolis, MN |
| 10. | Ward 6 | Ventura Village | 2110 16th Ave S, Minneapolis, MN |
| 11. | Ward 9 | East Phillips | 2425 16th Ave S, Minneapolis, MN |
| 12. | Ward 9 | Midtown Phillips | 2744 12th Ave S, Minneapolis, MN |
| 13. | Ward 9 | Midtown Phillips | 2740 12th Ave S, Minneapolis, MN |
| 14. | Ward 12 | Morris Park | 5633 34th Ave S, Minneapolis, MN |
| 15. | Ward 12 | Standish | 2220 38th St E, Minneapolis, MN |
| 16. | Ward 13 | Lynnhurst | 5139 Penn Ave S, Minneapolis, MN |
Background Analysis
The Minneapolis Public Housing Authority (MPHA) plans to develop 84 two- and three-bedroom apartment homes in 16 small apartment buildings (four to six units each) through its Family Housing Expansion Project, which aims to provide deeply affordable family housing in Minneapolis. All 84 units will utilize Project Based Vouchers and each household will pay no more than 30% of their income towards rent. Of the 84 units, 64 units will be available for families with incomes up to 30% Area Median Income (AMI) and 20 units will be available for families with incomes up to 60% AMI. Seventeen units (20%) will provide housing for families experiencing homelessness and will be filled through Hennepin County Coordinated Entry.
Of the 16 proposed sites across the city, 14 are existing MPHA properties and two parcels are being purchased by Community Housing Resources, an MPHA affiliate, from the City of Minneapolis. In a unique partnership, MPHA selected Frerichs Construction and Rise Modular Manufacturing as a team on this project. The modular construction will provide a singular building type across the 16 sites, which has a four- and six-unit variant. MPHA expects an accelerated development timeline and other efficiencies with the modular construction.
PROJECT FINANCING AND AFFORDABLE HOUSING TRUST FUND REQUEST
The total development costs for the project are currently estimated at $49,319,406. The primary project financing includes 4% Housing Tax Credits, tax-exempt Housing Revenue Bonds, American Rescue Plan Act (ARPA) funding and MPHA developer equity of $9,370,000. The project was allocated $4,600,000 in Phase 1 ARPA funding through the City’s 2021 budget cycle.
MPHA has requested $1,200,000 in additional funding to close a final financing gap. Since the initial ARPA award in 2021, project costs have risen due to increased costs related to materials and labor and rising interest rates. To address the increased development costs, MPHA secured additional funding in the amount of $500,000 from Hennepin County and increased the developer equity in the project from $3,050,000 to $9,370,000 plus additional deferred developer fee (which is the maximum allowed supported by cash flow).
Staff is recommending approval of $1,200,000 from the Affordable Housing Trust Fund (AHTF) program to fill the remaining funding gap. Staff initially planned to use funds from the Housing Opportunity Fund, recently created using Phase 2 ARPA funds and designed to enable affordable rental housing projects to move to closing. However, due to federal Treasury rules, ARPA funding must be blended with a local source of funding to be compatible with Low Income Housing Tax Credit projects like the MPHA Scattered-Site project.
To meet the required blending test for a loan in the amount of $5,800,000, staff recommends sourcing it with $4,000,000 in Phase 1 ARPA, $600,000 in general funds (which has been exchanged for $600,000 Phase 1 ARPA transferred to the general fund) and $1,200,000 in general funds from the Affordable Housing Trust Fund. Approval of this request will position the project to close and start construction at the end of August.
For purposes of the AHTF, the developer has requested a waiver from the standard underwriting criteria of a 5% vacancy rate to allow for a vacancy rate of 3%. The first mortgage lender for the project is using a 3% vacancy rate for underwriting, which is supported by an appraisal. The average vacancy rate for the MPHA portfolio is generally 2-3% and given the MPHA waitlist for housing includes over 6,000 households, staff believe this waiver request is reasonable. The project meets all other AHTF underwriting criteria.