By Ben Olivo | @rbolivo | Heron editor
The staggering figure emerged from a City Council subcommittee in late May: $6 million.
That’s how much the cost to build Cattleman Square Lofts, a 100 percent affordable housing development in the works at 811 W. Houston St., had ballooned from January to now because of rising construction costs and interest rates, which impact how much developers can borrow from banks.
“What we are seeing in our housing market right now is that there is a dramatic rise in building material cost, labor cost, and interest rates are also increasing,” Veronica Garcia, interim director of the city’s Neighborhood and Housing Services Department, told the City Council’s Planning and Community Development Committee on May 26. “All of this has impacted the ability for projects to fully be funded.”
The Cattleman Square Loft’s new cost, $36 million, has forced nonprofit developer Alamo Community Group to put the 138-unit project on hold, as it pursues a piece of the $150 million affordable housing bond—a process that’s just getting started—to help fill the gap.
In recent months, Alamo Community Group (ACG), which built the Museum Reach Lofts in 2020, had been cobbling together additional financing. Two weeks ago, Bexar County Commissioners approved a Chapter 381 economic development loan worth $2 million—funding that wasn’t in ACG’s original capital stack, or the list of funding sources. But by last week, ACG had decided to hit the pause button on Cattleman Square.
“At the end of the day, we couldn’t fill the gap,” said Jennifer Gonzalez, ACG’s executive director. “We are essentially going back to the drawing board. We think that the housing is critical. We think the need is great. We have not walked away from the project. It’s just, in this environment, it’s becoming harder and harder, and more and more evident that we can’t do this without strong public and private partnerships.”
Gonzalez said the rising cost of materials and labor, combined with rising interest rates, created a gap the nonprofit builder could not close by mid-July, which is when all financing needed to be in place in order to close on up to $25 million in tax-exempt bonds as allocated by the Texas Bond Review Board. The project was also awarded 4% low-income housing tax credits, and found an investor for them: Enterprise Housing Credit Investors, LLC, of Maryland, which would offer $15.1 million for them.
Of the 138 units at Cattleman Square, 117 would be reserved for people making up to 60 percent of the area median income (AMI), and 21 units for those making up to 30 percent AMI.
[ Editor’s note: For the San Antonio-New Braunfels region, the area median income (AMI) rose from $74,100 in 2021 to $83,500 this year for a family of four. Look for an analysis of AMI from the Heron in the coming weeks. ]
The $150 million affordable housing bond is one tool identified in the city’s Strategic Housing Implementation Plan, or SHIP. Approved by the City Council in December, the SHIP identifies 95,000 cost-burdened households in San Antonio, or those who spend more than 30 percent of their monthly income on housing. Among the housing bond’s priorities is the creation and preservation of rental units for households making up to 30 percent AMI.
ACG purchased the West Houston property from Alamo Colleges District in 2019, and has since been planning the development. It’s located across from VIA Metropolitan Transit’s Centro Plaza hub on Frio Street. It began as a predominantly affordable project with units serving all AMI levels with a handful of market-rate units. But ACG lowered those AMI levels—all of them serving 60 percent AMI or below—at the behest of District 5 Councilwoman Teri Castillo. The Cattleman Square project includes new construction and the rehabilitation of the historic Talerico store and homestead building, which faces West Houston.
Assembling financing for any housing development is intrinsically complex. It’s even more so when it comes to affordable housing, and especially in the current economic climate.
“The constant moving target was the interest rates,” Gonzalez said. “They have continued to move so quickly. You get a rate change, and then a few weeks later we get another rate change. Every time, as it reduced the loan amount, it increased the gap.”
“Every time the interest rate increased, then the amount of money you’re able to borrow decreases,” she said. “Costs are the same—or increasing. Then the amount of money you need to bring to the table continues to move. That’s the biggest interest rate hit. So that every time, it didn’t just go up and stay, it went up and then it went up again.”
As Gonzalez has explained before, the cost to build affordable housing can be more challenging than building market-rate housing because of the extra financing needed to make rents affordable for low-income tenants the project is intended to serve. The term “buying down rents” is often used to describe the practice.
“You don’t get a discount on your labor costs, your construction costs or your land costs (to build affordable housing),” Gonzalez said. “All those costs are the same, and all the development requirements are the same. At the end of the day, you’re trying to reduce all of those costs so that you have the lowest possible mortgage and daily operating costs, so that you can pass those savings onto the people who live there.”
“And so if you can reduce all of that, then you can reduce the rent you charge.”
Alamo Community Group (ACG) tried to secure what’s called a bridge loan for the remaining gap amount—about $3 million—so it could get started on construction and pay the loan back at a later date using funding from the $150 million housing bond. But the process of doling out housing bond dollars is just getting started, and ACG could not guarantee a lender it would receive a piece of the housing bond.
One of Alamo Community Group’s partners on the project is the San Antonio Housing Trust Public Facility Corp. (PFC), a city-created nonprofit whose mission is to preserve and create affordable housing. For Cattleman Square Lofts, the Housing Trust PFC was going to contribute its ability to issue the tax-exempt multi-family housing revenue bonds, and also provide a full property tax exemption.
“Everyone was committed to work 24/7 to get this thing closed,” said Pete Alanis, executive director of the San Antonio Housing Trust. “We respect ACG’s decision, and will continue doing whatever we can to support them in the future. It really comes down to a timing issue, the complexity of the capital stack and the ability to close.”
So far, rising construction costs and inflation have canceled two developments at the Vida San Antonio master-planned community on the South Side: The Aspire at Vida, a mixed-income development by Mission DG of San Antonio; and a veterans-focussed project called Patriot’s Pointe by Liberty Multifamily of Farmers Branch, Texas, and the nonprofit Operation Finally Home. Both had partnered with the Housing Trust PFC, and had been given bond allocations from the Texas Bond Review Board—but couldn’t make the financing work.
“We’re in a period of inflation, and of rising interest rates, and all that has an impact,” Alanis said.
Heron Editor Ben Olivo has been writing about downtown San Antonio since 2008, first for mySA.com, then for the San Antonio Express-News. He co-founded the Heron in 2018, and can be reached at 210-421-3932 | firstname.lastname@example.org | @rbolivo on Twitter
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