grnews sep 2016 - docs.doughertymarkets.comdocs.doughertymarkets.com/attachitem/2018 affordable mvp...

M A R K E T V I E W P O I N T

S E P T E M B E R 2 0 1 8

MARKET UPDATE: Affordable Rental Housing in the Twin Cities

Production Summary 2010-2018 . . . . . . . . . . . . . . . 1-2

Populations Served, Affordability Mix, Rent Levels and Unit Types . . . . . . . . . . . . . . . . . . . . . 3-4

Production vs. Need . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Details of New Supply by Submarket . . . . . . . . . . 6 -12

Top Producers, Pipeline and Case Studies . . . . 13-14

Key Issues Facing Affordable Housing . . . . . . . . . . . . 15

Emerging Tools for Affordable Rental Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Dougherty Mortgage and Affordable Housing Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-18

AFFORDABLE RENTAL HOUSING PRODUCTION: A NATIONAL IMPERATIVEThe recovery of the broader housing market after the 2007-2011 collapse was welcome news to the country, but the renewed strengthhas not benefitted all households. Much needed new rental construction since 2013 in the nation’s metro areas has largely servedmiddle- and upper-income renters, understandable given years’ worth of pent-up demand from the recession and the decades-longgrowth of baby boomer and millennial renter groups. However, construction targeted to low- and moderate-income renters has grownmuch more slowly this decade, and production totals across the country have fallen far short of need. Stagnant wages, rapidlyincreasing market rents, and the “upscaling” of older rental projects have added to the tremendous pressure on low- and moderate-income renters and the supply of units affordable to them.

Civic and business leaders across the country are awakening to the severe shortage of affordable rental units and the critical role that theyplay in the economic and social health of the country. A wide variety of tools – among them inclusionary zoning laws, housing trust funds,tenant protection ordinances, and new funding sources – are gaining support at the state and local levels to counter cuts in many federalhousing programs. However, the need for new affordable housing is vast, and the problem is only worsening.

Dougherty Mortgage continually strives to be part of the solution by raising awareness of the widespread need for new affordable rentalhousing in all communities. We also proudly continue to help finance thousands of affordable rental units in the Twin Cities and throughoutthe country. We hope you find this report informative and helpful.

IN THIS ISSUE:

ABOUT THIS REPORTAuthor: Thomas G. O’Neil, Vice President, Dougherty Mortgage LLC (612-317-2122, [email protected]). Design/Layout: Shannon Churchward,Churchward Design. Data Sources: Met Council, Minnesota Housing and other government offices, project web sites, rental clearinghouse web sites, industry reports,accounts from newspapers and other media outlets, and leasing personnel, building managers, and other real estate professionals. Photos: All photos are originalfrom Dougherty Mortgage LLC except where noted. This report is provided for educational purposes for our clients and business associates. The unauthorized use ofthis work is prohibited. © 2018 Dougherty Mortgage LLC. Images above: The Rose (Aeon), The Grainwood (Dominium).

Disclaimer: This report assesses the seven-county Twin Cities affordable rental market as of September 2018. Projects analyzed generally contain 10 or more units. The informationcontained herein has been obtained from sources deemed but not guaranteed to be reliable. Accuracy and completeness are not guaranteed. Past performance does not guarantee futureresults. Site-specific development decisions using this report’s information should not be made without a separate and full review of all available information by professional analysts.

OVERALL PRODUCTION TREND: PROGRESS MADE OVER THE DECADE Production of affordable rental housing1 clearly showed an upward trend throughout the Twin Cities over this decade, rising from just363 units delivered in 2010 to more than 1,700 units likely to be delivered in 2018 and 1,500 more in 2019. If current forecastshold, a total of 159 projects offering roughly 10,400 affordable units will have been built from 2010 through the end of 2019.

This decade’s production has been well-balanced between general-occupancy/family units (56% of new units), age restricted/seniorunits (32%) and units for targeted populations (12%). General-occupancy/family units have been built all across the Twin Cities,while senior units have largely been concentrated in the suburbs (85% of new units), and units for targeted populations reservedalmost exclusively to the central cities (86%).

1 For this report, affordable rental housing includes new, permanent units with rent restrictions at 60% AMI or below, built by private or publicentities for general-occupancy/families, seniors, and targeted populations (e.g. long-term homeless, at-risk youth, persons with mental health or chemical dependency challenges, persons with disabilities, and other supportive housing populations). This report does not tally shelterbeds or other short-term accommodations, housing preservation rehabilitations, new market-rate units that are rented at “affordable” levels, or market-rate units occupied with tenants holding rent vouchers.

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 (U/C)

1,800

1,600

1,400

1,200

1,000

800

600

400

200

–

Numbe

r of N

ew Units

Source: Dougherty Mortgage Multifamily Database* Includes veterans, long-term homeless, youth, persons with mental health or chemical dependency challenges, persons with physical or cognitiveimpairments and other populations with specific supportive needs.

Targeted Populations*

Age Restricted (Senior)

