STRATEGIC PRIORITY: Economic Development
AGENDA DATE: April 27, 2022
COUNCIL DISTRICT(S): 6
DEPARTMENT: Department of Housing & Neighborhood Revitalization
EXECUTIVE: Majed Al-Ghafry
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SUBJECT
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Authorize the Dallas Public Facility Corporation to acquire, develop, and own Standard at Royal Lane, a mixed-income, multifamily development to be located at 2737 Royal Lane (Project) and enter into a seventy-five year lease agreement with the LDG Development, LLC or its affiliate for the development of the Project - Estimated Revenue Forgone: General Fund $154,817.00 (See Fiscal Information)
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BACKGROUND
LDG Development, LLC (Applicant), a Kentucky limited liability company, submitted an application to the Dallas Public Facility Corporation (Corporation) for the development of the Standard at Royal Lane, a 300-unit mixed income multifamily development to be located at 2737 Royal Lane (Project). The Corporation will own the site and improvements and lease the Project back to an affiliate of Applicant. Pursuant to the Texas Public Facility Corporation Act, Chapter 303 of the Texas Local Government Code, as amended (Act), any public facility owned by a Public Facility Corporation is exempt from all ad valorem taxes. To qualify as a public facility, pursuant to the Act, a multifamily property must reserve at least 50.00% of the units for residents earning at or below 80.00% of the area median income (AMI). The Project will reserve at 40.00% of the units for residents earning at or below 80.00% AMI, 10.00% of the units for residents earning at or below 60.00% AMI, and 50.00% of the units will be market rate.
The Applicant or its affiliate will serve as the developer and guarantor of the Project. The Applicant has successfully completed over 77 multifamily properties totaling 13,673 units and is currently development two other workforce housing developments in partnership with the City and the Dallas Housing Finance Corporation (DHFC) totaling 480 units. The proposed property manager is Capstone Real Estate Services, Inc. (Capstone). Capstone is a professional management company based in Austin, TX that currently manages 35,000 multifamily units including over 21,000 affordable units.
The Project will consist of 300 units including 38 1-bedroom, 128 2-bedroom units, 122 3-bedroom units, and 12 4-bedroom units. The units will include energy efficient appliances and lighting, granite countertops, and other Class-A features. The Property will also include a swimming pool, children’s playscape areas, fitness center, business center, and common area lounge amongst other amenities. Because the development site is quite long and narrow, the developer has committed to doubling the community amenities so that they are equitably distributed throughout the property.
On June 9, 2021, the Project received a Resolution of No Objection for 4% housing tax credits by Resolution 21-1051. The Project did not receive a Private Activity Bond Allocation from the Texas Bond Review Board and is not eligible to receive 4% housing tax credits at this time. The Applicant has restructured the financing and affordability mix to develop the Project in partnership with the Corporation.
The Project does not require a zoning change and will serve as an economic development catalyst for remaining development in the area. The Property is located less than a quarter mile east of the Royal Lane Dallas Area Rapid Transit (DART) rail station qualifying it as a Transit-Oriented Development (TOD). While the site is not part of the 1,000 Affordable Housing Challenge, it does provide affordable housing and activate vacant land near a DART rail station. The Market Value Analysis (MVA) market type is uncategorizable as it is undeveloped land.
In addition to providing workforce housing near transit, the development will also provide desperately needed infrastructure at the site. The site experiences a high level of pedestrian activity due to its proximity to the DART rail station and the existing residential developments located further east on Royal Lane. However, the site has approximately 365 feet of Royal Lane frontage but does not have a sidewalk or any pedestrian lighting - only a worn dirt path presently exists on this major thoroughfare. The development will provide a landscaped sidewalk and lighting to increase accessibility and walkability on Royal Lane.
The unit mix and rental rates are as follows:
|
Unit Type |
AMI |
Units |
Rent |
|
1BR |
60.00% |
6 |
$1,001.00 |
|
1BR |
80.00% |
12 |
$1,335.00 |
|
1BR |
Market |
20 |
$1,550.00 |
|
2BR |
60.00% |
12 |
$1,201.00 |
|
2BR |
80.00% |
55 |
$1,602.00 |
|
2BR |
Market |
61 |
$1,740.00 |
|
3BR |
60.00% |
12 |
$1,389.00 |
|
3BR |
80.00% |
46 |
$1,852.00 |
|
3BR |
Market |
64 |
$1,940.00 |
|
4BR |
80.00% |
7 |
$2,066.00 |
|
4BR |
Market |
5 |
$2,100.00 |
The 80.00% AMI rents are meant to provide housing to the “missing middle” of the market: residents that earn above 60.00% AMI but would be cost burdened by market rents. These incomes range from approximately $49,840.00 to $71,200.00 in the City based on family size. These incomes represent a wide variety of employment sectors including, but not limited to, teachers, first responders, government employees, etc. The economics of this Project also allows for the inclusion of 30 units to be reserved for residents earning at or below 60.00% AMI (annual incomes of $37,380.00 to $53,400.00) to provide deeper affordability and serve a boarded mix of incomes.
