Middle-Income Housing…Really!

5 min read

Winn and MassHousing find a workforce solution

New multifamily housing construction frequently includes a mix of market-rate apartments and low-income units.

It is very rare for new buildings to include much moderate-income or workforce housing. Land and construction costs are just too high for the private housing market to produce these units.

But nearly two-thirds of the apartments at the new Watson on Howard in Quincy, MA, will be priced affordably for moderate-income renters.

“It’s unique,” says Gilbert Winn, president and CEO of WinnCompanies, which is developing the Watson with Neighborworks Southern Mass. “The largest component of the building is moderate-income housing.”

Construction is planned to start in June on the five-story apartment complex next to the still-vacant Fore River Shipyard complex in the old, industrial heart of Quincy, MA. The Watson will also include a few dozen luxury apartments and another few dozen apartments affordable to low-income renters. But the dominance of moderate-income units has been made possible by some smart and innovative planning by Winn supported by MassHousing’s new Workforce Housing Initiative.

MassHousing’s Workforce Housing Initiative
Government programs rarely mandate moderate-income housing. New York City has recently begun to trade valuable sites to high-rise developers in exchange for commitments to build moderate-income housing. And now Massachusetts has launched its own MassHousing Workforce Housing Initiative, which provides soft financing to support moderate-income housing.

More than half of the apartments at the Watson will have rents restricted to be affordable to people earning up to 110 percent of the Area Median Income (AMI). That works out to about $80,000 a year. Their workforce housing rents will start at $1,900 a month for a studio, rising to $2,400 for a two-bedroom.

To demonstrate what moderate-income rents are: the Watson will also include 28 apartments subsidized with LIHTCs, for households earning up to 50 percent of AMI – with rents about half the price of the moderate-income apartments. And it will contain 26 new luxury apartments with rents potentially as high as $3,000 to $4,000 a month.

The 28 more deeply affordable apartments bring the LIHTC subsidies to the development. The luxury apartments bring the income from high rents, which will help the property support its financing.

But the workforce housing apartments with moderately-sized rents won’t support as much debt.

“That left a hole in the project’s budget of about $100,000 per unit,” says Gilbert. “The MassHousing’s Workforce Housing Initiative filled that hole.”

The Initiative provided $7 million in soft financing.

A new kind of finance
The cash from the Workforce Housing Initiative didn’t resolve all the challenges of financing the Watson. The unusual mix of housing created other questions that needed answers.

“Because there is no federal workforce housing program there are no rules of thumb,” says Gilbert. “It was like learning to walk all over again.”

It will cost a total of $44 million to develop the Watson – or a little over $300,000 per apartment. The property received a $29.3 million low-interest, tax-exempt loan provided by Citi Community Capital. That loan comes with a reservation of four percent LIHTCs for the 28 apartments priced to be affordable to low-income residents.

In most developments with LIHTCs, the tax credit limited partner is buying a 99 percent ownership stake in mostly-affordable-housing property.

“It was going to be difficult to find an investor for just 20 percent of the apartments,” says Winn.

So WinnCompanies found an unusual investor willing to buy the tax credits from those affordable apartments: itself. The WinnCompanies contributed $2 million to the development in exchange for LIHTC which it will use to offset its own tax liabilities over ten years.

The 28 affordable apartments still had a budget shortfall, which state officials filled with $900,000 in soft financing from the Massachusetts Department of Housing and Community Development.

A building, like the Watson, that includes long-term restrictions and its affordability has to be designed to last for decades without an easy infusion of capital. “The building needs to still be standing in 20 years,” says Winn. “We won’t have the opportunity to sell in five years to the highest bidder.”

The Watson includes high-quality, Energy Star-rated appliances and heating, ventilation and air conditioning systems.

“We took an affordable housing outlook with regard to the guts of the building,” says Winn. “It’s got to last.” At the same time, the building is also counting on the rental income from the market-rate apartments with no restrictions on how high rent can go.

The workforce housing apartments will also need to be attractive to fill up with moderate-income renters. “We had a market-rate outlook for design,” says Winn. “The building needs to attract residents paying $2,000 a month – it’s a lot of money.”

Construction will hopefully proceed without major surprises, finishing in July 2018. The site is currently occupied by long grass and a small, brick office building built in the 1950s that has stood empty for years. Winn is not expecting to have to perform much expensive demolition or cleanup.

“Most of the site is a field – it’s pretty clean,” says Gilbert.

The property abuts the former Fore River Shipyard, once the nation’s premier shipbuilding facility but largely dormant for three decades now.

“This area is kind of the last frontier for Quincy. Other parts of the city have adjusted from a manufacturing economy to service industries,” said Quincy Mayor Thomas P. Koch.

Community leaders, like the mayor, hope that The Watson will attract more private investment opportunities in the area.

“This is a great project that is going to make a major difference in the neighborhood and we look forward to its completion,” says Koch.

Sources and Uses
$29 million, permanent mortgage from MassHousing
$7 million, soft financing from the MassHousing Workforce Housing Initiative
$3.3 million, developer equity
$2 million, Massachusetts Housing Development Incentive Program Tax Credits
$2 million, equity from the sale of four percent LIHTCs to WinnCompanies
$2 million, soft financing from the City of Quincy