Construction is well underway on 192 apartments in central Vancouver that will be affordable to families earning 60 percent of the area median income or less. But what stands out about the $30.6 million K West project is not the tenants. It’s the landlord.
Rather than a nonprofit or government agency, the developer is Portland-based DBG Properties, a for-profit company. DBG is currently the biggest local contributor of affordable housing.
Last year, DBG built the 92-unit 13 West complex in downtown Vancouver, and the 120-unit 15 West in 2016. When K West opens in January, that will be 404 Vancouver apartments for people who can’t afford regular market-rate rents. A couple earning less than about $36,000 annually or a family earning about $45,000 will be able to rent K West’s units. Rents will be $848 for a one-bedroom apartment, $1,014 for a two-bedroom and $1,167 for a three-bedroom.
Melora Banker, project manager with DBG, said the city’s multifamily tax exemption program is what lured developer Walter “Skip” Grodahl to Vancouver. In return for keeping rents affordable, DBG will receive a tax break estimated at $149,979 in taxes over 12 years.
But, that’s not the only tool DBG will use.
Through the 4 percent Low Income Housing Tax Credit Program, K West received $10.6 million in equity financing, according to the Washington State Housing Finance Commission. Margret Graham, commission spokeswoman, said K West is one of the larger projects that the commission has financed. The credits are paired with bonds; K West has both taxable and tax-exempt bonds.
“He (Grodahl) found a program that worked for the company,” Banker said.
There are six employees behind DBG, which was started by Grodahl in 2014. He first built affordable housing developments in 1988 in Albuquerque, N.M. Over the years Grodahl built connections with equity investors and people that help him navigate local and statewide financing programs. He is also one of three partners behind GSL Properties, the company managing DBG’s complexes.
Grodahl did not comment for this story.
Despite the local lack of housing affordable to low-income families, DBG is pretty much the only for-profit company making much of a contribution — at least when it comes to constructing housing. Property management company Realvest sets aside 2 percent of its apartment units to be rented at a reduced rate and its rental criteria are modified in order to house people who wouldn’t otherwise qualify for an apartment.
Government programs
Meanwhile, the city of Vancouver is dispersing its first round of funding from the voter-approved Affordable Housing Fund. All seven of the public agencies and nonprofits that applied got funding. No private companies applied.
Peggy Sheehan, Vancouver’s community development program manager, said she’s gotten feedback from developers that the available funding of $50,000 per unit and 20-year affordability targets don’t pencil out.
“They can’t make their project work with that small of a number,” she said.
Construction costs, including labor and materials, have increased and brought up the price per apartment.
“It’s unfortunate all around,” said Andy Silver, CEO of Housing Initiative LLC. “From the city’s perspective they want the money to go as far as possible. It’s difficult to make a development pencil out at all.”
Silver recently left his role as executive director of the Council for the Homeless to run Housing Initiative full time. It’s penned as a mission-driven company that’s creating a new financing model for affordable housing development. Housing Initiative is a subsidiary of the Council for the Homeless, a nonprofit, but acts more like a for-profit company.
Housing Initiative’s first project, an 18-unit complex in central Vancouver called The Pacific, was awarded $250,000 from the Affordable Housing Fund. Silver and his partner Sierk Braam are trying to get it off the ground without tax credits. Silver thinks it’ll pencil out, but he imagines that he’ll have to use tax credits for the next project, which will be larger, because construction costs have risen so much.
“It turns out our timing isn’t so good,” he said.
The city is figuring out what it might take to attract private developers and plans to propose something to the city council this spring, something that “helps them help us” with affordable housing issues, Sheehan said.
She said getting for-profits on board will provide a greater diversity of projects that serve households at different income levels.
Theoretically, private developers can make dollars go further because they aren’t saddled by the regulations attached to public funds. (Nonprofits and public agencies use a variety of public funds to finance projects.) And, maybe a private developer can put forth a more creative idea, say, a tiny home community village or perhaps an apartment building where several units share common spaces such as kitchens and bathrooms.
Next round
The application deadline for the next round of Affordable Housing Fund funding will be sometime this summer. Private developer Elie Kassab plans to apply.
He’s the CEO of Vancouver-based Prestige Development, which is building Our Heroes Place in downtown Vancouver, a market-rate multifamily complex. His company is small and only builds one project at a time. But, for his next multifamily project he’s eyeing the Odgen neighborhood and wants to make a percentage of the units affordable to low-income households.
“We all feel really bad for that population and are trying to find solutions,” Kassab said.
It’s tough right now because of costs, the lengthy permitting process and the competition for tax credits, he said.
He built a complex for low-income seniors, Lewis & Clark Plaza, in 2003 when everything was cheaper. Nowadays, he said, it’s more doable to mix market-rate units with units that are affordable to lower-income families. Banks want the income on a property (that is the rents collected) to be at least 1.5 times or maybe twice as much as the loan. Otherwise, they’ll turn down the project.
“They want you be able to make the payments back,” Kassab said.
Kassab believes much of today’s housing woes were caused by investors from out of town who bought lower-grade apartment complexes and upgraded them, raising rents. That put pressure on local builders to do something, and he thinks that change is coming.
“A lot of us are working creatively to solve the affordable housing problem,” Kassab said.
