NALHFA Multifamily Excellence Award ALDRICH 51 

2604 Aldrich St, Austin, TX 78723 

https://aldrich51.com/  

Aldrich 51  is an  innovative partnership between Austin Housing Finance Corporation and DMA  Development  Company.      The  240‐unit  affordable  rental  housing  development  is ideally  situated  within  the  700  acre  Robert  Mueller  Municipal  Airport  (RMMA) redevelopment.   Aldrich 51 provides a unique opportunity  for  low‐ and moderate‐income households  to  readily  access  jobs,  transportation  choices,  parks  and  recreation  facilities, fresh healthy foods options, and numerous other amenities.   Of the 240 units, 85% or 204 units are affordable to households at or below 60% MFI.    The development was primarily  financed through the 4% non‐competitive LIHTC program.  In order to ensure a viable project – one that combined deep affordability with high quality construction  in  a  desirable  urban  location,  it was  clear  that  development was  going  to require multiple partners and financing sources.  History In the late 1980s, in anticipation of the closing of Robert Mueller Municipal Airport (RMMA), the City of Austin began to contemplate reuse and redevelopment of the 700 acre property, which is situated less than three miles from downtown and two miles from the University of Texas at Austin.  After two decades of an inclusive citizen‐driven effort, the Mueller Master Development Agreement (MDA) was inked, memorializing the partnership between the City of Austin, Catellus Development Corporation (Master Developer), and the citizens of Austin.  The  guiding  principles  of  the  redevelopment  included  an  ambitious  affordable  housing component:    at  least  25%  of  all  homes  at  Mueller  are  required  to  be  affordable  to households  at or below 80% MFI  (ownership) and 60% MFI  (rental).   All affordable units were to be generally distributed throughout the 700‐acre development, thereby ensuring a vibrant, inclusive, mixed‐income community.  Today,  the Mueller  development  is  approximately  75%  built‐out  and  includes  a mix  of commercial, retail, and residential.  Homes range from small apartments to townhomes to condominiums  to  live‐work spaces.   Commercial development  includes  the Dell Children’s Hospital, medical offices,  the  Thinkery Children’s Museum, AISD’s performing  arts  space, Texas Mutual  Insurance, and Austin Energy’s headquarters (soon to break ground).   Retail ranges from small business to “big box” retail such as HEB Grocery, Home Depot and Best Buy.  As  the  master  developer,  Catellus  has  been  tasked  with  developing  and  executing  an affordable housing plan that will result  in meeting the 25% affordability goal.   At all of the market rate apartment complexes within the redevelopment area, 10% of the units are set aside  for households at or below 60% MFI.   This affordability  is  secured with a Land Use 

Restrictive Agreement (LURA) and ensures affordability for 55 years.  In order to reach the 25% affordability goal, Catellus has solicited affordable housing developers  to serve  three specific markets:  (1) seniors; (2) families; and (3) workforce.  DMA  Development  was  selected  to  develop  the  affordable  senior  housing,  which  was financed by 9% LIHTC.  The 201‐unit property is called Wildflower Terrace and has received numerous  awards  including  ULI’s  Jack  Kemp  Excellence  in  Affordable  and  Workforce Housing Award  in 2017.   Foundation Communities was selected to develop the affordable family  property, which  is  being  financed  through  the  9%  LIHTC  program.    The  Jordan  is currently  under  construction.    When  completed  (later  in  2019),  it  will  provide  deeply affordable housing and support services for 132 low‐income families.  In 2014, DMA Development Company (DMA) was selected by the RMMA Master Developer, Catellus Development Group,  to develop  a  “workforce housing”  rental development  that would be affordable  to  residents with a variety of  income  levels and be particularly well‐suited  for  persons  working  for  employers  located  at  RMMA.    Because  Texas  Qualified Allocation Plan (QAP) prioritized LIHTC projects  in  less urban areas for several years, DMA pursued  the  non‐competitive  4%  LIHTC  funding.   As  the  4%  LITHC  results  in  significantly lower  equity,  DMA  looked  toward  partners  and  more  creative  strategies  to  close  the funding gap.  Ownership Structure The property is owned by AHFC as Landlord and leased back to a Limited Liability Company (LLC) as tenant.   The members of the LLC are composed of a DMA‐affiliate as the  Investor Member and an AHFC‐affiliated entity as Managing Member.   The benefit of AHFC’s 100 percent property tax exemption is used to offset the cost of providing more and/or deeper levels of affordability.  A memorandum detailing proposed terms of the joint venture (dated April 13, 2015) is attached as Exhibit “A.”   Funding  The City of Austin is fortunate to have General Obligation Bonds for affordable housing.  In 2006,  voters  approved  $55 million  for  affordable  housing;  in  2013  voters  approved  an additional  $65  million  for  affordable  housing.    Reflecting  both  increased  need  and widespread local support for affordable housing, in November 2018, voters overwhelmingly approved $250 million  in General Obligation Bonds  for affordable housing.   GO Bonds are utilized  for  Rental  Housing  Development  Assistance  (RHDA),  Ownership  Housing Development Assistance  (OHDA), Home Repair, and Land Acquisition.   The City of Austin, through  the Austin Housing Finance Corporation, has already  initiated deployment of  the 2018 bond funds.  In early 2015, AHFC authorized $2 million in federal CDBG funding for the acquisition of the vacant  property.    In  addition,  October  2015,  AHFC  provided  $2 million  from  the  2013 General Obligation bonds  for gap  financing  for  the development of Aldrich 51.   Both  the CDBG and GO bonds were structured as deferred, forgivable loans to the developer. 

