STRATEGIC PRIORITY: Housing & Homelessness Solutions
AGENDA DATE: November 13, 2024
COUNCIL DISTRICT(S): 14
DEPARTMENT: Department of Housing and Community Development
EXECUTIVE: Robin Bentley
______________________________________________________________________
SUBJECT
Title
Authorize the Dallas Housing Finance Corporation to acquire and own 2929 Wycliff, a multifamily development located at 2929 Wycliff Avenue, Dallas, TX 75219 - Estimated Revenue Foregone: General Fund $4,701,303.00 (15 Years of Estimated Taxes)
Body
BACKGROUND
CAF Capital Partners, LLC (“Applicant”), submitted an application to the Dallas Housing Finance Corporation (“DHFC”) to acquire, develop, and own 2929 Wycliff, a 284-unit multifamily development, located at 2929 Wycliff Avenue, Dallas, TX 75219 (“Project”). The DHFC will own the site and improvements while contracting with the Applicant who will act as the Project Administrator. The property is being purchased for $63,900,000.00. This is a conventional purchase with private financing using loan proceeds and equity sourced by the Applicant. Neither the City nor the DHFC will fund any portion of the purchase.
Pursuant to the Texas Housing Finance Corporation Act, Chapter 394 of the Texas Local Government Code (“Act”), any residential property owned by a Housing Finance Corporation is exempt from all ad valorem taxes.
The Project is currently market rate/non-income restricted. However, upon acquisition by the DHFC, at least 10% of the units will be reserved for residents earning 60% Area Median Income (AMI), 40% of the units will be reserved for residents earning 80% AMI, 40% of the units will be reserved for residents earning 140% AMI, and 10% of the units will be market rate.
The owner of the project will be DHFC 2929 Wycliff GP, LLC, a limited liability company having the DHFC as its sole owner. The Applicant is a private equity real estate firm, specializing in the acquisition, redevelopment, re-positioning, and subsequent sale of institutional quality multifamily real estate. Applicant has completed the full cycle (acquisition to disposition) over 25 assets totaling +8K units worth +$1.5 billion in sale price creating over +$400M worth of equity for investors.
CAF Funds is the subsidiary of CAF Companies behind CAF’s Housing + Social Impact Platform and the division leading the HFC submission. CAF Funds’ socially conscious investment platform layers nonprofit partners and community stakeholders into properties to provide resources and services that are purposefully aimed at improving resident wellbeing. Curated nonprofit programming may include after-school childcare, tutoring, summer camps, workforce development training and certifications, rental assistance, mobile health clinics, credit rent reporting/ building, and financial literacy, among others. These services are provided to residents free of charge in a mission to enrich quality of life and foster a sense of community onsite. CAF Funds’ impact thesis also includes plans to conduct comprehensive environmental sustainability audits to evaluate and subsequently implement capital improvements aimed at increasing water and energy efficiency across the portfolio. Environmental features will include Light Emitting Diode (LED) lighting, efficient water fixtures, updated heating, ventilation, and air condition (HVAC) units, and smart landscaping. This results in a typical usage reduction of 30-50% which directly translates to deeper affordability for resident monthly utility bills. Other social programing features of 2929 Wycliff will include the following:
Esusu Credit Building
• Cost: $127K
• Value: Allow residents to build their credit score just by paying rent addressing a major inequality in our system. Assists in path to home ownership, auto loans, etc.
Echelon Sustainability Audit and Improvements
• Cost: $200K
• Value: Reduction of resident paid utilities by ~ 39.00% per year totaling ~$1.4M in additional affordability/ projected savings for residents)
UTSW Culinary Medicine Partnership
• Cost: $411K (cost of designating a down unit for Nutritionist)
• Value: Providing $300/month Personal Nutritionist Coaching to 30 onsite residents creates $2M in programming value over 15-year projection
The Project consists of 284 residential units. The unit mix includes 3 studios, 189 one-bedroom units, and 92 two-bedroom units. The units include quartz waterfall kitchen islands with pendant lighting, wood look flooring in entries & kitchens, 10-foot ceilings, floating vanities and porcelain tile baths, and premium appliances. The property’s amenities include a resort style swimming pool, 24-hour fitness center and Peloton studio, gated parking garage, conference room and coworking space, resident lounge with gourmet kitchen, dog park plus dog run, dog spa and pet wash station, and multiple private courtyards with outdoor kitchens, grills, and televisions.
2929 Wycliff is a podium style urban infill multifamily community located in the Oak Lawn submarket of Dallas, TX just east of the Dallas North Tollway. The four-story mid-rise building is bordered by the UT Southwestern (UTSW) Medical District and the affluent neighborhoods of Highland Park and Uptown. 2929 Wycliff commands top of market rents and features a contemporary design including 284 premium quality units with best-in-class finishes.
