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HomeMy WebLinkAbout2019-02-19 CorrespondenceState of the City Speech Mayor Jim Throgmorton February 19, 2019 Council members, City Manager Fruin, City staff, residents, and all others who have an interest in Iowa City, People routinely ask me how things are going in Iowa City. I tell them, and tell you now, the big picture is clear: in general, our city is doing great; it is exceptionally strong and healthy. Here are just a few indicators: • The city's population grew to a little under 76,000 people in 2017; • At 1.8%, our unemployment rate is the second lowest in the country; • The annual average dollar value of new construction in 2018 was the city's third highest in the past 10 years; • The City's property tax levy went down for the 7a' straight year; and • City government's Aaa Moody's bond rating, the highest a city can have, indicates your City's finances are being managed exceptionally well. One key reason why our city is doing so well is the high quality of work done by City employees. Open your faucet, and high-quality water produced at the City's Water Plant comes pouring out. Flush your toilet, and wastes flow through City sewers to the Wastewater Plant for treatment. There's a fire in your house. Who you gonna call? That's right: "Fire busters" in the City's Fire Department. With that in mind, I want to thank all our employees, especially those who have been working outdoors over the last six brutal winter weeks, for the great work they But indicators and good work do not tell the whole story. Not everyone shares equitably in our city's prosperity. Forty percent of the School District's elementary school students participate in the Free and Reduced Lunch Program, which is a surrogate measure of poverty, and there are vast differences in FRL rates (from 9.3 to 78.8%) among our elementary schools. Sixty-five percent of renting households pay more than 30% of their income on housing. Some Iowa Citians feel threatened because of their race, ethnicity, or faith. Some also find it very difficult to travel by public transit from home to work and other important destinations. And we are all called upon to respond to the unfolding consequences of climate change. With all this in mind, our task over the past few years has been to ensure Iowa City continues to prosper while also ensuring that the benefits of that prosperity extend to all of our residents for years to come. I could belabor the many ways in which we have tried to accomplish this broad goal, but what I want to do now is focus attention on some of the major actions we have taken over the past three years to create a more inclusive, just, and sustainable city. Please take a look at the images shown on the screen while I speak. Completing Flood Recovery Efforts. Good cities are resilient and bounce back from disaster. The best ones bounce back better than they were before. No doubt many of you remember very clearly the devastating flood of 2008. We bounced back from it in several ways. We essentially completed work on a series of flood recovery projects, most notably: construction of the 3 -year-long Gateway Project elevating Dubuque Street, building the new Park Road Bridge, rebuilding the intersections of Dubuque with Kimball and Park Roads, and installing a much -need sewerage trunk line under the roadway. We moved sewage treatment capacity from the old North Wastewater Treatment Plant to the South Treatment Plant, and then replaced the North facility with a new River&ont Crossings Park. We completed construction of the West Levee south of Highway 6. And we completed buyouts of 140+ homes in the floodplain, almost all of them in Parkview Terrace. Investing in Affordable Housing. Far too many Iowa City residents have great difficulty finding residences they can afford. We undertook major efforts to address this difficulty. In June 2016, we adopted the State's most ambitious Affordable Housing Action Plan. This Plan identified 15 strategies to generate additional affordable housing in Iowa City, and we have made considerable progress with regard to almost all of them. We adopted an inclusionary zoning requirement for the Riverfront Crossings District. In Fiscal Years 2017 through 2019, we directed a total of $2.65 Million into a new Affordable Housing Fund, and there is another $1M in the proposed FY20 budget. Fifty percent of those dollars have been allocated to the Housing Trust Fund, which subsequently used some of those funds to help build the recently -opened 24 - unit Cross Park Place for chronically homeless people. We approved an agreement to use $1.08M of Housing Authority funds to purchase 6 units of rental housing in the new Augusta Place development on Iowa Avenue. We amended the City's Comprehensive Plan to require that 10% of the residential units must be affordable in new developments which include 10 or more housing units and which voluntarily seek annexation into the city. We approved an infrastructure TIF on Foster Road, which is likely to generate $2-3 Million over a 10 -year period for assisting low -and -moderate income family housing anywhere in the city. We have also been approving a large number