 AHFC  issued $23,500,000  in Private Activity Bonds  in 2015  to  finance  the  construction of Aldrich 51.    The Private Activity Bonds were  a private placement with Boston Capital.  In March  2016,  with  Private  Activity  Bonds  issued  and  LIHTC  equity  secured,  DMA  broke ground on Aldrich 51.  The Sources and Uses are provided below:      

Sources    Uses   

Tax Credit Equity  $10,600,000  Acquisition  $1,800,000  

Permanent  (Boston Capital/ AHFC PAB) 

$23,500,000  Construction/Hard Costs 

$20,998,208 

Deferred  Developer Fee 

$1,800,000  Soft  &  Carrying Costs  $14,958,619 

AHFC  Funds  (CDBG  & GO Bond 

$4,000,000  Site Work  $2,143,173 

 

TOTAL  $39,900,000    $39,900,000 

 In  spring  2018,  nearly  two  years  after  breaking  ground,  the  first  residents  of  Aldrich  51 began to move in.  By late summer 2018, Aldrich 51 was completely leased up.  Residents  of  Aldrich  51  include  families  with  children,  single  workers,  and  the  elderly (couples and singles).   Nearly 10% of  the households at  initial  lease up utilized a Housing Choice Voucher.   Four of the  initial tenants were direct referrals from ECHO’s Coordinated Assessment  system, which  prioritizes  the most  vulnerable  amongst  people  experiencing homelessness.  DMA  did  extensive  outreach  and  marketing  to  existing  employers  in  the  Mueller development.   As a result of the outreach, current Aldrich 51 residents  include employees of  Seton Healthcare, Dell  Children’s Medical  Center, HEB,  Alamo Drafthouse,  and Home Depot, all of which are located within the Mueller community.  With a Walk Score of 67/100 and a Bike Score of 73/100  (coupled with numerous public transportation options), Aldrich 51 and  the Mueller Redevelopment embody  the goals of urban  sustainability  and  location  efficient  housing.    Residents  of  Aldrich  51  are  able  to minimize  transportation  costs  and  associated negative  environmental  externalities, while maximizing affordability.  Project Characteristics 

The  property  is  located  in  the  Robert  Mueller  Municipal  Airport  (RMMA) Redevelopment on  the west side of Aldrich Street between Barbara  Jordan Boulevard and East 51st Street.  

The unit sizes range from 524 to 1,200 square feet.  The property includes 38 efficiency units;  87  one‐bedroom/one‐bath  units;  32  two‐bedroom/one‐bath  units;  73  two‐bedroom/two‐bath units; and 10 three‐bedroom/two‐bath units. 

Depending on unit size, the rents range from approximately $400 to $1,200 per month. 

Twenty‐four (24) units are designed accessible for persons with mobility disabilities, and 3 units are designed accessible for persons with sight or hearing disabilities.   

Ten  (10)  units  are  operated  as  Permanent  Supportive  Housing  for  people  exiting homelessness.  These units are a unique partnership with ECHO, the Continuum of Care (COC) for the City of Austin. 

 Population Served 

Eighteen (18) units are reserved for households with incomes at or below 30 percent of the Austin area Median Family Income (MFI), currently $15,850 for a one‐person household and $22,600 for a four‐person household.   

Forty‐seven (47) units are reserved for households with incomes at or below 50 percent MFI, currently $26,400 for a one‐person household and $37,700 for a four‐person household.   

