By Ben Olivo | @rbolivo | Heron editor
In recent years, the San Antonio Housing Trust Public Facility Corp. (PFC), a city-created nonprofit whose mission is to build and preserve affordable housing, has been accused by housing advocates and some observers of helping for-profit developers line their pockets in exchange for producing apartments that weren’t meeting San Antonio’s housing needs.
Developers, they say, took advantage of the San Antonio Housing Trust PFC’s powers under state law to provide full property tax exemptions—a lucrative subsidy worth millions of dollars over what are often 75-year lease terms—to development partnerships of which they were members.
Now, the San Antonio Housing Trust PFC says it has introduced a new housing model that helps right the ship.
The Lofts at Creekview is a $60 million, 301-unit mixed-income apartment complex in the works at 3623 E. Commerce St., about a mile east of the AT&T Center, on the East Side.
The difference between the Lofts at Creekview and the 39 other developments either completed or under construction with the help of the San Antonio Housing Trust is that this one will be solely owned by the trust.
One hundred percent ownership allows the Housing Trust PFC to someday refinance and cash out on equity the project has earned over, say, 12-15 years. It would then use that equity to permanently lower rents at the lofts, or what is known as “buying down rents,” said Pete Alanis, executive director of the San Antonio Housing Trust.
“One of the biggest complaints in our community was: ‘You know, you’re providing this property tax exemption, yet, the developer and the investors are seeing all the upside.’ Right? We solved for that here,” Alanis said. “We are getting all the upside out of the deal.”
[ Archive: “NRP Group expects $10M profit from sale of tax-exempt Baldwin apartments” | Aug. 28, 2019 ]
Some PFC deals have the ability to eventually “buy down” rents, but the Lofts at Creekview model allows for greater affordability down the road because the PFC collects 100 percent of the profit, which “is not shared with a (private equity) firm nor developer,” Alanis said.
The new model comes as San Antonio works to find innovative ways to fill this city’s affordable housing gap.
In December, the City Council approved the Strategic Housing Implementation Plan with the goal of aiding an estimated 95,000 cost-burdened households in San Antonio by building new housing, preserving existing housing and increasing wages. Another metric paints an even starker picture: Late last year, the San Antonio Housing Authority said there were 51,000 people on its public housing waiting list, and another 5,000 who were waiting for a Section 8 housing voucher.
However, the rent levels at the Lofts at Creekview are identical to previous models that were heavily criticized by some for not being affordable enough.
[ Related: “Tax breaks for developers under scrutiny in San Antonio, Texas capitol” | April 1, 2021 ]
During the process that lead to the adoption of the Strategic Housing Implementation Plan, the city also adopted a new definition for affordable housing: for renters, it’s housing reserved for households making up to 60 percent of the area median income (AMI), or what is $44,460 for a family of four in the San Antonio-New Braunfels region.
[ Scroll down for a chart showing AMI levels. ]
Under this definition, only 15 percent of the units, or 45, at the Lofts at Creekview would be considered affordable.
Here’s how it breaks down for the 301 units at the Lofts at Creekview:
» half the units will be market-rate priced
» 35 percent priced for households making up to 80 percent AMI
» 10 percent up to 60 percent AMI
» 5 percent up to 50 percent AMI
Alanis said it’s the aforementioned ability to permanently lower this rent structure in future years that makes this development different.
For example, perhaps a percentage of the 80 percent AMI units were reduced to 60 percent AMI, or perhaps rents for all of the 50 percent AMI units were lowered down to 30 percent AMI, therefore reaching lower-income households.
“This really is the first model like this in Texas,” Alanis said.
Such a move would require the approval of the San Antonio Housing Trust’s board, which is composed of five City Council members, six community members, and a city executive.
Alanis said the Lofts at Creekview also puts into practice a slew of support services not found in previous PFC developments, such as a $450,000 tenant assistance fund available to tenants who may have trouble paying rent because of an emergency.
“If somebody gets into some financial trouble and they’re not able to make that rent, we have a fund that can assist them,” Alanis said. “That’s very valuable when we’re talking about making sure people have stability, and we don’t have that looming threat of eviction.”
On-site support services and rent restrictions as defined by the federal government (which PFCs, as a state housing model, are not obligated to adhere to) are among other benefits found at this Housing Trust PFC development, and not others.
[ Scroll down for a chart showing previous U.S. Department of Housing and Urban Development (HUD) rent limits. ]
In short, because the Housing Trust PFC owns the development outright, it’s able to call the shots.
Juxtapose this concept with the Friedrich Lofts, another East Side PFC deal, for example, where Atlanta-based investor American South Real Estate Fund demanded an abnormally large ownership stake—67 percent—and rent levels most observers would not consider “affordable” in exchange for the equity, or cash, to finally jump-start the decades-stalled redevelopment.
[ Archive: “Why some subsidized housing is beyond reach for many San Antonians” | Aug. 25, 2020 ]
To pay for the Lofts at Creekview, the Housing Trust PFC is issuing $60 million in tax-exempt bonds, which it has the ability to do on its own under state law. Preston Hollow Community Capital, an investment group from Dallas, is purchasing the bonds. The Housing Trust PFC must repay Preston Hollow the $60 million at 5.75 percent interest over 40 years.
“It’s a higher interest rate, because, obviously, they’re funding 100 percent of a project, right? Whereas HUD may only fund 80 percent of a project or a bank would only fund about 60 to 65 percent of a project,” Alanis said. “So it’s a little bit higher rate, but we’re getting 100 percent of the project financed.”