General Occupancy/Family

Lino Lakes

Hugo

Eagan

Afton

Grant

Lakeville

Andover

East Bethel

Orono

Corcoran

Plymouth

Medina

Ramsey

Ham Lake

Woodbury

St. Paul

Oak Grove

Bloomington

Rosemount

Forest Lake

Minnetrista

Eden Prairie

Shakopee

Edina

Burnsville

Maple Grove

May Township

Cottage Grove

Independence

Minnetonka

Columbus

Lake Elmo

Nowthen

St. Francis

Savage

Greenfield

Eureka Township

Benton Township

Helena Township

Linwood Township

Empire Township

Douglas Township

Camden Township

Brooklyn Park

Chaska

Dahlgren Township

Hampton Township

Marshan Township

Coon Rapids

Belle Plaine Township

Hollywood Township

Vermillion Township

Watertown Township

Waconia Township

Scandia

Cedar Lake Township New Market Township

Fridley

Castle Rock Township

Maplewood

Denmark Township

Prior Lake

Laketown Township

Roseville

Inver Grove Heights

Sand Creek Township

Hassan Township

Blakeley Township

Blaine

Spring Lake Township

Greenvale Township

Young America Township

Apple Valley

Oakdale

Shoreview

Ravenna Township

Victoria

Anoka

Farmington

Credit River Township

San Francisco TownshipHancock Township

Champlin

Dayton

Stillwater Township

Sciota Township

Nininger Township

Arden Hills

Crystal

Richfield

Stillwater

St. Louis Park

Golden Valley

North Oaks

Chanhassen

Louisville Township

Mound

Waterford Township

Shorewood

Rogers

St. Lawrence Township

Mendota Heights

Randolph Township

Carver

Wayzata

MahtomediNew BrightonBrooklyn Center

Baytown Township

West Lakeland Township

Vadnais Heights

Hopkins

New Hope

Newport

White Bear Township

South St. Paul

Jackson Township

Jordan

West St. Paul

Belle Plaine

Deephaven

Little Canada

Waconia

Lakeland

Elko

DellwoodMounds View

Fort Snelling

White Bear Lake

Robbinsdale

Centerville

Bayport

Marine on St. Croix

North St. Paul

Columbia Heights

Miesville

Tonka Bay

Coates

Oak Park Heights

St. Paul Park

Circle Pines

Bethel

Falcon Heights

Hampton

Grey Cloud Island Township

Sunfis h

Lak e

Lilydale

Watertown

Woodland

Osseo

Gem Lake

Randolph

Vermillion

Excelsior

Maple Plain

Long Lake

Cologne

Greenwood

Minnetonka Beach

St. Bonifacius

Hanover

Pine Springs

Lexington

Norwood Young America

New Prague

Spring Lake Park

Spring Park

New Market

Lake St. Croix Beach

Mayer

Lakeland Shores

Lauderdale

Loretto

Mendota

New Germany

Medicine Lake

St. Marys Point

St. Anthony

Hilltop

Hamburg

New Trier

Willernie

Hastings

Landfall

Rockford

Minneapolis

§̈¦35

§̈¦35

§̈¦35E

§̈¦35W

§̈¦35W

§̈¦35E

§̈¦94

§̈¦94

§̈¦394

§̈¦694

§̈¦694

§̈¦494

§̈¦494

§̈¦94

§̈¦94

Lino Lakes

Hugo

Eagan

Afton

Grant

Lakeville

Andover

East Bethel

Orono

Corcoran

Plymouth

Medina

Ramsey

Ham Lake

Woodbury

St. Paul

Oak Grove

Bloomington

Rosemount

Forest Lake

Minnetrista

Eden Prairie

Shakopee

Edina

Burnsville

Maple Grove

May Township

Cottage Grove

Independence

Minnetonka

Columbus

Lake Elmo

Nowthen

St. Francis

Savage

Greenfield

Eureka Township

Benton Township

Helena Township

Linwood Township

Empire Township

Douglas Township

Camden Township

Brooklyn Park

Chaska

Dahlgren Township

Hampton Township

Marshan Township

Coon Rapids

Belle Plaine Township

Hollywood Township

Vermillion Township

Watertown Township

Waconia Township

Scandia

Cedar Lake Township New Market Township

Fridley

Castle Rock Township

Maplewood

Denmark Township

Prior Lake

Laketown Township

Roseville

Inver Grove Heights

Sand Creek Township

Hassan Township

Blakeley Township

Blaine

Spring Lake Township

Greenvale Township

Young America Township

Apple Valley

Oakdale

Shoreview

Ravenna Township

Victoria

Anoka

Farmington

Credit River Township

San Francisco TownshipHancock Township

Champlin

Dayton

Stillwater Township

Sciota Township

Nininger Township

Arden Hills

Crystal

Richfield

Stillwater

St. Louis Park

Golden Valley

North Oaks

Chanhassen

Louisville Township

Mound

Waterford Township

Shorewood

Rogers

St. Lawrence Township

Mendota Heights

Randolph Township

Carver

Wayzata

MahtomediNew BrightonBrooklyn Center

Baytown Township

West Lakeland Township

Vadnais Heights

Hopkins

New Hope

Newport

White Bear Township

South St. Paul

Jackson Township

Jordan

West St. Paul

Belle Plaine

Deephaven

Little Canada

Waconia

Lakeland

Elko

DellwoodMounds View

Fort Snelling

White Bear Lake

Robbinsdale

Centerville

Bayport

Marine on St. Croix

North St. Paul

Columbia Heights

Miesville

Tonka Bay

Coates

Oak Park Heights

St. Paul Park

Circle Pines

Bethel

Falcon Heights

Hampton

Grey Cloud Island Township

Sunfis h

Lak e

Lilydale

Watertown

Woodland

Osseo

Gem Lake

Randolph

Vermillion

Excelsior

Maple Plain

Long Lake

Cologne

Greenwood

Minnetonka Beach

St. Bonifacius

Hanover

Pine Springs

Lexington

Norwood Young America

New Prague

Spring Lake Park

Spring Park

New Market

Lake St. Croix Beach

Mayer

Lakeland Shores

Lauderdale

Loretto

Mendota

New Germany

Medicine Lake

St. Marys Point

St. Anthony

Hilltop

Hamburg

New Trier

Willernie

Hastings

Landfall

Rockford

Minneapolis

§̈¦35

§̈¦35

§̈¦35E

§̈¦35W

§̈¦35W

§̈¦35E

§̈¦94

§̈¦94

§̈¦394

§̈¦694

§̈¦694

§̈¦494

§̈¦494

§̈¦94

§̈¦94

ANOKA

WASHINGTON

HENNEPIN

RAMSEY

CARVER

SCOTT DAKOTA

´ 8 0 84 Miles

TWIN CITIES AFFORDABLE RENTAL SUBMARKETS

1 | MARKET UPDATE: AFFORDABLE RENTAL HOUSING IN THE TWIN CITIES

A Decade’s Worth of Production: 2010 – 2019 (U/C)New Affordable Rental Units Delivered

Twin Cities Metro Area (7 Counties)

AFFORDABLE RENTAL PRODUCTION SUMMARY

MinneapolisSt. PaulFirst Ring SuburbsNortheast SuburbsNorthwest SuburbsSoutheast SuburbsSouthwest Suburbs

TWIN CITIES AFFORDABLE RENTAL SUBMARKETSCentral Cities of Minneapolis and St. Paul – The centralcities have supported 45% of all new production this decade,dispersed across twenty-one neighborhoods.

First-Ring Suburbs – Twenty-four communities that weredeveloped largely in the 1950s and 1960s surround thecentral cities. They share a common need to redevelop oldercommercial areas with higher density housing uses.

Second- and Third-Ring Suburbs and Exurban Areas – Thefour regional quadrants of Northwest, Northeast, Southeastand Southwest have a mix of redevelopment and infillprojects on sites in second-ring suburbs, but also greenfieldprojects on land that is urbanizing in third-ring suburbs andexurban cities.

...BUT MORE SUBURBS HAVE JOINED THE EFFORTBy all measures, affordable rental development has become more broadly dispersed across the Twin Cities in the current decade.While only five cities added new rental units in 2010, between 12 and 15 cities were adding new projects each year from 2016through 2018. By the end of 2018, 48 suburban and exurban communities will have added new affordable rental projects during thedecade, along with 21 central-city neighborhoods in Minneapolis and St. Paul.

Successful, pioneering development of affordable rental housing in many suburban areas over the past nine years is helping pave theway for future projects in the years to come. Suburbs allacross the Twin Cities – including communities with highaffordable housing demand such as Edina, Rosemount,Dayton, Savage, Woodbury and Plymouth – have recentlyadded new affordable rental units for the first time in decades(or ever), allowing them now to share in the great challenge oftackling the region-wide affordable housing shortage.

With more cities providing new affordable rental housing, keypublic policy goals are advancing forward. As an example,roughly 2,600 new affordable rental units built since 2010are located within a quarter-mile of an LRT line (existing andplanned), a bus rapid transit (BRT) line or the NorthstarCommuter Rail Line. This means that 29% of new affordableunits offer easy transit access for low- and moderate-incomerenters, a vital goal for public investments in both housingdevelopment and transit infrastructure.

THE URBAN CORE LEADS THE WAY...With nine years of the decade tallied (through 2018),the pattern of affordable rental development in the TwinCities is clear: the urban core communities provide thebulk of all units. Minneapolis and St. Paul together haveaccounted for more than 45% (4,048 units) of all newproduction this decade, while the close-in first-ringsuburbs have added an additional 16% (1,395 units;chart at right). In producing 61% of all new units in theTwin Cities, the central cities and first-ring suburbs over-produce relative to their proportion of population (37%),households (38%) and jobs (46%; table below).

