Financing affordable housing projects can be complex, to put it mildly.
“Affordable housing is not where you will get high returns,” said Sal Gonzales, president of Fresno developer Lance Kashian & Company. “It’s more of a passion.”
Most affordable housing projects require a commitment of public funds at the federal, state, and local levels.
The city of Fresno is set to invest $6 million in two affordable housing projects, after city council approval on Thursday. This is in addition to $6 million approved last week for a development in Southeast Fresno.
The city’s involvement is to provide loan guarantees to help improve claims for the state’s low-income housing tax credit.
“The more (local) funding you get, the better off you are in Sacramento,” Gonzales said.
A Look at Fresno’s Affordable Housing Projects
The projects are:
– Sarah’s Court, a 120-unit project at 200 N. Salma Ave. in the Fancher Creek area southeast of Fresno – approximately at the northeast corner of Clovis and Tulare Avenues. The developer is FCTC Family, LP, a separate but adjacent company from Lance Kashian;
– Step Up on 99, a 63-unit, $15 million project at 1240 N. Crystal Ave. near Highway 99 and Olive Avenue, a Fresno Housing Authority project. This is the former Motel 99 currently used as transitional housing for the homeless;
– Avalon Commons 1, a 60-unit $18.5 million project at 7521 N. Chestnut Ave. in northeast Fresno, another FHA project. It will eventually be 105 units.
The city’s $6.1 million contribution, approved 7-0 at the Feb. 10 council meeting, is contingent on the developer receiving state tax credits. It hasn’t happened yet.
The money would take the form of a 55-year loan with an annual interest rate of 3%. In return, the developer would guarantee that the project would be affordable housing for 55 years.
“One of the primary scoring criteria for applying to LIHTC is the applicant’s ability to locate and operate affordable housing resources,” the city’s documents on the rationale for supporting the project state.
The city’s funds would come from the HOME program ($2.7 million) and ARPA relief funds ($3.4 million) — both federal programs.
Gonzales says if all goes well with the state tax credit, Sarah’s Court could start by the end of 2022 with 24 months to build. Renters there can have an income of up to 70% of the region’s average median income. The current AMI in the county for a family of four is $70,700.
Tax credits and the city’s commitment are only part of the funding for the estimated $33 million project. A construction loan and other state funding would provide the rest of the money.
“It’s terribly difficult for several reasons. If the developer were to invest their own money, that doesn’t count for the score in Sacramento. And so that’s really one of the reasons you need local funding is because they don’t recognize any private equity, so to speak,” Gonzales said.
“The surveillance is just intimidating enough. It is therefore a 100% affordable accommodation. Your obligations to make sure all of this is taken care of is pretty critical,” Gonzales said.
Currently, Sarah’s Court is an empty field. Next door is another Lance Kashian-linked affordable housing project under construction – Brand Haven.
“It’s about 180 affordable housing units for seniors. And again, it’s 100% affordable. The needs of this community are definitely there,” Gonzales said. The planned opening is later this year.
Kashian Group supports affordable housing
In the same area of Fancher Creek where Brand Haven is being built and Sarah’s Court is proposed, Lance Kashian and the Penstar Group are developing retail stores.
Gonzales says management is committed to affordable housing projects.
“Providing affordable housing is an area of passion for our leaders. This one just makes you feel good that you’re able to provide housing stock for people… well, frankly, like my family when I was growing up who otherwise might not be able to afford housing ”, Gonzales mentioned.
Votes scheduled on Housing Authority projects
Both FHA projects must be voted on to receive city financial support at Thursday’s council meeting. The terms are similar to the Sarah’s Court project.
Michael Duarte, who is the FHA’s director of real estate, says a loan guarantee from the city is crucial.
“It’s critical. It is the backbone of competitiveness. Most affordable housing done on any scale today typically includes tax credits, and it’s extremely competitive, as you can imagine at the state level,” Duarte said.
Duarte says they could break ground by spring 2023.
The FHA has used the state tax credit program many times to help get projects started.
“It’s an extremely powerful tool,” Duarte said.
How competitive are state tax credits?
“We compete with projects from Stockton to Bakersfield, and there’s usually enough money to fund one or two projects in that geographic area, depending on the size of the project and so on. There were probably over a dozen applications and we were lucky to get two from a funded pool,” Duarte said.