One hundred thirty‐nine (139) units are reserved for households with incomes at or below 60 percent MFI, currently $31,680 for a one‐person household and $45,240 for a four‐person household. 

Thirty‐six (36) units have no income restrictions.  AHFC Funding and Budget The  Austin  Housing  Finance  Corporation  (AHFC)  is  a  public  non‐profit  corporation  and instrumentality of the City of Austin.  AHFC’s Board of Directors is the Austin Mayor and City Council Members.  Austin’s City Manager serves as the corporate General Manager and the AHFC  Treasurer, Rosie  Truelove,  is  responsible  for  the  corporation’s  day‐to‐day  activities and operations.  Ms. Truelove is the Director of the City of Austin’s Neighborhood Housing &  Community  Development  Department  (NHCD).    AHFC  is  staffed  by  City  employees working in NHCD.  Through a Service Agreement executed annually between the City and AHFC, AHFC carries out  the  City’s  affordable  housing  programs  and  initiatives.    Funding  provided  to  AHFC through the Service Agreement consists of federal formula grants from HUD (CDBG, HOME, ESG, HOPWA) as well as non‐federal  funds such as Affordable Housing General Obligation Bond  Funds  and  the Housing  Trust  Fund.    The  FY2018‐2019  Service  Agreement  is  $58.8 million.  As a Housing Finance Corporation created under Section 394 of the Texas Local Government Code, AHFC has  the authority  to  issue  single‐ and multi‐family private activity bonds  that finance the development of affordable rental and ownership housing.  Since 1982, AHFC has issued 25 series of multi‐family housing revenue bonds totaling $227,000,000.  These multi‐family bonds have financed 33 multi‐family properties, creating 6,552  low‐ and moderate‐income rental units. 

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Memorandum

To: Betsy Spencer Date: April 13, 2015

From: Janine Sisak

CC: Diana McIver, Gina Copic, David Potter, Bill Gerhig

Re: Proposed Joint Venture – Aldrich 51, Austin, Texas

This memorandum outlines our proposal regarding a joint venture between DMA Development Company, LLC and/or one of its affiliates (“DMA”) and the Austin Housing Finance Corporation and/or one of its affiliates (“AHFC”) to develop a 240 unit multifamily development, called Aldrich 51 (the “Development”) in the Mueller Redevelopment in Austin. We are expecting that the financing structure will involve 4% housing tax credits, private activity bonds, and City of Austin general obligation funds, which is financially feasible assuming that the property is exempt from property taxes. Based on the foregoing, therefore, we propose the following terms for discussion:

Overview of the Development Aldrich 51 is proposed as a newly constructed apartment community in the heart of the Mueller Market District in Austin, Travis County. Aldrich 51 will serve working families and provide approximately 240 units comprised of one, two, and three bedroom units. The development site is located on 3.465 acres on the west side of Aldrich Street, between Barbara Jordan Boulevard, and 51st Street.

Aldrich 51 is a mere two blocks away from the new 75,000 square foot HEB that serves as the anchor of the Market District and, as such, has already attracted other new retail and commercial establishments to that area. Existing regional retail is located four blocks west of the site including major national retailers - Home Depot, Bed Bath & Beyond, Old Navy, and several chain restaurants and cafes, including Starbucks and Jamba Juice. The recently announced Alamo Draft House Movie Theater will be three blocks to the south.

Aldrich 51 will be a four-story, elevator served building with structured parking and an interior courtyard. On the street level, the uses will be primarily residential with amenity space and administrative offices also on the ground floor. The units will be a mix of primarily one and two bedrooms, with a small number of three bedroom units. Approximately 90% of the units will be affordable to households earning less than 60% of the median income for the Austin metropolitan statistical area. Aldrich 51 will target a mix of incomes as follows:

EXHIBIT A

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# of units Type Square Footage Net Rent Income Eligibility 6 Studio 524 sq. ft. $358 30% of Median