Population, Households and Employment by Development RingTwin Cities (7 Counties) l 2020 Forecast

Affordable Rental Production at Local LevelsTwin Cities (7 Counties) l 2010 – 2018

Population Households EmploymentMinneapolis + St. Paul 738,300 24% 308,500 24% 510,000 28%First-Ring Suburbs 422,210 13% 182,500 14% 325,530 18%NW, NE, SW, SE Suburbs 1,975,160 63% 768,330 61% 961,770 54%7-County Twin Cities 3,135,670 100% 1,259,330 100% 1,797,300 100%Source: Met Council

Total New Total New Number of Areas Projects Units w/New UnitsMinneapolis 44 2,649 13 neighborhoodsSt. Paul 19 1,399 8 neighborhoodsFirst-Ring Suburbs 19 1,395 17 cities*Southeast Suburbs 19 1,157 10 citiesNorthwest Suburbs 17 1,059 9 citiesSouthwest Suburbs 12 651 7 citiesNortheast Suburbs 10 616 5 citiesTotal 140 8,926 69*Includes Ft. Snelling Territory | Source: Dougherty Mortgage Multifamily Database

New Affordable Rental Units by Twin Cities Submarket2010 – 2018

Central Cities 4,048Northeast Suburbs 616Southwest Suburbs 651

Northwest Suburbs 1,059

Southeast Suburbs 1,157

First-Ring Suburbs 1,395

MARKET UPDATE: AFFORDABLE RENTAL HOUSING IN THE TWIN CITIES | 2

PRODUCTION PATTERNS ACROSS THE TWIN CITIES

THE CLEAR CONCLUSION: NEW UNITS SUCCEED IN MANY AREASAffordable development in urban core areas leverages investments in public infrastructure, and often new projects fit well into the existingdense development pattern. But many mixed-use areas in the second- and third-ring suburbs also offer excellent characteristics foraffordable housing, plus strong access to the 54% of metro area jobs that are found there. Sites in Bloomington, Minnetonka, EdenPrairie, Eagan, Burnsville, Maple Grove and other suburbs with high job counts would be ideal locations for new affordable housing.

GENERAL-OCCUPANCY/FAMILY UNITSGeneral-occupancy/family units have comprised 54% ofall new affordable rental production so far this decade,with all parts of the Twin Cities seeing projects of thistype. Eighty-seven general-occupancy projects deliverednearly 4,800 units from 2010 through 2018, roughly530 units average per year.

Developers built affordable general-occupancy units in31 cities, representing all types of development settings.While developers typically built new general-occupancyunits in the two central cities (62% of new supply), theyalso found redevelopment sites in first-ring suburbs, ontypical suburban sites in newer suburbs, and even insuch distant communities as Dayton, Farmington,Carver, Newport and Forest Lake. Ramsey, nearly 30miles northwest of Downtown Minneapolis, has becomean affordable rental development hot spot, with threenew projects built within walking distance of the City’sNorthstar Commuter Rail station.

AGE-RESTRICTED (SENIOR) UNITSAffordable rental units for seniors have comprised 35%of all new affordable units (3,153) in this decade,across all seven submarkets. However, the distribution is greatly skewed toward the suburbs for two mainreasons. First, the bulk of the Twin Cities seniorpopulation lives in the suburbs, providing a large captiveaudience. Second, affordable senior projects gainapproval more easily in the suburbs than do projects forgeneral-occupancy or targeted populations. Housing for targeted populations, in particular, is rarely found inthe suburbs and proposals for new projects often faceintense opposition.

Not surprisingly, the first-ring suburbs have led the way with 912 new affordable senior rental units. The first-ring suburbs havemany older homeowners who have been in their communities for 40 or more years. New rental units in their home communityenable older residents to move to safer housing and keep their vital social networks and established patterns of daily living.

The southeast suburbs have been a leader in affordable senior housing in the outer suburbs. Two developers, Dakota CountyCommunity Development Agency and Dominium, have produced 736 new senior units in eight southeast developments. Thenortheast and northwest suburbs have each seen between 350 and 450 new senior units since 2010, while Minneapolis, St. Pauland the southwest suburbs have had production of 200 to 280 new senior affordable units.

UNITS FOR TARGETED POPULATIONSAffordable rental housing sites for targeted populations are more difficult to secure for a variety of reasons, but proximity to transitand supportive services are key factors. Central-city and first-ring suburban locations provide the best access to both. In thecurrent decade, twenty projects with 976 permanent units (excluding shelter, temporary and transitional units or beds) have beenbuilt thus far in the Twin Cities. Roughly 56% of new units for targeted populations are in Minneapolis (549) and 28% are in thefirst-ring suburbs (278). With the exception of the northwest suburbs (100 units), there are virtually no units in the outer suburbs for targeted populations.


POPULATIONS SERVED IN NEW AFFORDABLE RENTAL UNITS

2,500

2,000

1,500

1,000

500

0

New Affordable Rental Housingby Submarket and Population Served

Twin Cities 2010 – 2018

General Total Occupancy/ Targeted New Units Family Senior Populations

Minneapolis 2,649 1,820 280 549St. Paul 1,399 1,144 211 44First-Ring Suburbs 1,395 205 912 278Southeast Suburbs 1,157 426 731 0Northwest Suburbs 1,059 608 351 100Southwest Suburbs 651 427 224 0Northeast Suburbs 616 167 444 5

Total 8,926 4,797 3,153 976 100% 54% 35% 11%

Numbe

r of U

nits

Min

neap

olis

St. P

aul

Firs

t-Rin

g Su

burb

s

Sout

heas

t Sub

urbs

Nort

hwes

t Sub

urbs

Sout

hwes

t Sub

urbs

Nort

heas

t Sub

urbs

Targeted PopulationsSeniorGeneral Occupancy/Family


AFFORDABILITY MIX, RENT LEVELS AND UNIT TYPES

RENTAL AFFORDABILITY MIX WITHIN NEW PROJECTSSince 2010, most Twin Cities affordable rental developers have chosen to build projects in buildings that are 100% affordable;86% of new units (7,639) opened in such a project, 107 buildings in all. Projects that are “predominantly affordable” – where50% to 99% of the units have rent restrictions – accounted for 11% of new units delivered (952). Just 3% of new affordable rentalunits (335) were in projects with relatively few affordable units, either “mixed income” buildings (20%-49% affordable units) or“marginally affordable” projects (below 20%). This latter category typically included market-rate buildings with a handful of units for long-term homeless individuals.

100% Affordable Example

The Cambric (Senior)-St. Paul(Dominium)Image: Dominium

Rental Price Mix at New Affordable Rental ProjectsTwin Cities (7 Counties) l 2010 – 2018

Affordable Units as No. of No. of % of New % of Project Total Projects Affordable Units Supply

100% Affordable 100% 107 7,639 86%Predominantly Affordable 50% – 99% 15 952 11%Mixed Income 20% – 49% 9 233 2%Marginally Affordable Below 20% 9 102 1%

Total 140 8,926 100%

LEVEL OF RENT RESTRICTIONS AT NEW PROJECTSNearly nine in ten new affordable rental units in the Twin Cities since 2010 have moderate rent restrictions, where rents targethouseholds earning 50% or 60% of the area median income (AMI), the income levels that qualify projects for federal low-incometax credit (LIHTC) equity funding. Much more difficult to obtain are project-based rent subsidies such as Section 8 funds, whichenable developers to offer units to households with low- or very-low incomes. Such “deep subsidy” projects have accounted for 11% of new units since 2010, often at buildings with targeted populations.

Deep Subsidy Example

66 West (At-Risk Youth)-Edina(Beacon Interfaith)

Image: Urban Works Architects

Rent Restrictions at New Affordable ProjectsTwin Cities (7 Counties) l 2010 – 2018

No. of Projects with No. of % of New Type of Restriction* Units** Supply

Deep Subsidy (Section 8, 30% AMI) 55 996 11%Moderate Restriction (50% or 60% AMI) 127 7,830 89%

Total 8,826 100%

UNIT MIX WITHIN NEW RENTAL SUPPLYAs with market-rate projects, the vast majority of unitsat affordable rental projects (non-senior) come inone- and two-bedroom layouts; 37% and 30%,respectively. Studio units, accounting for 19% of thenew non-senior affordable supply, are the norm atprojects with targeted populations, especially thosetargeted to veterans or youth. Larger units for familieswith children, including three- and four+-bedroomunits, comprise about 14% of all new affordable unitsin the Twin Cities. Nearly 95% of the larger units(745) offer three-bedrooms, while only 5% of thesupply (36 units) offers four or more bedrooms. Thelack of four+-bedroom layouts illustrates the difficultyof financing affordable housing for larger families.