of new mixed-use and multi -family structures that, by the end of 2019, will have increased the total supply of housing in Iowa City by more than 4,000 units since 2015. This additional supply has been increasing rental vacancy rates substantially and has been, in the short run at least, been putting downward pressure on rents. Helping People in Crisis. Far too many people are in crisis due to alcohol or drug abuse or mental challenges. We took major steps toward helping them bounce back. These steps have included, first, ensuring that all our police officers receive Crisis Intervention Training; second, helping Shelter House construct its recently -opened Cross Park Place facility; and third, collaborating with the County, the University, Coralville, and others to facilitate development of a new Behavioral Health Access Center for people in crisis rather than have them treated roughly and then taken to a hospital emergency ward or the County Jail. Partly because of these actions, the average daily population in the County Jail decreased from 109.6 in 2015 to 88.5 in 2017 and in 2018. Improving Racial Equity. We live in a city, which, like all American cities, has been deeply shaped by racial inequities. We have taken several major efforts to reduce those inequities, including: creating a $75K Social Justice and Racial Equity Grants Program; using Racial Equity Toolkits to assess the racial equity of various City programs; diversifying the City's workforce, boards, and commissions; continuing the City Manager's Roundtable and Annual Equity Report; and contributing to the Civil Rights Tour of Historically Black Colleges and Universities, museums, and sites that have been important parts of black and American history. Under the direction of Police Chief Jody Matherly, the Police Department has been aggressively striving to reduce disproportionate minority contact involving discretionary charges in non -traffic related incidents, and to reduce disproportionality identified in the St. Ambrose University's annually updated traffic study regarding traffic stops, searches, and arrests. Moreover, we stood with our Hispanic neighbors by adopting a resolution reaffirming the public safety functions of local law enforcement and by linking up with other cities to challenge the legality of Presidential executive orders pertaining to "Sanctuary Cities." We supported residents who are refugees or immigrants from Sudan, the Democratic Republic of Congo, and elsewhere, by joining other cities in court cases challenging the legality of the President's proposed travel ban from predominantly Muslim countries. Changing the Built Environment While Preserving Our Heritage. As could easily be seen in the physical landscape, new private and public construction proceeded at a very lively pace over the past three years: the annual average dollar value of new construction for 2016 through 2018 ($266M) was 65% greater than the preceding three-year period. Most of this new construction took the form of apartment buildings, hotels, and mixed-use projects. Many Iowa Citians wonder whether so many new apartment buildings are needed. After all, rental vacancy rates have increased from —1.4% in 2015 to 4.4% in 2017 and maybe as much as 7% now. But it is also true that the City's population has grown by about 10,000 people (15%) since 2010. These new residents have needed good places to live, and we anticipate this growth in population will continue. In addition to projects mentioned earlier, City government completed several major public works projects, most notably: the First Avenue railroad underpass, which has greatly increased accessibility for businesses and residents in the southeast side of the city; and renovation of Washington St. and the first phase of the Pedestrian Mall improvements downtown. We have also changed or begun changing rules pertaining to development in two key parts of our city. In response to the State Legislature's 2017 pre-emption of local authority as well as to ensure a healthy balance of rental- and owner -occupied units in neighborhoods located close to the University, we developed a new rental permit cap program and strengthened the minimum requirements for rental housing. We also are crafting new rules for the area near Alexander Elementary, which will enable us to develop a diverse and walkable neighborhood containing "Missing Middle" housing while also streamlining the overall development process. With the help of the Historic Preservation Commission and property owners, we also took major steps in preserving our historic heritage This included approving nine historic district rezonings; preserving the Unitarian -Universalist Church; and hiring a consultant to inventory historic structures downtown. Last fall, the consultant recommended that we nominate downtown Iowa City for listing on the National Register of Historic Places, and that we work with interested stakeholders on the possibility of establishing a local historic preservation district for part of downtown. Building and Renovating Schools. High quality public schools are necessary for a thriving city and healthy neighborhoods. We adopted a resolution supporting the Iowa City