The San Antonio Housing Trust PFC has hired Cohen-Esrey of Kansas City to act as the developer and Galaxy Builders of San Antonio as the construction firm. They were expected to break ground this week, and take 22 months to complete the four-story apartment complex.
This project is the 40th for the San Antonio Housing Trust. It also puts the nonprofit over 10,000 units that are either built or under construction.
Origins of a deal
PFCs in Texas are powerful governmental entities with the ability to purchase land, offer full property tax exemptions, and issue tax-exempt bonds.
Deals take on different structures. Often, a lender—whether it be a conventional loan or one that is insured by HUD—finances the bulk of the development cost, and private equity from an investor fills the gap.
The San Antonio Housing Trust PFC isn’t the only PFC in the area. There are others. Alamo Colleges District has one. Hemisfair has one. The San Antonio Housing Authority has two. Bexar County just started using theirs.
But the City of San Antonio’s Housing Trust PFC is by far the most productive.
Here’s how they work:
In short, the PFC owns the land. Therefore, whatever is built on the land gains the property tax exemption granted to PFCs under Texas law. It ends up being a huge savings that for-profit developers, as they are in most cases, reap.
In return, they must reserve half the units to households making up to 80 percent AMI, which San Antonio no longer considers affordable; and the other half end up as market rate.
In July 2020, this was the kind of deal Cohen-Esrey offered the San Antonio Housing Trust. But the San Antonio Housing Trust said it wasn’t interested, Alanis said.
“We didn’t give them a choice,” he said. “We’re not doing those deals anymore. We’re not going to accept a deal structure that has private equity, and they can only get a, you know, half market and (half) 80 percent (AMI) units, and then maybe a token amount of 60 precent (AMI) units. That’s not going to fly anymore. So we told them, we’re not doing that.”
Cohen-Esrey had already partnered with the Housing Trust PFC on the Loma Vista Apartments, a 211-unit affordable housing community envisioned for North General McMullen Drive, next to the SA Hope Center, which provides a food pantry, workforce development and other support services on the West Side.
It was Cohen-Esrey’s responsibility to find a new model for the East Side property. They found Preston Hollow Community Capital, which is involved in two developments at Brooks, which was willing to purchase the full cost of the development—$60 million—in tax-exempt bonds the trust was able to issue on its own.
“Our team saw an opportunity to work with the San Antonio Housing Trust (SAHT) to move away from the prior PFC model in a manner that both addressed the needs of the housing market and better aligned with SAHT’s revised policy goals,” Jay Johnson, Cohen-Esrey’s Texas Development Director, said in an email. “With fluctuating interest rates, rises in lumber cost, and other supply chain issues; we are proud to be a part of an innovative public-private partnership model along with Preston Hollow Community Capital and the S.A. Housing Trust to get this project across the finish line.”
What Cohen-Esrey gets out of the deal is a developer fee (2.97 percent of the total cost; which amounts to $1.7 million).
The trust eventually purchased the 12 acres for roughly $1.8 million.
“The developer’s going to do what they do best: They’re gonna develop and build it,” Alanis said. “They’re going to guarantee certain things. And then once they’re done, they’re done. We’ll probably just have them property manage it over the course of time.”
‘Doesn’t work for every project’
If this development structure is so advantageous to the public, why didn’t the Housing Trust pursue it earlier?
“I don’t think it was really conceived before,” Alanis said. “Similar work is being done out in California. They’re structured in a very similar way. But it really hasn’t come here to Texas. This is the first project that’s being funded in this manner. And it doesn’t work for every project.”
To build affordable housing, layers of public subsidies are often needed to offset the development cost, which allows the developer the ability to drive down market-rate rents—the rent level needed to pay for the cost of building the housing—to below-market rents, toward prices lower-income households can afford.
During the interview for this piece, we asked Alanis why such subsidies weren’t pursued for the Lofts at Creekview, which could have, in theory, made the rents more affordable.
“What’s important about this project is we didn’t have to spend a single dollar of public funds,” he said. “It didn’t require CDBG (Community Development Block Grant) funds. It didn’t require HOME (Investment Partnerships Grants) funds to fill a gap. It didn’t require TIRZ (tax increment financing) funds. Obviously, the project could have used it. And we could have gotten maybe some greater affordability if we did. But to be able to prove this model … You know, we had to find someone that could take some risks. And that’s where Preston Hollow Community Capital came in.”
Alanis said this housing model could be reproduced closer to downtown, closer to the nexus of hospitality jobs in San Antonio, but it would be tough. The cost of downtown-area land is much more expensive, he said. “That makes a really big difference on what we’re able to do,” he said. “Not only that, but also rising interest rates. The rising costs of construction.”
Alanis said this model will be applied on a case-by-case basis.
“The whole point of the model is to be able to 100 percent finance (a development) and get a project down without the ability to have to rely on public sources of funding,” Alanis said, “and still create the affordability long-term that we need.”
2021 Area Median Income
|1 person||2 person||3 person||4 person||5 person||6 person|
|Source: U.S. Department of Housing and Urban Development|
2020 Rent Limits
|Source: U.S. Department of Housing and Urban Development|
Setting It Straight: An earlier version of this article stated Cohen-Esrey benefitted from the Housing Trust’s purchase of the land for this project. The trust purchased the land (two parcels) at its original cost.
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