Total development costs are anticipated to be approximately $73,170,191.00 which includes the acquisition price for the land. The construction budget is anticipated to be approximately $46,900,854.00 which is $156,336.00 per unit.
|
Proposed Financing Sources |
Amount |
|
Construction Loan |
$54,878,000.00 |
|
Developer/Investor Equity |
$18,292,191.00 |
|
Total |
$73,170,191.00 |
|
|
|
|
Proposed Uses |
Amount |
|
Acquisition |
$9,000,000.00 |
|
Construction |
$46,900,854.00 |
|
Soft Costs/Reserves |
$8,427,136.00 |
|
Development Fee |
$5,680,532.00 |
|
Professional Fees |
$3,161,669.00 |
|
Total |
$73,170,191.00 |
The Project will be owned by the Corporation and leased to the Applicant and other potential owners for a period of 75 years. In consideration for the Corporation’s participation in the Project, the Corporation is estimated to receive $6,925,910.00 over the initial 15-years of the lease. This includes a $250,000.00 structuring fee paid at closing and 13 years of post-stabilization lease payments starting at $400,000.00 and increasing by 3.00% annually. The lease payments in years 11-75 will continue to increase by 3.00% annually. The Corporation will receive a 15.00% sales commission after repayment of debt, equity, and preferred returns upon first sale of the Project; however this is not included in the estimated revenues above as the Applicant intends to hold the asset on a long-term basis. The Corporation will earn a 2.00% sales commission on the gross sale price on all future sales. In the event of a sale throughout the life of the Project, the Corporation will continue to receive the annual lease payments. Upon termination of the seventy-five-year lease, the Project will be owned free and clear by the Corporation. The revenues of the Corporation will be used to fund operations and the provision of affordable and workforce housing throughout the City.
The Corporation’s estimated revenues were calculated by the Corporation’s partnership counsel and financial advisors. Market rent comps and current construction costs were analyzed to ensure the project costs were reasonable for the market. Corporation financial advisors also confirmed that but for the ad valorem tax exemption, the Project would not be economically feasible and would not attract responsible debt and equity investment in the property. The Corporation’s revenue consideration and affordability levels were also analyzed to confirm that the ad valorem tax exemption does not over subsidize the Project.
The City is authorized by the Act to create a public facility corporation for the purposes established in the Act, including the financing, acquisition, construction, and leasing of public facilities under the Act. On June 24, 2020, City Council authorized the creation of the Corporation to further the public purposes stated in the Corporation’s articles of incorporation and bylaws pursuant to the Act by Resolution No. 20-1035. Section 6.2 of the Corporation’s bylaws requires City Council approval by written resolution prior to entering into any agreement that would result in a property tax exemption. Per Section 7.3 of the Corporation’s bylaws, any Public Facility related to multifamily residential development of the Corporation shall not proceed unless (1) the development of the Public Facility could not be feasible but for the Corporation’s participation, and (2) the development of the Public Facility is in furtherance of the City of Dallas’s Comprehensive Housing Policy (CHP), as amended.
Staff and the Corporation’s Counsel and Financial Advisors have confirmed that this Project would not be feasible but for the Corporation’s participation and that the Project furthers the goals of the CHP. Staff recommend approval of this item to allow this mixed-income housing development to move forward.
PRIOR ACTION/REVIEW (COUNCIL, BOARDS, COMMISSIONS)
On February 22, 2022, the Dallas Public Facility Corporation Board of Directors approved the negotiation and execution of a term sheet with the Applicant.
The Housing and Homelessness Solutions Committee was briefed regarding this matter on March 28, 2022.
FISCAL INFORMATION
Estimated revenue foregone: General Funds $154,817.00 based on an estimate of 15 years of total City taxes published by the Dallas Central Appraisal District.