6 Studio 535 sq. ft. $358 30% of Median

10 Studio 535 sq. ft. $627 50% of Median

16 Studio 535 sq. ft. $762 60% of Median

2 1 Br/1 Ba 712 sq. ft. $661 50% of Median

12 1 Br/1 Ba 712 sq. ft. $669 50% of Median

65 1 Br/1 Ba 712 sq. ft. $813 60% of Median

8 1 Br/1 Ba 712 sq. ft. $1,300 Market

6 2 Br/1 Ba 867 sq. ft. $446 30% of Median

23 2 Br/1 Ba 867 sq. ft. $792 50% of Median

56 2 Br/1 Ba 1,000 sq. ft. $965 60% of Median

4 2 Br/2 Ba 1,100 sq. ft. $965 60% of Median

6 2 Br/2 Ba 1,177 sq. ft. $965 60% of Median

5 2 Br/2 Ba 1,177 sq. ft. $1600 Market

7 2 Br/2 Ba 1,223 sq. ft. $1,750 Market

1 3 Br/2 Ba 1,201 sq. ft. $979 60% of Median

3 3 Br/2 Ba 1,201 sq. ft. $1,103 60% of Median

4 3 Br/2 Ba 1,201 sq. ft. $1,800 Market

The tax exemption achieved by the proposed organization structure results in a deep level of affordability at this exceptional central Austin site. The tax exemption has a value of approximately $250,000 per annum, which results in an extra $4 million in loan proceeds. Without this boost in loan proceeds, the Development could not have any units at 30% or 50% AMI, and instead would have to charge all units the 60% AMI rents. Additionally, without the tax exemption, the Development would need an extra $1,750,000 in G.O. bond funding to make the deal feasible even at all 60% AMI rents. Unlike many bond deals proposed or under construction currently, this site is not located in a qualified census tract and thus does not qualify for the 30% boost available in more impoverished areas. This is another reason that the property tax exemption is critical for the financial feasibility of this development.

Proposed Organizational Structure See proposed organization chart attached. Austin DMA Housing II, LLC (the “Owner”) is in the process of being formed and will serve as the owner entity that will own the improvements. DMA Aldrich 51, LLC, a to-be formed single purpose entity, will serve as the Special Member, and an investor will be selected to serve as the Investor Member. AHFC, or one of its affiliates, will serve as the Managing Member.

Tax Exemption The proposed ownership structure is expected to generate ad valorem tax exemption for the Project. AHFC, as proposed owner of the land, will work with Developer to obtain confirmation of the availability of such exemption from the Travis County Central Appraisal District. The parties will structure the construction contract in a manner that assures the sales tax exemption.

Site Control The City of Austin currently owns the site, which Catellus Austin, LLC has the authority to sell pursuant to the Master Development Agreement between the City of Austin and Catellus Austin, LLC. DMA Development Company, LLC and Catellus Austin, LLC will soon execute a Purchase and Sale Agreement for approximately 3.465 acres located at the northwest intersection of Barbara Jordan and Aldrich Street in Austin, Texas. At the land closing, Catellus Austin, LLC will transfer title to the fee

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simple estate to DMA Development Company, LLC. At the closing of the construction financing, DMA will then transfer title to the fee simple estate to AHFC or one of its affiliates. The purchase price is $1,800,000.

AHFC or one of its affiliates will then simultaneously lease the fee simple estate to Austin DMA Housing II, LLC for a term of 65 years or longer for an upfront lease payment of $1,800,000. Austin DMA Housing II, LLC will have a leasehold interest in the land and will own the improvements.

Management of the Partnership Because AHFC must serve as the Managing Member for purposes of the property tax exemption, the company agreement for the owner entity will state that AHFC will make management decisions, with DMA’s consent over the major ones like the development budget, annual operating budgets, and selection of the management company. However, we propose certain ancillary agreements that will enable AHFC to delegate these decisions to DMA. In this way, DMA can manage the risk created by the guaranties that DMA will provide to investors and lenders. Such ancillary agreements will include:

a. An Asset Management Agreement to allow AHFC to delegate the most critical financial responsibilities including those that are traditionally performed by the general partner in a tax credit partnership. The delegated responsibilities can include, for example, preparing development and operating budgets; preparing draw requests; establishing and maintaining bank accounts for the owner; executing contracts and agreements with vendors, suppliers, service companies, utility providers, etc. within the parameters of the budgets; overseeing the selection of the management company and accounting firm and submission of the annual audit.

b. A Master Agreement to provide that the DMA guarantor has the right to approve the budget and all income and expense matters related to the debt service calculation for release of the operating deficit guaranty. It will also provide DMA with authority to sign documents in the event of a default or threatened enforcement action. In the event that a payment has been made under a guaranty for a default caused by AHFC, AHFC will reimburse the DMA guarantor with its share of cash flow and developer fee. To the extent the guarantor pays for any repurchase obligation, the guarantor will have the right to step into the shoes of the investor limited partner/member as 99.99% owner.

Cash Flow Split.

DMA proposes a cash flow split of 70% to DMA; 30% to AHFC after payment of deferred developer fee and any priority cash flow distributions to the investor member.