Unit Mix of New Affordable Units (Non-Senior)Twin Cities (7 Counties) l 2010 – 2018

No. of Projects No. of Units % of New with Layout* in Layout** Supply

Studio Units 43 1,080 19%One-Bedroom Units 75 2,090 37%Two-Bedroom Units 79 1,710 30%Three-Bedroom Units 55 745 13%Four-Bedroom+ Units 7 36 1%

Total 5,661 100%

* Note: Many buildings have both types of rent restrictions (deep subsidy and moderate).** Subsidy level missing for 100 of 8,926 units in full survey.

* Denotes the number of buildings that have the given unit type. Most buildingsoffer several types of units.** Layout type missing for 112 of 5,773 non-senior units in full survey.


PRODUCTION VS. NEED: BIG CHALLENGES REMAIN

MEASURING AFFORDABLE RENTAL PRODUCTION VS. DOCUMENTED NEEDThe Metropolitan Council, the regional governing body for the Twin Cities, previously produced 2011-2020 affordable housing needestimates for each community in the seven-county metropolitan area. In the chart below, Dougherty Mortgage aggregated thesefigures by submarket, estimated the proportion of need correlating to rental units at or below 60% AMI, and determined to whatextent production has satisfied need across the Twin Cities.

PRODUCTION IS MEETING JUST ONE-FOURTH OF DEMANDProduction is on pace to deliver about 10,400 new affordable rental units in the Twin Cities this decade; 8,926 have been/will bedelivered thus far through 2018. Given the need estimate of more than 42,000 new units for the full decade, production will onlysatisfy about 25% of affordable rental demand. This represents an affordable rental market penetration rate of 7% of newhouseholds in the Twin Cities; however, the rate should be closer to 30%. The current decade's production shortfall carries forwardin the form of higher numbers of cost-burdened renters and households living in crowded or substandard units.

VAST LACK OF SUPPLY IN THE OUTER SUBURBSThe lack of new affordable rental production is particularly acute in the second- and third-ring suburbs, where 55% to 65% of Twin Cities residents live and/or work. Each year this decade, the four outer suburban regions should have collectively addednearly 3,400 new affordable rental units to keep up with household growth. Instead, they have produced just 390 new units peryear on average. By the end of this decade, affordable rental production will have fallen about 30,000 units behind need in theouter suburbs. Any effort to increase production of affordable rental units in the outer suburbs is vital.

The outer suburbs have made the best progress with affordable senior housing. Approximately 56% of new affordable rental unitsfor seniors have been built there. In addition to helping older adults stay in their long-time communities as their housing needschange, new affordable rental construction for seniors produces a positive effect on the ownership market; seniors moving toaffordable rental housing often free up a single-family home that is suitable for a family with children.

DETAILED REVIEW OF EACH SUBMARKETThe following pages discuss production details and affordable rental need in each of the seven Twin Cities submarkets thatDougherty Mortgage tracks.

Affordable Rental Housing Production vs. NeedTwin Cities (7 Counties) l 2010 – 2019

New Affordable Estimated Affordable Affordable Progress Toward Remaining Rental Units Household Rental Housing Rental Units Decade Rental UnitsSubmarket Delivered1 Growth2 Penetration Rate Needed3 Production Goal Needed

Minneapolis 2,649 18,234 14.5% 3,379 78.4% 730St. Paul 1,399 12,329 11.3% 2,100 66.6% 701First-Ring Suburbs 1,395 12,165 11.5% 3,078 45.3% 1,683Southeast Suburbs 1,157 21,094 5.5% 9,138 12.7% 7,981Northwest Suburbs 1,059 19,838 5.3% 7,086 14.9% 6,027Southwest Suburbs 651 26,163 2.5% 11,987 5.4% 11,336Northeast Suburbs 616 17,600 3.5% 5,288 11.6% 4,672

8,926 127,423 7.0% 42,056 21.2% 33,209

1) Dougherty Mortgage Multifamily Database.

2) Metropolitan Council: Thrive MSP 2040 Forecasts, January 2018; 2010-2020 decade growth averaged over nine years.

3) Metropolitan Council: 2011-2020 Allocation of Affordable Housing Need (10/4/17). Affordable rental (<60% AMI) need is calculated at 80% of the totalneed estimate for the Twin Cities, equating to 42,056 new affordable rental units needed in the current decade.

2010 – 2018 (9 YEARS) FULL DECADE 2010 – 2019


2010 – 2018 AFFORDABLE RENTAL PRODUCTION – MINNEAPOLIS

Source: Dougherty Mortgage LLC

SUPPLY AND DEMAND SUMMARY

Submarket2010 – 2018 Rank 1-7

New Affordable Rental Units Delivered1 2,649 (1st)

Estimated Household Growth2 18,234 (4th)

Affordable Rental Housing Penetration Rate 14.5% (1st)

Full Decade

Affordable Rental Units Needed3 3,379 (5th)

Progress Toward Decade Production Goal 78.4% (1st)

Remaining Affordable Rental Units Needed 730 (6th)

Downtown Neighborhoods: 888

St. Anthony/East Bank 342

Gateway/Mill Districts 251

North Loop 178

Elliot Park 61

Skyway Core 55

Loring Park 1

Phillips 433

Near North 365

Longfellow 322

Uptown Core 208

University Neighborhoods 131

Northeast 101

Powderhorn 87

Southwest 72

Nokomis 42

Total 2,649

2017 AND 2018 PROJECT OPENINGS:

EcoVillage Apartments | 75 units New Vision | 20 units

Downtown View | 46 units

Millwork Lofts | 78 units

Marshall Flats | 36 units

1) Dougherty Mortgage Multifamily Database; nine years of data.

2) Metropolitan Council: Thrive MSP 2040 Forecasts, January 2018; 2010-2020 growth averaged over nine years.

3) Metropolitan Council: 2011-2020 Allocation of Affordable Housing Need (10/4/17). Affordable rental (<60% AMI) need is calculated at80% of the total need estimate for the Twin Cities, translating to 42,056 new affordable rental units needed in the current decade.

Image credits: CBS (Downtown View), Indian Neighborhood Club (New Vision).

PRODUCTION BY NEIGHBORHOOD:

KEY PRODUCTION DETAILS:• Highest producer by far (549 units) for targeted populations;

57% of the Twin Cities total. • Broadest mix of populations served among all TC’s submarkets. • 45% of new units (1,182) are within 1/4 mile of a rail transit station.

NOTABLE PRODUCTION SHORTFALLS:Senior units, especially in the Northeast, Camden, Calhoun/Isleand Southwest communities.

2010 2011 2012 2013 2014 2015 2016 2017 2018

600

500

400

300

200

100

–

Age Restricted (Senior) Targeted Populations G-O/Family

Annual Need:338 Units

MINNEAPOLIS NEW AFFORDABLE UNITS DELIVERED 2010 – 2018

2010 – 2018 AFFORDABLE RENTAL PRODUCTION – ST. PAUL




New Affordable Rental Units Delivered1 1,399 (2nd)


Affordable Rental Housing Penetration Rate 11.3% (3rd)

Full Decade


Progress Toward Decade Production Goal 66.6% (2nd)

Remaining Affordable Rental Units Needed 701 (7th)

Downtown Neighborhoods: 351

Western CBD 281

Lowertown/North Quadrant 70

St. Anthony/Midway 298

West 7th/Summit Hill 260

Dayton’s Bluff/Battle Creek 226

Summit University/Thomas-Dale Frogtown 144

West Side Neighborhood 76

Mac-Groveland/Highland 44

Total 1,399


BROWNstone | 35 units Villa Del Sol | 40 units

Pioneer Apartments | 144 units Wilson Ridge II | 113 units



3) Metropolitan Council: 2011-2020 Allocation of Affordable Housing Need (10/4/17). Affordable rental (<60% AMI) need is calculated at 80% of the total need estimate for the Twin Cities, translating to 42,056 new affordable rental units needed in the current decade.

