City Council to evaluate policy that would address pressing affordable-housing issue in Charlotte

Sharon-Oaks-Apartments- website

Charlotte Business Journal, Ashley Fahey, February 22, 2019Sharon-Oaks-Apartments- website

Charlotte City Council will soon evaluate a proposed policy for how public dollars could be spent to acquire and preserve naturally occurring affordable housing.

Naturally occurring affordable housing, or NOAH, is the catchall term for older, outdated rental properties in the city that offer below-market rents because of their age and condition. NOAH properties, especially in fast-growth neighborhoods, have been prime acquisition targets for REITs and other institutional investors. Those groups typically seek to either tear down older properties and build new, oftentimes expensive product or do what’s called a value-add investment, in which millions in capital improvements to a property’s exterior, unit interiors, amenities and other features are made that drive up rents and, ultimately, the investor’s returns when it comes time to sell.

Several for-profit and nonprofit groups that specialize in affordable housing have lamented the accelerated loss of NOAH during this cycle, which frequently ends up displacing lower-income residents who lived there. Usually, the properties targeted are in areas that have proximity to jobs, services and transportation.

But because of the amount of capital an institutional group can bring to a deal compared to a group or public entity looking to keep a property affordable it’s often difficult to compete with those companies in bidding for those properties. Frequently, several bidders are looking to buy NOAH properties; it’s a process that can even drive up the sale price at the end of the day.

Council members have several times discussed a need to preserve NOAH as part of the city’s affordable-housing strategy but there’s no policy in place that specifically addresses how public dollars, along with private investment, could help save that stock of affordable housing. It’s been said several times by city staff and others that NOAH represents Charlotte’s largest inventory of affordable housing. And several developers who work in the affordable-housing space have previously said money from the Housing Trust Fund and private dollars (the Foundation For The Carolinas’ housing fund, for example) could be diverted in part to preserving NOAH.

Pamela Wideman, director of the city’s housing and neighborhood services department, this week presented the latest iteration of a proposed NOAH policy to the council’s neighborhood and housing committee, which voted to advance discussion of the policy to the full council at its strategy session in early March.

The plan lays out suggestions for what types of NOAH projects the city’s Housing Trust Fund — approved by voters to increase from $15 million to $50 million — would help pay for.

Proposed parameters include an investment of $10,000 to $35,000 per unit; a minimum leverage of 1:3 public to private investment; selecting properties in areas experiencing “transformative” rent growth and other housing threats; properties close to jobs, transportation and schools; maintaining rents with current area median income brackets; minimum 15-year deed restrictions to preserve affordability and properties that are at least 15 years old that require light to moderate rehabilitation.

“We’re not trying to look at properties that are severely dilapidated for this program,” Wideman said. “We want to make sure that the property can be rehabilitated to be utilized for at least 15 years.”

Dr. Justin Harlow, council and committee member, questioned whether a maximum age would be imposed for which properties the city invests in for NOAH. Wideman said all potential properties would undergo a physical needs assessment and that the council could decide whether a rehab would be too much of an undertaking.

“I just don’t want us to be bailing out bad property owners trying to unload bad buildings,” Harlow added.

Wideman added the goal is to make NOAH properties “high performing” under current or new ownership and that all parties interested in receiving city funding for NOAH acquisitions would have to demonstrate a history of good management, maintenance history and reinvestment.

Wideman also noted it would be important for council members to be nimble as NOAH requests come up.

“These properties come on and off the market very quickly — property owners want you to close as quickly as you can,” she added.

Also on Wednesday, Wideman presented a request for HTF funding for a proposed NOAH acquisition in east Charlotte. Ascent Real Estate Capital and Laurel Street are seeking $2.1 million in public dollars to help acquire and rehab Sharon Oaks Apartments, near the intersection of East Independence Boulevard and North Sharon Amity Road. Sharon Oaks, built in 1961 and early 1990s, includes 98 apartments renting at average monthly rates of $697 for a one-bedroom unit and $873 for a two-bedroom unit.

Estimated total cost for the Sharon Oaks project is nearly $9.4 million. The proposed income mix includes 20 units at 30% AMI, 10 units at 50% AMI, 24 units at 60% AMI, 24 at 80% AMI and 20 nonrestricted units.

Wideman told the committee that of the $50 million in housing bonds approved in November, about $9.5 million is already committed, leaving a balance of $40.5 million. She noted the request checks off the boxes in the proposed NOAH policy criteria, including a 15-year deed restriction, the age and condition of the property (some deferred maintenance is required, particularly on the buildings’ exteriors), and its proximity to retail and transit.

She emphasized that tenants currently living at the property will remain. It’s impossible to know the income levels of tenants in a non-income-restricted apartment community, only the rental rates — in other words, not necessarily all residents there are earning at or below a certain AMI level.

“We’re not displacing anyone,” Wideman continued. “The proposed plan … will occur over time as people move out and units become available.”

Ed Driggs, council member and vice chair of the housing committee, said an earlier iteration of the Sharon Oaks request included a larger number of 60% AMI units and no 80% AMI units, an option he said should be brought before the full council in addition to the new plan, which calls for fewer 60% AMI units and two dozen 80% AMI units. Council and committee member Matt Newton, whose district is in east Charlotte, said he was in favor of the new plan because he felt it better promoted income diversity.

“The modified proposal is certainly more in line with what we’re looking at with NOAH policy moving forward,” Newton said, adding he was concerned that the earlier proposal more closely resembled creation of units at new AMI levels rather than preserving existing income brackets at the community.

Driggs said the new iteration reduced affordability and said both plans should be taken under consideration for the council, noting that only three committee members were present on Wednesday. Wideman indicated the groups looking to acquire the property were open to both options and two plans had a funding request difference of about $300,000.

Harlow, and eventually Newton, agreed to a motion by Driggs to have both options evaluated by the full council. City Council is expected to review the funding request at Monday’s business meeting.