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Regional Spotlight: U.S. Southeast
The Southeast continues to be one of the most popular areas for real estate development in the United States.
June 12, 2019
On Thursday, May 23rd, female ULI members gathered for an intimate event, “WLI Unwound – Understanding an Affordable Housing Deal,” highlighting specific trends and complicated intricacies within the industry, such as financing, politics, and entitlements. The session was led by Dionne Nelson, principal of one of the most active affordable housing developers in the Southeast, Laurel Street, as well as Lauren Henry, Director of Acquisitions for Red Stone Equity Partners LLC, who walked us through an overview of the industry before diving into the actual mechanics of a deal.
In Mecklenburg County, the median income is about $75,000 for a family of four. It is difficult to find any affordable housing for households with income lower than that point. If you’re trying to build a market rate unit that is affordable to a lower income level, then you need a substantial subsidy (e.g. cash, land, etc.). If you’re trying to make a unit accessible to 60% Area Median Income, you might need a $45,000 subsidy, but if you’re striving for 30% of AMI, where the need is the greatest, you’ll need a subsidy between $90,000 and $120,000.
Funding for tax credits in North Carolina adds at least 10 months to the construction cycle, and only one in four tax credit deals get funded. Many owners of high-demand locations won’t tolerate a longer process like that while you’re waiting for financing decisions. If rezoning is required, then the landowner has to allow for the process, which can be difficult in a well-mobilized neighborhood, though the speakers noted that a senior deal does not have the same impact as a family-targeted development, and a mixed-income deal lives better but can be more complicated to finance. Nelson noted that “if you drive by a mixed-income deal and know it’s affordable, we haven’t done our job.”
The speakers walked through the application process for financing and why certain deals get approved and others don’t. Nelson explained that the state housing finance agency allocates credits by area, and Mecklenburg County can only get approved for 300 units a year. That doesn’t go far toward the 30,000 unit deficit of affordable units that are needed, so we need to find alternate methods, she said. They also noted the sweet spot of deal size, and Henry outlined the compliance process and timeline as well as the demand for syndicating tax credits pre- and post-election. Henry walked through a 4% tax credit deal and pointed out the differences of a 9% tax credit deal and how the subsidy varies dramatically, adding that the tax credit market rate is different as well.
Notes provided by Julianne McCollum with Yellow Duck Marketing.
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