Image credits: Neighborhood Development Alliance (Villa Del Sol), Lupe Development Partners (Wilson Ridge II)

Image credits – page 8: DJR Architecture (The Shoreham), Abodo (Central Park West), Dana Wheelock Photography (Richard A. Brustad Homes),Kaas Wilson Architects (The Sanctuary at Brooklyn Center), Urban Works Architects (66 West), Velair Property Management (Red Rock Square),BKV Group (The Legends of Columbia Heights), Oppidan (4800 Excelsior)

PRODUCTION BY NEIGHBORHOOD:

KEY PRODUCTION DETAILS:• 2nd highest producer (1,144 units) of general-

occupancy/family units.• 44% of units (611) were added in warehouse or historic

conversions.• 60% of new units (836) are within 1/4 mile of an LRT or BRT line.

NOTABLE PRODUCTION SHORTFALLS:• Units for targeted populations needed all throughout

the city.• Senior units, especially in Mac-Groveland, West 7th,

Como and Payne/Phalen wards.

2010 2011 2012 2013 2014 2015 2016 2017 2018

400

350

300

250

200

150

100

50

–



ST. PAULNEW AFFORDABLE UNITS DELIVERED 2010 – 2018



2010 –2018 AFFORDABLE RENTAL PRODUCTION – FIRST-RING SUBURBS




New Affordable Rental Units Delivered1 1,395 (3rd)


Affordable Rental Housing Penetration Rate 11.5% (2nd)

Full Decade


Progress Toward Decade Production Goal 45.3% (3rd)

Remaining Affordable Rental Units Needed 1,683 (5th)


4800 Excelsior | 164 units (18 aff.)

66 West Apartments | 39 units

Richard A. Brustad Homes 100 units

Red Rock Square | 42 units1) Dougherty Mortgage Multifamily Database; nine years of data.


3) Metropolitan Council: 2011-2020 Allocation of Affordable Housing Need(10/4/17). Affordable rental (<60% AMI) need is calculated at 80% of thetotal need estimate for the Twin Cities, translating to 42,056 new affordablerental units needed in the current decade.

PRODUCTION BY CITY:

KEY PRODUCTION DETAILS:• 64% of units (684) were built in the west metro; 36% (390)

in the east metro.• 912 new senior units leads all submarkets by far.• One in six units (224) are within 1/4 mile of an existing or

planned LRT line.

NOTABLE PRODUCTION SHORTFALLS:• Units for targeted populations are rare in first-ring suburbs

in the eastern metro. • General-occupancy/family units are badly needed in all

first-ring cities.

2010 2011 2012 2013 2014 2015 2016 2017 2018

400

350

300

250

200

150

100

50

–



FIRST-RING SUBURBSNEW AFFORDABLE UNITS DELIVERED 2010 – 2018

The Shoreham on France 148 units (30 aff.)

Central Park West Phase I 199 units (6 aff.)

The Sanctuary at Brooklyn Center 164 units

Columbia Heights 191St. Anthony 169West St. Paul 164Brooklyn Center 164Fort Snelling Territory 158Crystal 130Maplewood 80St. Louis Park 54South St. Paul 54Roseville 50Golden Valley 45Newport 42Edina 39Robbinsdale 36Richfield 19

Total 1,395

The Legends of Columbia Heights 191 units




New Affordable Rental Units Delivered1 1,157 (4th)

Estimated Household Growth2 21,094 (2nd)

Affordable Rental Housing Penetration Rate 5.5% (4th)

Full Decade

Affordable Rental Units Needed3 9,138 (2nd)

Progress Toward Decade Production Goal 12.7% (5th)

Remaining Affordable Rental Units Needed 7,981 (2nd)

Apple Valley 268

Cottage Grove 184

Lakeville 182

Eagan 124

Inver Grove Heights 90

Farmington 87

Burnsville 80

Rosemount 60

Woodbury 45

Hastings 37

Total 1,157


Argonne Hills Senior Housing 62 units




Image credits: Apartments.com (The Legends of Apple Valley and The Legends of Cottage Grove), Stonebridge Construction (Argonne Hills)

PRODUCTION BY CITY:

KEY PRODUCTION DETAILS:• Second highest producing submarket for senior units (731);

24% of new affordable senior units in the Twin Cities.• No production of units for targeted populations among

39 southeast cities.• General-occupancy/family units average only 39 units

in size.

NOTABLE PRODUCTION SHORTFALLS:• Units for targeted populations needed throughout the

southeast region.• General-occupancy/family units are in high demand

across the southeast region.

2010 2011 2012 2013 2014 2015 2016 2017 2018

900

800

700

600

500

400

300

200

100

–



SOUTHEAST SUBURBSNEW AFFORDABLE UNITS DELIVERED 2010 – 2018


The Legends of Apple Valley 163 units

The Legends of Cottage Grove 184 units

2010–2018 AFFORDABLE RENTAL PRODUCTION – SOUTHEAST SUBURBS


2010–2018 AFFORDABLE RENTAL PRODUCTION – NORTHWEST SUBURBS




New Affordable Rental Units Delivered1 1,059 (5th)

Estimated Household Growth2 19,838 (3rd)


Full Decade

Affordable Rental Units Needed3 7,086 (3rd)


Remaining Affordable Rental Units Needed 6,027 (3rd)

Champlin 256

Coon Rapids 167

Ramsey 151

Maple Grove 146

Anoka 100

Plymouth 82

New Hope 68

Dayton 49

Medina 26

Osseo 14

Total 1,059


The Legends of Champlin 184 units

Rum River Veterans Cottages 100 units

Balsam Apartments | 49 units

Greenway Terrace | 54 units

The Axis | 157 units (16 aff.)



3) Metropolitan Council: 2011-2020 Allocation of Affordable Housing Need(10/4/17). Affordable rental (<60% AMI) need is calculated at 80% of thetotal need estimate for the Twin Cities, translating to 42,056 new affordablerental units needed in the current decade.

Image credits: Dominium (The Legends of Champlin), Star Tribune (RumRiver Cottages), Sand Companies (Balsam Apartments), Rent.com (The Axis),Aeon (Greenway Terrace)

PRODUCTION BY CITY:

KEY PRODUCTION DETAILS:• Senior housing has been on rise since 2015 with 351 new units.• 62% of northwest suburbs (16/26) have had zero production

this decade.• 23% of new units (241) are within 1/4 mile of the Northstar

Rail Line.

NOTABLE PRODUCTION SHORTFALLS:• New units for targeted populations are virtually non-existent

in the northwest suburbs.• Far more general-occupancy/family units are needed than

the 75 produced in a typical year. All communities neednew units of this type.

