Taking over from Chip Halbach, MHFA board meeting minutes will now be reported by MHP's new Executive Director, Anne Mavity.
At its October meeting, the Minnesota Housing Finance Agency (MHFA) board approved $126 million in funding for 60 developments that will provide more than 1,800 housing opportunities throughout the state. It also approved program guides for its Workforce Housing Development Program and Publicly Owned Housing Program (PHOP), and provided concept approval for a new limited partner buy-out loan product.
MHFA recognized at national conference
In her opening remarks, Commissioner Mary Tingerthal announced three awards the agency had recently received at the October 2017 National State Housing Agencies Annual Conference.
One of those awards was a first place received in the category of Special Needs: Combatting Homelessness, and known as the “The Step-Down Pilot Project.” About 25% of Minnesota’s permanent supportive housing units are occupied by individuals and families who no longer need the same level of intensive services that were required when they first moved in. In order to free up those units and services for new families in need of such intensive services, Minnesota Housing worked with Hearth Connection to create “The Step-Down Pilot Project”. It provides a flexible, cost efficient model that helps individuals and families transition to the next level of affordable housing with minimal services, and frees up scarce resources for individuals and households who need higher levels of services and interventions.
Funding awards 2017
The agency approved $126 million in funding for 60 developments that will provide more than 1,800 housing opportunities throughout the state. Together, these housing investments will leverage additional private and local resources that will result in nearly $350 million in total development costs.
Wes Butler and Kasey Kier introduced this year’s funding awards report, noting that Minnesota is unique across the country in offering a Consolidated RFP, that includes other funding entities, with the goal of streamlining the application process, and reducing burdens on applicants, by using a single application process.
The agency provided an overview of market conditions, noting that low vacancy rates, low interest rates and higher median incomes have contributed to robust construction in this market. Nearly all of MHFA’s funded projects open with 100% occupancy, indicating a need for much more housing that is affordable to Minnesota residents. In fact, more than 248,000 lower income renters are cost burdened, paying more than 30% of their income for housing. After a few years of more affordable homeownership opportunities, the market is seeing housing prices increase, which is reducing the supply of affordable homes for sale.
In the multifamily competition, proposals were received for 55 developments, including requests for $164 million in deferred loan funding. Of that, only 25 developments were funded, including $66 million in total deferred loan funding. Demand for these scarce resources is far outreaching the agency’s ability to fund projects. The agency’s awards also include $9.1 million in tax credits to 10 projects that are expected to leverage over $86.9 million in equity at the current level of $0.89 investor credit pricing.
In the single family competition, 35 of 38 proposals were funded for a total of $15 million. Of that, 14 awards, or 32% of the total, serves communities in Greater Minnesota and 21 awards, or 68% of the total, serves the 7-county Twin Cities metro area.
Staff noted that the use of modular building materials was resulting in cost savings, quality homes, and use of Minnesota businesses, noting that on average it cost 24% less than impact fund high subsidy cost thresholds. Board member Stephanie Klinzing asked about the impacts on costs and availability of materials for these funded projects, in light of the recent disasters around the country that will be demanding these same materials and labor. Commissioner Tingerthal noted that the agency was cognizant of that potential and did not allocate the maximum amount available, knowing that project funding gaps may arise later from these conditions.
Workforce Housing Development Program Guide
The Board approved the Workforce Housing Development Program Guide, a program previously administered by DEED that is funded by $4 million in state appropriations for the 2018-19 biennium. An RFP will be issued in the next few weeks. The program was established for small and mid-sized communities in Greater Minnesota with workforce rental housing needs.
The program differs from other Minnesota Housing initiatives in that awards are provided to communities — e.g., cities or other governmental entities — and there is a statutory preference given to projects with the highest percentage of market units. The Board discussed these requirements and Commissioner Tingerthal noted that when the program was at DEED, they were prohibited from investing any of the funds in rent restricted or affordable projects. Minnesota Housing advocated for changes to that in the 2017 legislative session and now it may include mixed income housing so that communities can combine this funding in the agency’s annual Consolidated RFP.
Discussion on defining “workforce housing” clarified that applicants must have an employer letter and data of need, which will be added to staff’s internal research team and profiles of communities and need.
Publicly Owned Housing Program (PHOP) RFP and Program Guide
The Board approved the PHOP RFP and program guide. Commissioner Tingerthal explained that this PHOP program was made possible by a $10 million government obligation (GO) bond, as noted in the 2017 capital investment report. This program has supported HRAs/PHAs since 2005 through the sale of GO bonds. Up to $12 million will be made available based on 2017 POHP RFP, with no minimum or maximum loan amounts, but the property must remain in public ownership for the duration of the 35-year compliance period. Eligible activities are capital expenditures such as major roof and window replacement, heating and cooling, elevator upgrades, and other one-time expenditures on improvements that add value or life to a building.
Limited Partner Buy-Out Loans
Finally, the Board provided concept approval for a new limited partner buy-out loan product. This is a newly proposed multifamily loan product to be used by owners of affordable rental property to buy out the interests of exiting investor limited partners in low income housing tax credit (LIHTC) projects. This would be a short-term, secured loan product funded with Pool 2 dollars, and competitive pricing, with loan periods typically 18-24 months. Commissioner Tingerthal explained that when the 15-year compliance period ends, certain LIHTC partners may wish to exit the investor partnership. With significant Minnesota Housing deferred loans in the deal, Tingerthal said they are looking to encourage developers to use Minnesota Housing instead of commercial lenders. The agency anticipates it likely would close on one loan for $5 million this year, and anticipates two to three additional loans per year going forward.