STRATEGIC PRIORITY: Housing & Homelessness Solutions
AGENDA DATE: December 11, 2024
COUNCIL DISTRICT(S): 14
DEPARTMENT: Department of Housing and Community Development
EXECUTIVE: Robin Bentley
______________________________________________________________________
SUBJECT
Title
Authorize the Dallas Housing Finance Corporation (“DHFC or Corporation”) to acquire and own Oak & Ellum, a multifamily development located at 2627 Live Oak St, Dallas, TX 75204 and disbursement of $1,489,361.00 from Waterford Property Company, LLC Funds to Tax Increment Financing Reinvestment Zone Number Twelve (“Deep Ellum TIF District” or "TIF District") Fund, a payment in lieu of annual TIF District increment for tax years 2025, 2026, and 2027 (TIF District termination in tax year 2027 with fiscal year 2028 collections) - Estimated Revenue Foregone: General Funds $8,012,964.00 (estimated taxes over 15-year period minus the revenue for developer payment)
Body
BACKGROUND
Pursuant to the Texas Housing Finance Corporation Act, Chapter 394 of the Texas Local Government Code (Act), a Housing Finance Corporation (1) may issue bonds to acquire affordable housing and (2) any residential property owned by a Housing Finance Corporation is exempt from all ad valorem taxes. As with all bonds issued by the Corporation, they are non-recourse to both the City and the Corporation. They are not liabilities of the City and are repaid solely through the revenues of the Project.
Waterford Property Company, LLC (“Applicant”), submitted an application to the Dallas Housing Finance Corporation (“DHFC or Corporation”) to acquire, develop, and own Oak & Ellum, a 424-unit multifamily development, located at 2627 Live Oak St., Dallas, TX 75204 (“Project”). The Corporation will own the site and improvements while contracting with the Applicant who will act as the Project Administrator.
The property is currently market rate/non-income restricted. Upon acquisition by the Corporation, the property will have at least 20% of the units reserved for residents earning 60% Area Median Income (AMI), 30% of the units reserved for residents earning 80% AMI, 40% of the units reserved for residents earning 140% AMI and 10% of the units at market rate. The affordability period will remain for the duration of the DHFC ownership, at a minimum of 15 years.
Waterford Property Company is an experienced owner and developer of institutional “Class A” multifamily rental projects and affordable housing projects. Since its founding in 2014, Waterford has acquired and developed over 8,000 multifamily units. Waterford is an expert in the development of affordable housing having developed and been a principal in over 3,000 affordable residential units. Since 2021, Waterford has closed and acquired over $2 billion of bond and debt & equity financed workforce housing projects, totaling 4,708 units through its middle-income housing program.
The Project consists of 424 residential units. The unit mix includes 34 studio units, 300 one-bedroom units, and 90 two-bedroom units. The Project site is adjacent to Deep Ellum and less than a mile from Downtown Dallas. The Project is within close proximity to transit, a full-scale grocery store, retail and other recreational opportunities. The Project consists of a continuous five-story wraparound building with structured parking.
The Project is located in the Deep Ellum TIF District. Once DHFC acquires the property, it becomes tax-exempt, impacting the Deep Ellum TIF District annual increment. A payment in lieu of annual increment for tax years 2025, 2026, and 2027 (TIF District termination) was estimated and such payment shall be made as a condition of DHFC acquisition of the property, to be paid co-terminus with such closing.
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 |
60.00% |
7 |
$1,158.00 |
|
0BR |
80.00% |
11 |
$1,278.00 |
|
0BR |
140.00% |
8 |
$1,278.00 |
|
0BR |
Market |
1 |
$1,278.00 |
|
1BR |
60.00% |
60 |
$1,240.00 |
|
1BR |
80.00% |
90 |
$1,489.00 |
|
1BR |
140.00% |
126 |
$1,489.00 |
|
1BR |
Market |
31 |
$1,489.00 |
|
2BR |
60.00% |
18 |
$1,489.00 |
|
2BR |
80.00% |
27 |
$1,986.00 |
|
2BR |
140.00% |
36 |
$2,162.00 |
|
2BR |
Market |
9 |
$2,162.00 |
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 $274.00/month or $3,288.00/annually for residents earning less than 80.00% AMI that include a wide variety of employment sectors including, but not limited to, teachers, first responders, government employees, health care providers, etc. Total rental savings are estimated to be roughly $13,358,379.00 over 15 years.
Following are the sources and uses for the project:
|
Proposed Sources |
Amount |
|
1st Mortgage |
$ 48,839,000.00 |
|
Investor Equity |
$ 37,962,000.00 |
|
Sponsor Equity |
$ 1,998,000.00 |
|
Total |
$ 88,799,000.00 |
|
|
|
|
Proposed Uses |
Amount |
|
Project Acquisition |
$ 84,800,000.00 |
|
Closing Costs |
$ 950,000.00 |
|
Acquisition Fee HFC |
$ 636,000.00 |
|
Acquisition Fee Waterford |
$ 636,000.00 |
|
Working Capital |
$ 111,000.00 |
|
Development Fee |
$ 67,000.00 |
|
Financing Costs |
$ 486,000.00 |
|
Unit Renovation Costs |
$ 1,113,000.00 |
|
Total |
$ 88,799,000.00 |
The DHFC shall be entitled to receive an acquisition fee equal to 0.75% of the acquisition price of the Project at Closing which is estimated to be $636,000.00. The DHFC as Ground Lessor shall be entitled to receive an annual lease payment under the ground lease (the “Annual Lease Payment”), which shall be payable as the first item in the cash flow waterfall under the partnership agreement, after payments on any loans or outstanding debt, and that is in addition to the upfront lease payment. The initial annual lease payment ($200,128.00) shall increase by 3.00% annually. In the event that net cash flow is insufficient in any year to pay the full amount of the annual lease payment, the amount unpaid shall accrue without interest and be payable in subsequent years. The General Partner, a to-be formed limited partnership, and Special LP, a special limited partner of the partnership designated by the developer or its affiliate, shall each be entitled to receive a Partnership Management Fee in the initial amount of $10,000.00 and increasing by 3.00% per year for its services in connection with management of the Partnership.
This proposed Corporation acquisition results in foregone tax revenues for the City until the project is sold and income restrictions are removed. However, the workforce housing rental savings and the value of the property provides the City with benefits that outweigh the foregone revenue. This acquisition a 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 Corporation’s estimated revenues were calculated by the Corporation’s partnership Counsel and Financial Advisors. Market rent and sales comps 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 and the issuance of tax-exempt bonds, the Project would not be economically feasible with the workforce housing income restrictions.
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 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 September 10, 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=13385708&GUID=2B2D6B28-178B-457C-8721-147C0838597C>
FISCAL INFORMATION
Collection of $1,489,361.00, a payment in lieu of annual Deep Ellum TIF District increment for tax years 2025, 2026, and 2027.
Estimated Revenue Foregone: General Funds $8,012,964.00 (estimated taxes over 15-year period) beginning in FY 2025-26 (tax year 2025).
MAP
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