2010 2011 2012 2013 2014 2015 2016 2017 2018

700

600

500

400

300

200

100

–



NORTHWEST SUBURBSNEW AFFORDABLE UNITS DELIVERED 2010 – 2018




New Affordable Rental Units Delivered1 651 (6th)

Estimated Household Growth2 26,163 (1st)


Full Decade

Affordable Rental Units Needed3 11,987 (1st)


Remaining Affordable Rental Units Needed 11,336 (1st)

Prior Lake 238

Chaska 130

Minnetonka 93

Carver 68

Savage 66

Hopkins 51

Wayzata 6

Total 651


Oxford Village | 51 units




Image credits: Apartmentfinder.com (The Grainwood and Creek’s Run Phase II), hometownsource.com (Oxford Village), Apartments.com (Pike Lake Marsh)

PRODUCTION BY CITY:

KEY PRODUCTION DETAILS:• Second-lowest affordable production of all submarkets;

highest in household growth.• No production of units for targeted populations among

59 southwest communities.• Second-lowest production total (224 units) for affordable

senior housing.


southwest region.• General-occupancy/family and senior units are in high

demand across the southwest.• Cities with large employment bases have lacked production,

e.g., Eden Prairie, Bloomington.

2010 2011 2012 2013 2014 2015 2016 2017 2018

1,200

1,000

800

600

400

200

–


Annual Need:1,199 Units

SOUTHWEST SUBURBSNEW AFFORDABLE UNITS DELIVERED 2010 – 2018


The Grainwood | 170 units Creek’s Run THs-Phase II | 36 units

Pike Lake Marsh | 68 units

2010–2018 AFFORDABLE RENTAL PRODUCTION – SOUTHWEST SUBURBS





New Affordable Rental Units Delivered1 616 (7th)



Full Decade



Remaining Affordable Rental Units Needed 4,672 (4th)

Spring Lake Park 194

Forest Lake 142

Oakdale 101

White Bear Lake 95

Mahtomedi 79

Hugo 5

Total 616


St. Andrew’s Family Shelter | 5 units




Image credits: New Life Church (St. Andrew’s Family Shelter), after55.com (The Legends of Spring Lake Park)

PRODUCTION BY CITY:

KEY PRODUCTION DETAILS:• Only 167 new units built for general-occupancy/families.• Fewer than 10 units built for targeted populations among

41 southeast cities.• Relatively strong senior housing production (444 units);

3rd highest.


northeast region.• General-occupancy/family units are badly needed all

across the northeast.• Closer-in suburbs such as New Brighton, Arden Hills, Fridley

and Vadnais Heights have had no new units this decade.

2010 2011 2012 2013 2014 2015 2016 2017 2018

500

400

300

200

100

–



NORTHEAST SUBURBSNEW AFFORDABLE UNITS DELIVERED 2010 – 2018

The Legends of Spring Lake Park 194 units

2010–2018 AFFORDABLE RENTAL PRODUCTION – NORTHEAST SUBURBS

TOP PRODUCERS AND PROJECT PIPELINE


PROJECT PIPELINE 2019 – 2020• The central cities are again leading the way with 69%

of new affordable units (1,357) under construction for2019 or 2020 delivery.

• St. Paul has a strong mix of senior and non-senior unitsand is leading all submarkets with 826 affordable units under construction.

• With the exception of the southeast suburbs, there is little or no new affordable construction underway in theouter suburbs of the Twin Cities, areas high in populationand employment. Demand for affordable housing of alltypes is exceedingly high in these areas.

Affordable Rental Housing PipelineUnder Construction for 2019 or 2020 Delivery

Twin Cities Submarkets (7 Counties) Gen-Occ. & Senior Submarket Targeted Units Units Total

1 St. Paul 551 275 8262 Minneapolis 531 - 5313 Southeast Suburbs - 258 2584 First-Ring Suburbs 227 17 2445 Southwest Suburbs 54 - 546 Northwest Suburbs 50 - 507 Northeast Suburbs - - 0Total 1,413 550 1,963

TOP PRODUCERS: GENERAL-OCCUPANCY & TARGETED POPULATIONS• The top ten producers accounted for 60% of all new units

for general-occupancy and targeted populations since2010; 3,469 units.

• Seven of the top ten producers were very active, with atleast five new projects opened during the period.

• Dominium has led all producers with 823 new units since 2010; eight other developers have built at least220 new units.

• The top developers have built larger projects (64 unitsaverage size), while smaller-volume developers (1-3 projects delivered) have averaged just 43 units per project.

AGE-RESTRICTED (SENIOR) UNITS• All new affordable senior units since 2010 have been

built by just 14 developers.

• Dominium has led all producers by far, with 1,665 newsenior units, or 53% of all deliveries.

• Dakota County CDA and Dominium combined haveopened nearly two-thirds of all new affordable senior rental projects in the Twin Cities.

• One-third of production has come from developersbuilding one or two projects of roughly 62 units in size on average.

All Affordable Rental Housing ProducersSenior/Age Restricted

Twin Cities (7 Counties) l 2010 – 2018 No. of No. of Projects Units

1 Dominium 10 1,6652 Dakota County CDA* 7 4383 SCA Properties* 2 3284 CommonBond Communities* 3 1475 Shelter Corp. 2 1186 Episcopal Homes 2 987 Washington County HRA 1 708 Wellington Management 1 649 Tim Nolde 1 6210 Aeon* 1 5411 Minneapolis Public Housing Authority 1 4812 Beacon Interfaith Housing Collaborative* 1 4213 Tealwood 1 1714 St. Anne’s 1 2Total 34 3,153

Top Ten Affordable Rental Housing ProducersGeneral Occupancy & Targeted Populations

Twin Cities (7 Counties) l 2010 – 2018 No. of No. of Projects Units

1 Dominium 6 8232 Sand Companies* 7 4203 Lupe Development Partners* 3 3544 Project for Pride in Living* 7 3485 Ron Clark Construction 5 3196 Dakota County CDA* 8 2957 Aeon* 5 2828 CommonBond Communities* 6 2539 Sherman Associates 3 22010 Beacon Interfaith Housing Collaborative 4 155Subtotal – Top 10 54 3,469All Other Developers 53 2,304Total 107 5,773* Includes projects done jointly with another developer.

* Includes projects done jointly with another developer.

2B

2A

1

3

4B

4C

5

4B

5

5

4A

CE

NT

ER

ST

.

ST

.

TR

AP

RO

CK

ST

.

OL

IVIN

E S

T.

AR

MS

TR

ON

G B

LV

D.

RA

MS

EY

BL

VD

.

RH

INE

ST

ON

E S

T.

PE

RID

OT

ST

.

146th AVE.

BUNKER LAKE BLVD.

SA

PP

HIR

E

SUNWOOD DRIVE

ZE

OL

ITE

ST.

VETERANS DRIVE

RAMSEY PARKWAY

CE

NT

ER

ST

.

ST

.

TR

AP

RO

CK

ST

.

OL

IVIN

E S

T.

AR

MS

TR

ON

G B

LV

D.

RA

MS

EY

BL

VD

.

RH

INE

ST

ON

E S

T.

PE

RID

OT

ST

.

146th AVE.

BUNKER LAKE BLVD.

SA

PP

HIR

E

SUNWOOD DRIVE

ZE

OL

ITE

ST.

VETERANS DRIVE

RAMSEY PARKWAY


A New Model: Affordable Assisted Living at The Sanctuary at Brooklyn CenterWhile there is a growing number of affordable senior housingdevelopments for independent seniors, those in need of assisted-livingservices have virtually no new options. The 158-unit Sanctuary atBrooklyn Center has solved the problem and is now providing affordableassisted living in a modern facility that looks and feels like market-ratesenior housing.

In typical fashion, The Sanctuary used federal low-income housing taxcredits to help fund construction. This keeps base rents at 60% AMI, or$904 per month. Where the project differs is its use of several federal and state financial assistance programs to provide assisted living services.Residents must qualify for medical assistance (MA) through Medicaid,have a need for 24-hour supervision and require help with at least three activities of daily living (ADLs). Once they meet the income andhealth-need qualifications, they gain a payment waiver that allows themaccess to tailored assisted living services up through memory care. Some residents seek additional financial assistance through a GroupResidential Home waiver and those under age 65 gain assistance fromthe Minnesota Community Access for Disability Inclusion Waiver (CADI).

