Case Study

Smith Ranch Apartments in Silverthorne, CO

6 min read

Making Workforce Housing Easier in High-Cost Areas

Developers and state housing agencies are scrambling to find programs that will help workers in expensive communities be able to live in the same towns they work in.

Developer Gorman and Co., operating from its Colorado office, for instance, has used the Middle-Income Access Program (MIAP) of the Colorado Housing Finance Authority on multiple occasions to finance workforce housing in the state, most recently at the Smith Ranch Apartments in Silverthorne, CO, a mountain community to the west of Denver.

Gorman Colorado President Kimball Crangle told a meeting of multifamily housing executives, “We are big fans of the non-Low Income Housing Tax Credit forward loans for our workforce projects.” She called MIAP “an awesome program.” MIAP “has been an incredible resource for us on several developments. Without the support of the MIAP loan, we couldn’t have moved this workforce deal forward.”

Speaking of the mountainous areas of Colorado, she said, “The cost of living is very high, there are big barriers to entry for new development and therefore supply is low. It’s expensive to live there. And then you have the phenomenon, even before 2020, of second homeowners coming in buying a property and you just keep constraining supply,” Crangle told a meeting of the National Housing & Rehabilitation Association in Denver.

That makes workforce housing at 80 percent of area median income (AMI) up to 120 AMI (and even 160 AMI in some cases) necessary, she said.

It’s a difficult market. People priced out of LIHTC deals for having too much income may not make enough money to income qualify for workforce housing, she said.

“We are excited to see Smith Ranch Workforce open, adjacent to the Smith Ranch LIHTC development, concurrently under construction. At the conclusion of construction, we will offer 135 total rental apartments, ranging between 30 and 120 percent AMI. Except for developments like this, many local workers do not have housing options. We see mixed-income communities as critical to supporting these high-country communities.” 

The town of Silverthorne “had been looking for a way to bring more for-rent housing into its community,” said Crangle. And without the town, the project would not have happened.

“The town had the vision to create below-market-rate rental units, to complement the other development completed at the Smith Ranch site (for-sale townhomes that are set aside as affordable and deed restricted). The town provided subsidy funding and a ground lease to help facilitate the project,” she said.

Combination of the Two
“We were fortunate that we were able to combine a 65-unit LIHTC deal where we were awarded a state competitive award from the Colorado Housing and Finance Authority (CHFA) and then we paired that with this workforce housing deal. So, a 65-unit LIHTC and then a 70-unit workforce deal at the same site, essentially,” she said.

“The beauty of it (the workforce development) is you get great economies of efficiencies during construction, and then even more so when you’re leasing up,” she said. “You can generally find a place for every applicant that’s coming through the door.”

In contrast, “we just leased up an 80-unit LIHTC project in the town of Breckenridge just down the road and we had over 300 applications we had to turn away because they make too much money,” she said.

This kind of development is not easy. “I have a lot of people say to me, ‘What’s the secret sauce to getting workforce deals done because they sound really cool and everybody wants to do them?’” She told the meeting, laughingly,

“You basically have to give up all of your developer fee. And then you must find a lot of other subordinate funding sources to get it to happen because the reality is that costs everywhere have gone up. Costs in low and constrained sub-markets are just generally a little bit higher.”

But, she said, workforce is a natural progression for Gorman. “It’s definitely in our DNA as LIHTC developers to take that next step. It’s still talking about deed restrictions. You’re still talking about a stacked capital stack.”

A slide she shared at the meeting showed the capital stack for both the LIHTC and workforce housing parts of the deal.

The workforce part was a $33.7 million deal. Sources included a $19 million first mortgage, $5 million in investor equity, $6.5 million from three subordinate sources and $3 million in developer equity.

On the LIHTC side, total costs came to a little less, $29.4 million. Of that, $8.4 million came from a first mortgage, a subordinate loan from the town was for $1.625 million, $4 million came from the State Department of Housing, a deferred developer fee was $1.5 million and there was $14 million in State and Federal LIHTC equity.

Many Colorado Projects
Gorman’s Colorado portfolio includes LIHTC and workforce projects, totaling 1,318 units at a development cost of $448 million, according to its website.

Amplifying this, Crangle said, “We expanded Gorman to Colorado in 2014 and have since initiated 20 developments throughout the state, including over 1,000 affordable and workforce apartments, with over 500 more homes scheduled to complete construction between 2023 and 2025.

“Developments have included Net Zero multifamily communities, mixed-use developments and certified LEED housing.”

Lynn Archuleta of CHFA’s multifamily division briefed the NH&RA meeting on the MIAP program that Gorman used in the deal, characterizing it as “low-cost mezzanine debt for middle-income projects.”

She noted that it meets Freddie Mac’s and Fannie Mae’s non-LIHTC forward product requirements for a “Public/Mission Driven Investment” and comes with a loan size of $2 to $6 million.

MIAP is a competitive product with an interest rate of between five and six percent, interest-only (IO) during construction and fixed during the permanent loan. It is a second deed of trust, according to the material she shared with the NH&RA meeting.

There is an exit fee of three percent of the MIAP loan amount, due at the sale or refinancing of the property. The affordability restrictions are for ten years or the term of the loan, whichever is greater, regardless of the payoff.

How CHFA likes to structure these deals is 13 percent mezzanine debt, 26 percent equity and a 63 percent construction-to-perm loan, her presentation showed.

The agency looks for “at least 20 percent of the units affordable to renters of 80 percent or less area median income, up to 75 percent of the total units at or below 120 percent AMI. And then 25 percent of those can be unrestricted.”

She told the meeting, “So the benefits include the gap financing for up to 24 months and non-recourse permanent debt for up to 15 years.

“The first loan that we did was in 2018 when the program was initiated, and so far, we’ve completed about $30 million in committed loans that have been closed.”

At present, “we have about $38 million in our current pipeline. And right now, we’ve had about $26 million being paid off.”

Construction is currently underway on the Smith Ranch Apartments and is expected to take about two years, according to local media.

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.