Case Study

A New Housing Source for New Americans

6 min read

The state of Vermont is on track to see its first New Markets Tax Credit (NMTC) deal that will finance homeownership-only units. And that first project, planned to be developed by a local community land trust, will target an unusual and specialized population: refugees who have been resettled into the state’s largest city, Burlington.

Though there is nothing that prohibits using NMTCs solely for housing, usually they have been used as community development funding, with Low Income Housing Tax Credits (LIHTC) going to fund housing.

In residential development, NMTCs frequently have figured in as part of mixed-use projects that set up separate legal entities so LIHTCs finance the housing on the upper floors and NMTC equity goes towards the commercial ventures on the first or first couple of floors.

Residential-only NMTC allocations remain small.Since inception through 2017, residential-only financing has totaled $273 million of $5.25 billion in single-use real estate (finishing last in that category behind office, retail and industrial), according to the Community Development Financial Institutions Fund, which administers the NMTC program.

In Vermont, Champlain Housing Trust is finalizing a deal to build 24 home ownership condos on Malletts Bay Avenue in Winooski, a couple of miles from Burlington, using NMTC equity as part of its capital stack.

Michael Monte, chief operating officer of Champlain, estimates the Mallets Bay Avenue project will net about $1.4 million in NMTC equity either through the Boston-based Housing Partnership Network (HPN) or elsewhere, as part of a $9 million project. HPN is a collection of 100 non-profit housing developers that is allocated NMTCs from the Treasury ($40 million in 2017, $30 million in 2018) that it uses to raise money for member projects, in association with consultant Smith NMTC Partners.

“We are now in the queue for credits available to HPN through CDFI,” Monte says. “It’s brand new to Vermont and we’re learning about what it is and the strategies involved.”

Lots of New Americans
He describes Winooski as a small city with a big low-income population. “It’s a city with lots of new Americans,” Monte says, refugees who have been resettled into the area from Africa, the Mideast and Southeast Asia.

Funds from the Vermont Housing Finance Agency (VHFA), the Vermont Housing Conservation Board, and net proceeds of the sales of the housing will foot most of the rest of the bill, Monte says.

VHFA awarded the project $152,482 in Vermont State Affordable Housing Tax Credits. “Depending on final pricing and yield for the credits, the state credits are estimated to provide around $695,000 in equity for the project,” according to Seth Leonard, managing director of community development at VHFA.

The allocation was from an annual VHFA state credit budget which is divided between rental projects eligible for federal tax credits, and for homeownership projects, according to material Leonard provided. The credits can be used by investors each year for five years.

The Malletts Bay Avenue project is Champlain Housing Trust’s (CHT) third NMTC financing. It completed a mixed-use deal in 2008 on the building it now occupies in Burlington (20 LIHTC-funded apartment units are above it) and last year completed the Old North End Community Center in Burlington.

Monte hopes to break ground in March on the current deal (CHT has initiated the surveying), and have the homeowners move in by the end of 2021, using Snyder Homes to build the three-bedroom units on land pledged by the municipality near Winooski’s O’Brien Community Center and the municipal library.

CHT, a community land trust, likes to use “shared equity” to increase the wealth of low-income populations. In broad terms, it buys down the price of the home to make it affordable. These 24 units, 16 townhomes and eight flats, which will probably appraise at $280,000 to $300,000 on the open market, will be sold for $174,000 apiece, Monte says. CHT will provide or find the equity that makes the homes affordable to people at about 70 to 80 percent of area median income.

A Permanently Affordable Home
When the owner eventually sells the unit, 25 percent of the appreciation of the value of the unit, plus any improvements, will go to the homeowner. So, if a home worth $300,000 sells for $400,000, $25,000 of the appreciation would go to the homeowner and the rest would come back to CHT to seed a new owner. In the process, that makes the home permanently affordable when it changes hands.

“We want to change the nature of homeownership in Winooski,” Monte says, and build the wealth of a very diverse cohort of people. “We have a strong track record of wealth building.” He adds, “Our foreclosure rate is practically none.”

In addition to refugees, CHT has many people of color as its rental clients. Monte estimates 25 percent of both its rental and homeownership clients in the past 25 years have been people of color.

Champlain has been using the shared equity model for 35 to 40 years and sells about 50 homes a year. “The model works really well,” says Monte.

All told, the community land trust has assisted about 1,200 to 1,300 families, he says, and has a portfolio of about 640 homes now. Its strategies include buying naturally occurring affordable housing (NOAH) and converting rental tenants to ownership. It hasn’t been doing new construction for homeownership, as it plans to do with Malletts Bay Avenue, for about the last dozen years now.

In its other recent NMTC deal, the Old North End Community Center project turned the former St. Joseph’s School into a 50,000 square-foot non-profit hub containing a senior center, a children’s theater, a gym, a family center, a daycare center and a public meeting area, among other uses.

That $8.8 million project had $2.6 million in NMTC equity from investor TD Bank and raised $2.2 million from private sources in a capital campaign.

“That’s been very successful for us as a community facility,” Monte says.

State Tax Credit Deals
CHT has been awarded several other state tax credits for non-NMTC projects this year, according to the state agency. They include one in Burlington’s Old North End. In partnership with Green Mountain Habitat for Humanity, that project “will build a new three-bedroom single-family home to replace a home previously damaged by a fire,” the agency says.

CHT will also rehabilitate an existing duplex on Bright Street into a single-family home. “Renovations will include layout redesign, energy efficiency upgrades, new flooring and a new kitchen,” says VHFA.

Champlain and Green Mountain Habitat will also partner on a build in South Burlington, VHFA announced. “The project will replace a home that was demolished due to poor condition with a fourplex with three-bedroom homes.”

Those townhouses will be sold to moderate-income Vermont families by the shared equity model for $140,000, as compared to the town median price of $330,000.

State tax credits will also fund approximately 33 new mobile homes across the state through Champlain’s Mobile Home Down Payment loan program.

Capital Stack
Old North End Community Center

  • New Markets Tax Credits through Vermont Rural Ventures, with TD Bank’s Community Capital Group as the investor ($2.6 million).
  • Charitable gifts and grants ($2.2 million).
  • Vermont Community Loan Fund (loan, $2 million).
  • Vermont Community Foundation (loan, $500,000).
  • Commons Energy (loan, $500,000).
  • Public grants, including City of Burlington ($777,000).
  • Energy Conservation grants from Vermont Gas and Burlington Electric ($100,000).
  • Owner financing ($185,000).
Mark Fogarty has covered housing and mortgages for more than 30 years. A former editor at National Mortgage News, he has written extensively about tax credits.