The Sanctuary at Brooklyn Center opened on March 30, 2018 and over60% of its 158 units were leased within five months. The remaining 40%of units are reserved while applicants complete the qualification process.Project leasing staff report extremely strong interest by potential residentsand a continuous flow of calls from people all across the Twin Cities.

Additional Sources: SGA Properties, Kass Wilson Architects, Sun Post

AFFORDABLE HOUSING CASE STUDIES

Transit-Oriented Development in the Exurbs: Greenway Terrace in RamseyRamsey, an exurban city nearly 30 miles northwest of DowntownMinneapolis, has become a hot spot for development this decade. WithinRamsey’s new 300+ acre downtown district known as “The COR” (TheCenter of Ramsey), a wide range of uses have been built including retail,office, recreation, government facilities, owned housing and multifamilyhousing. Nearly all new uses in The COR are within a 3/4 mile radius of the Ramsey Station for the Northstar Commuter Rail Line, the directconnector into Downtown Minneapolis. Many uses, like the new GreenwayTerrace affordable apartments from Aeon, are within walking distance ofthe station.

When it opens in fall 2018, Greenway Terrace will provide 54 affordableunits to individuals and families earning 50% AMI or less. Additionally,four units will have Section 811 Project-Based Rental Assistance, fourunits will have Group Residential Housing (GRH) assistance, and 15 unitswill have Project-Based Vouchers. The many layers of funding assistancewill ensure that the project is open to a wide range of households in theRamsey area.

To fund the project, Aeon utilized roughly $7.7 million in low-incomehousing tax credits, supplemented by an FHA-insured first mortgage under the 221(d)(4) loan program. Other sources included a loan fromthe City of Ramsey and sales tax and energy rebates.

Additional Sources: Aeon, City of Ramsey, Finance and Commerce, Metro Transit


KEY ISSUES FACING AFFORDABLE HOUSING

HURDLES TO NEW SUPPLYVast Production Shortfall in the Suburbs – For a variety of reasons, construction of new affordable rental housing has gained only limited traction in the outer suburbs. The issue is particularly important because 55% to 65% of Twin Cities jobs and residentsare located in the outer suburbs and new affordable rental housing there is in very high demand. Thousands of affordable unitsare needed annually in the outer suburbs.

Depletion of “NOAH” Supply – Naturally occurring affordable housing (“NOAH”) units – lower-priced units privately owned withoutsubsidy – account for 55% of the affordable rental supply in Minnesota, but the supply is dwindling. Each year, the state loses an estimated 2,000 NOAH units as properties are sold, improved and priced up in rent.1 At least half of this loss occurs in the Twin Cities, negating much of the gain made by new affordable construction.

Rising Costs: Interest Rates, Building Materials and Skilled Labor – Broader interest rates have ticked up in 2018 on the heelsof two federal funds rate increases, with a third increase expected in December. Construction labor and material, notably Canadiansoftwood lumber, have also increased in price well above inflation in recent years as a result of high material demand, new tariffsand an overall shortage of labor. Master electricians, in particular, are in great shortfall in the Twin Cities due in part to laborcompetition from the fast-growing solar industry. Combined, these cost factors have created incremental funding needs for affordableprojects and put pressure on developers to find very valuable gap financing.

NIMBYism – Opposition to affordable housing is still a powerful force throughout the Twin Cities. Projects in many areas faceorganized opposition claiming – despite evidence to the contrary – a wide range of purported negative impacts. A recent 68-unitproject in an outlying suburb faced 10 months of opposition from 1,000 residents only to have the City Council unanimouslyapprove the project based on the Council’s belief in overwhelming need. The attractively-built project leased quickly, has a waitinglist “in the hundreds” and is home to retirees, local government workers, Target employees, service industry workers and laborers,among others. In reality, new affordable rental projects are indistinguishable from other private sector projects, and they end upbeing very valuable assets to a community’s housing supply.

DEMAND PRESSURESDemographic Waves: Millennials (1981-1996) and Baby Boomers (1946-1964) – The two largest population cohorts in U.S.history have converged on rental housing at the same time. Millennials are in their prime rental years and comprise the largestnumber of renter households in poverty, 5.3 million households.2 Closely following are Baby Boomer households, 5.0 million ofwhich also live at poverty income levels. Millennials, with age and time on their side, will hopefully work their way into higherincomes in the coming years. Baby Boomers, conversely, are starting to swell the ranks of the impoverished as their work careerscease, they spend down assets and many find that they have little or no retirement savings.

Cost Burdened Households – A household paying in excess of 30% of gross income for housing costs is considered costburdened. More than 160,000 renter households in the Twin Cities are estimated to be cost burdened.3 Many newly-formed low-income households (e.g., Millennials) become cost burdened without new construction to meet their increasing numbers.

Persistent Homelessness – Many local efforts to fight the problem of homelessness have helped and the numbers have droppedby 8% since 2012. However, the most recent survey from Wilder Research in 2015 still found 6,200 homeless individuals in theTwin Cities, 35% of whom were children. Homeless individuals and families often need housing with services.

Rising Rents / Stagnant Wages – Two Labor Department figures from this year show the underlying stagnation of real wages in theU.S.: The strong annual wage growth estimate of 2.9% in August was fully offset by the July inflation estimate of 2.7%. Despitelongstanding wage stagnation, average rents in the Twin Cities have risen by 29% since 2010 (Marquette Advisors).

1 “The Loss of Naturally Occurring Affordable Housing,” Minnesota Housing, May 2018 and The Governor’s Task Force on Housing,August 2018.2 “5 facts about Millennial households,” Pew Research Center, September 6, 2017.3 “State of the State’s Housing 2017,” Minnesota Housing Partnership, March 2017.


EMERGING TOOLS FOR AFFORDABLE RENTAL DEVELOPMENT

STATE AND LOCAL TOOLSHousing Trust Funds – The Minnesota Legislature passed legislation in 2017 to encourage local communities to establish localhousing trust funds (LHTFs) using HRA levies and other local funds. The financing of affordable housing is one of the specified usesof LHTF monies. Minneapolis, Red Wing, St. Paul and Goodhue County either have current LHTFs or are developing them, andDuluth Mayor Emily Larson has announced plans to create a new trust fund with $1-2 million in annual money to be used foraffordable housing.

Tax Credit Contribution Fund – Also referred to as a “state housing tax credit,” the Tax Credit Contribution Fund would establish a program to allow Minnesota taxpayers to contribute funds to affordable housing development in return for equal credit againsttheir state income tax liability. Investments could go toward a specific development or general loan pool that is used for severalaffordable projects. According to the Minnesota Housing Partnership, a similar program in North Dakota has leveraged about $5 for every $1 of investment in its fund, creating more than 2,500 affordable units across the state since 2011.

TIF and TIF Pooling – Tax increment financing (TIF) is a decades-old tool to leverage the long-term gain in tax revenue from a new development to help fund its initial construction. TIF pooling allows a city to use excess tax revenues from one or more over-performing TIF districts to invest in new affordable housing projects in other parts of the city. The City of Minnetonka, as anexample, is forecasting to have $3.585 million in pooled TIF funds for use between 2019 and 2022 towards new affordable rental development.

