GRAND RAPIDS — Developers relied on low-income tax credits to add nearly 2,000 units of affordable housing in the city over the last five years.
While the credits provide key gap financing to affordable housing developers, officials who administer the funding say the program is consistently “oversubscribed,” leading to delays for new projects.
“It’s been pretty consistently right around three or four times oversubscribed in terms of the applications we can fund,” said Andy Martin, director of development at the Michigan State Housing Development Authority, which administers federal low-income housing tax credits (LIHTC).
In the latest funding round MSHDA announced in December, nine projects in West Michigan received the credits, totalling more than $7.9 million and 419 units. In the same round, the state denied credits to 10 local projects with 675 units, putting their future and financing in question.
“Some of our projects had their first time in a round, and it usually takes two or three times before you get it,” Carlos Sanchez, executive director of the Grand Rapids Housing Commission, told MiBiz soon after results were publicized.
The housing commission sent three Grand Rapids developments — Adams Park, Antoine Court and Hope Community — to MSHDA in the October funding round; all of them were denied credits.
Sanchez said the results were unsurprising, noting the commission would re-apply in the next round after discussing with MSHDA how to improve its proposals.
“These things are real competitive,” he said.
Other Grand Rapids developments denied credits included Belknap Place and The Creston, both with 50 units. The other West Michigan developments that did not receive credits included Apartments at 28 West (phase two) in Wyoming, Harrison Circle and Ebbitts Crossing in Kalamazoo, Samaritas Affordable Living in Holland, and The Depot in Ludington.
Belknap Place is a collaborative project between Grand Valley State University, housing developers Third Coast Development LLC of Grand Rapids and PK Housing & Management Co. of Okemos. The development partners, known as Three PK, have proposed a multifamily development on the south side of Trowbridge Street, between Lafayette and Prospect Avenues, on the site of a vacant lot owned by GVSU near the new Raleigh J. Finkelstein Hall.
In the October funding round, developers sought $689,567 in LIHTC funding. Jacob Horner, vice president of development for PK Companies, said the partners planned to resubmit Belknap Place in the next funding round, with applications due April 1.
Oftentimes, smaller developments can struggle to compete for tax credits, Horner said.
“It’s just a factor of what other deals are in the pipeline,” he said. “Some projects are very large and very competitive. They tend to suck up all the resources, and it makes it hard for a smaller project like this where there’s a lot of great attributes, but we have to compete with all sorts of great projects all over the state.”
Martin said MSHDA receives about 40 applications in each of the two annual funding rounds. Only about one in four applications receives LIHTC funding, he added, demonstrating a “great need” for more housing across the state.
In West Michigan, Kent County developments have garnered the most credits from MSHDA during the last five years, according to an analysis by MiBiz. Developers received almost $6 million to subsidize low-income projects so far in 2019, mostly in Grand Rapids.
Since 2013, MSHDA gave more than $33 million for affordable housing projects just in Grand Rapids.
The majority of these projects involve 9-percent tax credits, which support new construction not using any federal or tax-exempt financing. Credits are based on a percentage of the portion of rental housing that the owner agrees to maintain as both rent- and income-restricted for a period of at least 18 years.
Either 20 percent of the units must be for residents whose incomes do not exceed 50 percent of the area median income or 40 percent of the units must be for residents whose incomes do not exceed 60 percent of the area median income.
Currently, MSHDA allocates about $27 million annually to fund the 9 percent credits. The amount of federal credits available to each state is based on its population, so it can slightly increase or decrease annually, according to Martin. As well, MSHDA might get some or all of a previous credit returned, which can be used in another round.
Additionally, Congress gave a 12.5-percent increase in the amount of these credits for fiscal years 2018-2021.
“There is national recognition for the great need that exists for affordable housing, and also a recognition that the LIHTC is the primary tool for addressing that need,” Martin said.
Horner said LIHTCs are imperative for the Belknap Place project to come to fruition the way it is currently structured. In his work with the tax credit program since the ’90s, LIHTC has been the largest resource for funding affordable housing projects.
“It pays for so much of the project costs that it really is the premier resource when creating affordable housing,” he said.
Specifically for Belknap Place, plans feature a mix of 70 percent “affordable” units aimed at tenants at or below 60 percent of the area median income, and 30 percent market-rate units.
“You still have to be able to make the project work financially,” Horner said. “The loss of the tax credit means you have to have more rent income to have enough to make your mortgage payment.”
Horner added the development partners are confident Belknap Place will receive approval for LIHTC in the next round.
“We’re really trying hard to get this one approved, because it would be a tremendous development for the community and the city,” he said.