Upon acquisition, the unit mix and rental rates will be the lesser of the Texas Department of Housing and Community Affairs (“TDHCA”) published income restricted rents or market rents. The suggested Project rents are as follows:
|
AMI & Unit Mix |
|
Unit Type |
AMI |
Units |
Proposed Rent |
|
0BR |
80.00% |
1 |
$1,476.00 |
|
0BR |
Market |
2 |
$1,640.00 |
|
1BR |
60.00% |
19 |
$1,240.00 |
|
1BR |
80.00% |
76 |
$1,572.00 |
|
1BR |
Market |
95 |
$1,747.00 |
|
2BR |
60.00% |
9 |
$1,489.00 |
|
2BR |
80.00% |
37 |
$1,986.00 |
|
2BR |
Market |
45 |
$2,279.00 |
All income qualifying residents that are currently paying more than the TDHCA income restricted rents will see their rents lowered to that amount instead of being increased to market rents. This represents annual average rent savings of $290.12/month or $3,481.45/annually for residents earning less than 80.00% AMI compared to current market rents across all unit types. The rents for individuals and families earning less than 80.00% AMI are meant to provide housing to the “missing middle” of the market and residents that earn above low-income housing tax credit income restrictions of 60.00% AMI but would be cost burdened by market rents. These incomes range from approximately $52,920.00 to $70,560.00 in the city based on family size and represent a wide variety of employment sectors including, but not limited to, teachers, first responders, government employees, health care providers, etc. The rents for 60.00% to 80.00%-AMI-restricted units function like market rate units, but are included to satisfy the income requirements of the Act. The market rents are anticipated to grow much faster than the income restricted rents over the next 15 years resulting in exponential rental savings to residents earning less than 80.00% AMI. Total rental savings are estimated to be roughly $9,898,978.00 over 15 years.
In addition to the rent benefits, the structure also delivers long-term value to DHFC and the public. The DHFC also can sell, refinance, or deepen affordability any time after year 15, thus realizing what is likely to be a substantial appreciation in value of the Project even earlier. The disposition value is conservatively estimated by the DHFC financial advisor at approximately $61,000,000.00 million (Year 15).
This use of property a tax exemption is to provide immediate and meaningful affordable housing in Dallas where building a similar quality project with the same affordability levels would not be possible. Also, the entire excess revenue from the project will be used for the betterment of the public good in providing future affordable housing. This is a traditional mortgage structure with the proposed sources and uses as described in the chart below. None of the sources will be provided by the City or the DHFC.
|
Proposed Sources |
Amount |
|
Senior Mortgage Loan |
$44,700,000.00 |
|
GP Equity |
$ 1,200,000.00 |
|
LP Partner Equity |
$22,200,000.00 |
|
Total |
$68,100,000.00 |
|
|
|
|
Proposed Uses |
Amount |
|
Project Acquisition |
$63,900,000.00 |
|
Immediate Capex |
$ 1,400,000.00 |
|
Closing Costs |
$ 1,600,000.00 |
|
HFC Fees |
$ 600,000.00 |
|
Financing Costs |
$ 600,000.00 |
|
Total |
$68,100,000.00 |
The DHFC will receive an acquisition fee equal to 0.75% of the acquisition price of the Project at closing which will be approximately $479,250.00. The initial annual lease payment will be due to the DHFC on the first anniversary following closing and will increase by 3.00% annually. If net cash flow is insufficient in any year to pay the full amount of the annual lease payment ($140,000.00), the amount unpaid will accrue without interest and be payable in subsequent years. In the event of the sale of the property the DHFC will receive proceeds of the sale and will receive a fee equal to 1.5% of the gross sales price at sale.
This proposed acquisition results in foregone tax revenues for the City until the project is sold and income restrictions are removed. The 2024 City tax for this property is $252,773.00 and the 15-year estimate of foregone taxes is $4,701,303.00. However, the workforce housing rental savings combined with the value of the property ($42,000,000.00 according to Dallas Central Appraisal District) provides the City with benefits that outweigh the foregone revenue. This acquisition and financial structure also allows the City to immediately own and provide mixed-income housing in a high-opportunity area nears jobs, parks, transportation, retail, and other amenities.
The DHFC’s estimated revenues were calculated by the DHFC’s partnership counsel and financial advisors. Market rent and sales comps were analyzed to ensure the project costs were reasonable for the market. DHFC’s financial advisors also confirmed that but for the ad valorem tax exemption, the Project would not be economically feasible with the workforce housing income restrictions.
DHFC staff and counsel and financial advisors have confirmed that this Project would not be feasible but for the DHFC’s participation and that the Project furthers the goals of the Dallas Housing Policy 2033 (“DHP33”) and Dallas Housing Resource Catalog (“DHRC”). Staff recommends approval of this item as it furthers the goals of the DHP33 and DHRC by providing mixed-income housing in a high-opportunity area of the City with access to amenities, jobs, and other resources.
PRIOR ACTION/REVIEW (COUNCIL, BOARDS, COMMISSIONS)
On August 27, 2024, the Dallas Housing Finance Corporation Board of Directors adopted a resolution negotiation and execution of a Memorandum of Understanding with the Applicant.
The Housing and Homelessness Solutions Committee was briefed by memorandum regarding this matter on October 22, 2024. <https://cityofdallas.legistar.com/View.ashx?M=F&ID=13385709&GUID=A9146493-B433-423D-8130-58FBD277C137>
FISCAL INFORMATION
Estimated Revenue Foregone: General Fund $4,701,303.00 (15 Years of Estimated Taxes)
MAP
Attached