Inclusionary Zoning and Opt-Out Payments – Many cities require new developments of a given size to set aside a certain portionof the units at affordable rents, ensuring that affordable housing is built in some proportion to overall growth. The City of Edinarecently enacted a policy whereby all new multifamily developments of 20 or more units that require re-zoning or a comp planamendment to provide at least 10% of rentable area to be reserved at 50% area median income (AMI) rent or 20% of rentablearea to be reserved at 60% AMI rent. The policy gives developers the option to build the units in another location, build the units inpartnership with another project, or buy out of the obligation for $100,000 per required affordable unit. Funds generated by thislast option are then applied to another affordable development.

FEDERAL TOOLSStreamlined Loan Processing for HUD Affordable Financing – Over the past three years, HUD has made a number of majorchanges that enable faster, easier processing of multifamily loans coupled with low-income housing tax credits (LIHTC), taxincrement financing and abatements, subordinate government loans and grants, and other tools used on affordable rental projects.HUD provides clearer directions and faster loan package review and approval for all categories of affordable rental investment: newconstruction, substantial rehabilitation, and “heavy” refinance with repairs.

Income Averaging with LIHTC Financing – In March 2018, Congress added “income averaging” as a third minimum set-asideelection for LIHTC financing of affordable rental projects. The new selection allows LIHTC-qualified units to serve householdsearning as much as 80% of AMI as long as the property’s overall average income limit is no more than 60% of AMI. Projectsselecting income averaging must set aside at least 40% of units as affordable. Income averaging should allow for more householdsto be served by affordable housing on the upper and lower sides of the income scale. Higher rents paid by households at theupper range (e.g., 80% AMI) would offset lower rents paid by very low- and extremely low-income households.

Opportunity Zone Funds – The tax reform law of 2018 created a tax incentive through Qualified Opportunity Zones (QOZs) thatcould ultimately benefit affordable rental developments. Individuals and businesses that sell assets with taxable gains are allowedto invest in projects in qualified low-income areas representing about 11% of the U.S. census tracts. Qualifying investments areeligible to defer current capital gains and permanently avoid some portion of gains. While final federal rules are still beingdeveloped, there are no restrictions on using these benefits in conjunction with other development tax incentives such as LIHTC,New Markets Tax Credits (NMTC) and Historic Tax Credits (HTC).

DOUGHERTY MORTGAGE AND AFFORDABLE HOUSING FINANCE


A LEADING LENDER WITH A NATIONWIDE PRESENCEDougherty Mortgage LLC is a top provider of conventional and affordable multifamily financing, with offices throughout the country.Dougherty Mortgage specializes in providing access to federal agency loan programs to customers interested in Fannie Mae DUS®,Freddie Mac Program Plus®, and FHA financing solutions. Dougherty Mortgage has also been awarded designation as alender/partner with USDA under the Community Facilities guaranteed loan program. In addition to conventional multifamily financing,Dougherty Mortgage also provides financing solutions for affordable housing, senior independent and assisted living residences,hospitals, health care facilities and student housing. Since 2011, Dougherty Mortgage has been a top-10 HUD/FHA lender in terms ofthe number of loans, dollar amount, or both. Dougherty Mortgage is also a Fannie Mae DUS® lender with national coverage.

AFFORDABLE HOUSING FINANCE – A VARIETY OF SOLUTIONSIn addition to extensive conventional financing experience, Dougherty Mortgage offers comprehensive debt solutions for affordablerental housing projects in all types of settings. As a leading Fannie Mae and HUD/FHA lender, we recognize the challengesassociated with affordable housing finance and guide our clients through the process at all stages. Some of the many solutionswith which we help our clients include Fannie Mae DUS® and FHA-insured mortgages, tax-exempt credit enhancement, low-incomehousing tax credits, historic and new markets tax credits and various government programs that offer subordinated loans or grants.

Our affordable housing clients include both non-profit and for-profit multifamily housing owners, developers and operators.Whether our clients are looking to refinance, acquire, build or rehabilitate, we offer compelling financial options and work diligentlyto develop a creative, tailored solution for each transaction.

INTEGRATED FINANCING SOLUTIONS – DOUGHERTY MORTGAGE AND DOUGHERTY & COMPANYDougherty Mortgage LLC partners with an affiliated entity, Dougherty & Company LLC, on many affordable transactions that involve4% low-income housing tax credits coupled with tax-exempt bonds. On all types of housing transactions, Dougherty & Companymay also serve as the underwriter for tax increment revenue bonds, subordinate bonds, housing and healthcare bonds, and othertypes of issuances.

Dougherty Mortgage LLC90 South Seventh Street, Suite 4300Minneapolis, MN 55402612-317-2100 | 866-922-0786 Toll-freewww.doughertymarkets.com

For more information about this report, please contact Thomas G. O’Neil at Dougherty Mortgage LLC 612-317-2122,[email protected]

Dougherty Financial Group

LLC

Dougherty Insurance Agency LLC

Dougherty & Company LLC

Dougherty Funding LLC

Dougherty Wealth Advisers LLC

Dougherty Mortgage LLC

Dougherty Equipment Finance LLC

Dougherty Real EstateEquity Advisors LLC

THE COMPLETE GROUP OF DOUGHERTY COMPANIES


HUD/FHA TRANSACTIONS

FANNIE MAE TRANSACTIONS

Bridgeway Apartments andPark Acres Apartments & THs

$5.3 millionFannie Mae

Robbinsdale and New Hope, MNJanuary 2018

Green Twig Villas$7.3 millionFannie Mae

Oak Park Heights,MN l February 2018

Mill Creek Place Apartments$9.4 millionFannie Mae

Douglasville, GA l April 2018

Crowell Square Apartments$1.2 millionFannie Mae

Ashville, NC l May 2018

Hawaiian Gardens Apartments$12.4 million

Fannie Mae SupplementalHawaiian Gardens,CA l June 2018

Cottages of Frankfort$4.1 millionFannie Mae

Frankfort, KY l July 2018

Briarcliff Manor$5.4 millionFannie Mae

Mahtomedi, MN l July 2018

Meadow Ridge Senior Apartments$2.1 millionFannie Mae

Jackson, MS l July 2018

Victory Crossing Apartments$7.1 million

HUD 223(a)(7) RefiColumbus, GA l February 2017

Downtowner Apartments$5.2 million

HUD 223(a)(7) RefiSt. Louis, MO l March 2017

Greenway Terrace$4.8 million

HUD 221(d)(4) N-CRamsey, MN l December 2017

Green on Fourth$42.8 million

HUD 221(d)(4) N-CMinneapolis, MN l January 2018

Seven Palms Apartments$22.7 million

HUD 223(f) RefiPunta Gorda, FL l March 2018

Eastgate Apartments$16.1 million

HUD 221(d)(4) N-CRochester, MN l May 2018

The Legends at Berry Senior$34 million

HUD 221(d)(4) N-CSt. Paul, MN l June 2018

The Chamberlain$47.8 million

HUD 221(d)(4) N-CRichfield, MN l July 2018

REPRESENTATIVE AFFORDABLE TRANSACTIONS

90 South Seventh Street, Suite 4300Minneapolis, MN 55402

612-317-21001-866-922-0786 Toll Freewww.doughertymarkets.com

THE COMPLETE GROUP OF DOUGHERTY COMPANIES:

Dougherty Financial Group LLC Dougherty Equipment Finance LLC

Dougherty & Company LLC Dougherty Wealth Advisers LLC

Dougherty Mortgage LLC Dougherty Insurance Agency LLC

Dougherty Funding LLC Dougherty Real Estate Equity Advisors LLC

40GROWTH AND EVOLUTION

1977–2017

YEARS

Innovative Financial Solutions Nationwide

www.linkedin.com/company/dougherty-mortgage-llc?trk=biz-companies-cymwww.linkedin.com/in/thomas-o-neil-b1098848/

grnews sep 2016 - docs.doughertymarkets.comdocs.doughertymarkets.com/attachitem/2018 affordable mvp...

Documents