Making Allowances for Attainable Apartments

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3 minute read

Cities need flexibility to help workforce housing pencil out.

Talk to developers of attainable, workforce and affordable housing and you'll hear a common refrain about municipalities and government agencies: There are those that make allowances to help deals pencil out, and others that hold steadfast to rules that increase costs. Knowing which one you're dealing with can be the difference between building a successful attainable housing project and building it somewhere else. 

"The cities that take a position where they want to give entitlements to developers to entice them to do these projects deserve credit," says Henry Torres, President of the Astor Companies, who's developing Douglas Enclave, a 199-unit affordable and workforce housing community in Miami, the most rent-burdened city in the U.S., according to Freddie Mac (rent-burdened is defined as spending more than 30 percent of income on rent). He applauds an initiative from Miami's City Council, which allowed for double densities and $2 million in waived impact fees that helped the project to materialize.

Not only do waived fees and allowances help projects get built, they add value to a property to reward developers for creating attainable supply. "Let's say you have a $100,000 expense that gets completely waived," says Tim Bracken, Co-Head of Affordable Housing Brokerage at commercial real estate firm Berkadia. "If you apply a 5.5 or 6 percent cap rate to the deal, you've just created millions of dollars of value, just through that abatement."

Other municipalities, however, aren't always amenable.

Just as Jim Schloemer, CEO of Continental Properties, which develops attainable apartments in 19 states across the country. "Cities profess to want to have attainable housing, but at the same time, they're not always prepared to address the issues that drive up costs," says Schloemer. "For example, if you require 50 percent masonry on the exterior of a building, that drives up costs. Some communities recognize that, and there are others who aren't yet prepared to do that."

Exteriors facades, and the level of finishes developers are required to put into them, are a consistent hurdle for developers of attainable housing.

"Making it look different is always a challenge for workforce housing," says Kevin Smith, Senior Vice President of Development for Northern California at Chicago-based 29th St. Capital. "The desire for multiple designs of buildings, with different elevations, needs to be considered along with the expense it adds to projects. The more times you do different builds, the more it costs." 

Indeed, workforce developers need to find a balancing point between allowing some repetition that provides economy of scale with the unique appearance of these buildings," Smith says. "That's always a tension, and it ought to be an active conversation in every planning department in the country that wants workforce housing in their community to find that sweet spot."