Development Responsibilities 1. DMA Development Company, LLC (the “Developer”) will serve as the lead developer; AHFC

or one of its affiliates will serve as co-developer.

2. DMA Development Company, LLC will make all development decisions, although development agreement can provide for certain consent rights over major development decisions, should AFHC desire.

3. DMA Development Company, LLC will provide all guaranties required by the lenders and investors.

4. Developer fee split. DMA proposes a development fee split of 90% to DMA; 10% to AFHC.

5. Bond Issuer and related fees. AHFC will issue the bonds and receive the associated fees.

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Financing The Owner will apply for tax-exempt private activity bond financing (the “Bonds”) through the Texas Bond Review Board and 4% housing tax credits (the “HTCs”) through the Texas Department of Housing & Community Affairs (“TDHCA”).

When the Owner receives the Bonds, the Developer shall be responsible for selecting the lender and negotiating the loan terms on behalf of the Owner, provided that AHFC shall have the right to review and approve the financing arrangements and the terms and conditions of any loan documents. Financing may be secured with a deed of trust lien against the Project leasehold estate created by the Ground Lease and on the fee estate owned by AHFC. The issuer will be AHFC, and AHFC will be entitled to receive the following fees: $5,000.00 at application, and an amount equal to one-half of one percent of the bonds issued at closing. The Developer shall be responsible for negotiating the sale of the HTCs generated by the Project to one or more HTC investors, and the corresponding HTC equity (the “Equity”), provided that AHFC shall have the right to approve (which approval shall not be unreasonably withheld or delayed) the identity of the investor member selected (the “Investor Member”) and the terms of the letter of intent. The Developer and AHFC shall be jointly responsible for negotiating the terms and conditions of the Amended and Restated Company Agreement (the "Company Agreement").

AHFC shall be entitled to thirty percent (30%) of the cash flow, in the form of a Managing Member Supervisory Management Fee annually upon completion of the annual audit. These payment terms will be included in the Company Agreement. Notwithstanding the foregoing, the cash flow provisions must be approved by the Investor Member, and the permanent lender.

All proceeds from sale or refinance of the Project will be shared, at least eighty (80%) to the Special Member. Annual Monitoring Fee In accordance with AHFC Bond Financing Rules, an annual monitoring fee will be paid to AHFC in the amount which is the greater of: $1,200 or $12 per unit or an amount equal to 0.003 times the amount of bonds outstanding on January 1 of each year.

Management and Construction

Developer’s management company shall manage the Property. An affiliate of AHFC or another nonprofit entity shall serve as the construction company to achieve the sales tax exemption on construction materials, with the construction work subcontracted to a reputable builder selected by the Developer.

Exit Strategy In order for the property to obtain an ad valorem tax exemption, the Managing Member shall at all times have an option to compel title to the property. During the initial tax credit compliance period, this option price will be at a price satisfactory to the Investor Member so to reimburse the Investor Member all capital contributions plus costs, expenses and lost profits if in the event the option is exercised. After the investor member has withdrawn from the ownership structure, the purchase option shall be at fair market value. The Special Member shall have a secondary purchase option at the end of the tax credit compliance period to purchase the Project at fair market value in the event the Managing Member declines to exercise its primary purchase option.

In the event that the Managing Member and Special Member elect at the end of the tax credit compliance period to resyndicate the Project to allow for additional improvements and to maintain the Project as affordable housing, the parties will enter into an agreement for the resyndication under substantially the same terms and conditions as contained in this proposal.

Proposed Organizational Chart of Ownership Entity

Development Owner Austin DMA Housing II, LLC

(to be formed)

Investing Member (proposed) TBD

99.98%

Special Member DMA Aldrich 51, LLC

(to be formed) 0.01%

Managing Member DMA Community Ventures II, LLC

90%

Managing Member AHFC Aldrich 51 Non-Profit Corp

(to be formed) 0.01%

Board of Directors Bert Lumbreras Betsy Spencer Rebecca Giello

Managing Member JSA Community Ventures, LLC

10%

Sole Member/Manager Diana McIver

100%

Sole Member/Manager Janine Sisak

100%

Organizational Chart of Developer

Co-Developer DMA Development Company, LLC

(HUB) 90%

Member/Manager Diana McIver (individual)

100%

Co-Developer AHFC Aldrich 51 Non-Profit Corp

(to be formed) 10%

Board of Directors Bert Lumbreras Betsy Spencer Rebecca Giello