Preserving Naturally Occurring Affordable Housing Through Loan Program – Real Estate

Naturally occurring affordable housing (NOAH) — a property
that has not been deed restricted with respect to the rent or
income limits of its tenants but simply offers affordable rents
(defined as rent that is no more than 30% of a household’s
annual income for households at or below the applicable area median
income (AMI) level) to individuals or families of low income
— is frequently lost, particularly in gentrifying
neighborhoods, by sale to a party looking to take advantage of the
rising property values and opportunity to charge higher rents.

In response to this situation, the Urban Redevelopment Authority
of Pittsburgh (URA) has created the Housing Preservation Program
(HPP) to encourage the preservation of NOAH housing by providing
access to quick capital, which is often difficult for nonprofits or
those generally looking to operate affordable housing to obtain
when a NOAH property becomes available for sale. The goal of HPP
loans is to invest in NOAH in the City of Pittsburgh that is at
risk of becoming market rate as well as address other situations
that threaten the availability of affordable housing.

Loan Amount

The HPP loan amount is determined by the number of affordable
units. Up to $50,000 per unit with a maximum loan amount of
$1,500,000 per project may be loaned. The loan is expected to
mature in 20 to 40 years and not before senior debt on the
participating property.

Eligible Properties

Eligible properties include those with at least five (5) total
units (including scattered sites acquired concurrently if
reasonably included as one development with a single construction
scope), with at least 50% of total project units affordable for
renters at or below 80% of AMI.

The gross rent for units to be occupied by households who earn
at or below 80% of AMI may not exceed 30% of the monthly income for
the household. Priority will be given to projects that are
affordable for households at or below 50% of AMI. HPP funds may
only be utilized on the affordable units to be included in the
completed project.

Eligible Uses of Loan Proceeds

Eligible uses of HPP are:

1. Acquisition of housing portfolios that either consist of
   affordable housing rental units or previously consisted of
   affordable rental housing units within the last five (5) years and
   for which the HPP funds will be used to return the units to
   affordable rental housing.




2. Preservation of properties with project-based subsidies and/or
   deed restricted affordable housing at risk of being lost due to
   poor housing conditions or contract expiration.




3. Operating expenses to stabilize currently affordable
   properties.




4. The creation and/or preservation of Limited Equity Cooperatives
   (LECs). Eligible activities for LECs include costs related to the
   formation of the LEC, acquisition of the existing building,
   capitalization of traditional reserves, and necessary
   renovation/rehabilitation required to ensure the long-term
   viability of the LEC.




5. Emergency stabilization activities including but not limited to
   roof repair, mold remediation, building systems, building envelope,
   life safety issues, or other physical needs that could impact the
   health and quality of life for current residents, or compromise the
   building structure.

Requirements

Eligible borrowers must contribute no less than $3,000 per unit
in equity to an eligible project; this may be reduced to $1,000 per
unit for nonprofit development entities. All affordable units
assisted through HPP shall remain affordable for a minimum period
of 40 years via a recorded

Declaration and Agreement of Restrictive Covenants running with
the land. Eligible projects should not result in a net decrease of
affordable housing units or project-based subsidies.

Example – 302 Zara Street

On May 11, 2023, the URA’s Board approved a HPP loan in an
original principal amount of up to $850,000 with Spring Capital
Partners, LLC (Developer) for the acquisition of 302 Zara Street, a
22-unit affordable multi-family property that accepts Housing
Choice Vouchers. The property was for sale and thus faced the
possibility of transitioning to market rate housing. The Developer
intended to purchase the building and agreed to keep the rent for
all units affordable to households at or below 50% of AMI for a
period of 40 years. Further, the developer agreed to complete
construction of three additional units (also affordable at 50% AMI)
and a light rehabilitation of the building.

The URA and Developer closed on the HPP loan 54 business days
later. Other financing included sponsor equity and loans from
Spring Garden Lending Group, LLC and Preserve Affordability
Pittsburgh, LLC.

Details of HPP and to Apply

For complete details of the HPP program and to apply, see the
URA’s website at https://www.ura.org/proposals/housing-preservation-program.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.