Community School District's bond referendum, which has led to the construction of Alexander and New Hoover Elementary Schools, the first new such schools in Iowa City since 1994. Likewise, the School District has completed a superb addition and renovation at Longfellow School; and, with considerable input from City government, has been making excellent progress toward completing additions and renovations at Lincoln, Mann, and other schools in Iowa City. Taking Climate Action. Global climate change has been producing warmer temperatures, stronger winds, changes in plant communities, more frequent and intense severe weather events and flooding. With great help from a Steering Committee of dedicated volunteers, last September we adopted a Climate Action and Adaptation Plan, which maps a pathway toward reducing carbon emissions generated within Iowa City by almost 30% in 2026 and 80% in 2050. Greatly assisted by MidAmerican Energy's big shift toward wind energy, we have almost achieved the 2026 goal already. We also adopted a new Master Parks Plan and a new Bicycle Master Plan, both of which will help us reduce carbon emissions, adapt well to a changing climate, build a more vibrant and walkable urban core, and foster healthy neighborhoods throughout the city. Work on the parks has included completing the first two phases of Riverfront Crossings Park and improving Happy Hollow, Pheasant Hill, and other parks. Looking ahead to the remainder of 2019, we are collaborating with neighboring cities and the University to initiate a much-needed a study of public transit routes and hours of operation. We expect to revise and strengthen our Affordable Housing Action Plan. We will finish work on the Ped Mall improvements downtown, build an extension of McCollister Blvd. from S. Gilbert to Sycamore, and initiate the first phase of a new Public Works facility on Sand Road near Trueblood Park. This new Public Works facility will include a substantial array of solar panels for generating carbon -free electricity. We will also make steady progress toward achieving goals in the Bicycle and Parks Master Plans, including completing 4 -to -3 lane conversions on Clinton and Madison Streets and completing renovations at Creekside and Willow Creek Parks. We will make final decisions pertaining to the Pentacrest Gardens project at 12 Court St. And much more. As this quick overview indicates, we have accomplished a great deal over the past three years and more will be done over the coming year. But, as the poet John Dunne wrote: "No man is an island entire of itself." The same could be said about a city. Like all other cities, Iowa City can be thought of as a node in a global -scale network of links through which people, goods, services, energy, materials, capital, information, environmental nutrients, and social relationships flow. We are, therefore, inevitably affected by the global economy, by transnational movements of people, by changes in the global climate, and by actions at the national and state levels. For the past two years, actions taken by some political leaders at the state and federal levels have threatened to undermine the values that make Iowa City such a great place to live, especially its openness, diversity, inclusivity, and spirit of democratic engagement. As a result, we have been challenged to adjust at least temporarily to new realities without losing our moral compass. And yet, there is cause for optimism. Your city is doing great, and we, even as we passionately debate about local issues, we Iowa Citians have demonstrated a very strong desire to strengthen bonds of community across racial, ethnic, religious, and political divides, and to stand strong together in solidarity with everyone who is at risk. Last year, I closed my speech by encouraging us to "lead with love" and, by leading with love, help build the Reverend Martin Luther King, Jr.'s "beloved community" right here in Iowa City. Let me close tonight by showing you a few photos, which provide good reasons to believe we are doing just that: May 2016 Lucas Farms Neighborhood bike tour; August 2016 Farm to Table event, N Linn St; September 2016 Cyclo -Cross World Cup; June 2017 Downtown Block Party, Dubuque St; June 2017 Wetherby Park Block Party; June 2017 Arts Fest Carnival Parade, Washington and Clinton Sts; June 2017 Longfellow Neighborhood Porch Party; June 2017 PRIDE Parade, Washington St.; July 2018 RAGBRAI, Clinton and Iowa; September 2018 Latino Festival, S. Linn St.; U of Iowa October 2018 Homecoming Parade, Washington St. Let's keep it up, and thereby ensure that Iowa City will thrive long into the future. Thank you. i tMA Completing Flood Recovery Efforts Riverfront Crossings Park i In 19 jLWA� 1 ' d r j.- Helping People in Crisis b T aW;A Crosspark Place; Crisis Intervention Training; Shop with a Cop Improving Racial Equity and Supporting Our Immigrant and Refugee Neighbors 3 M , A q . it { Changing the Built Environment While Preserving Our Heritage ' 00 00� Changing the Built Environment While Preserving Our Heritage :1 EN I 'Pie �. tet. Ago- AV IL {�y r .14 Taking Climate Action Y Improving Parks and Bicycle Facilities 4 i P {•X•N`.• WE MARCH! I Looking Ahead to 2019 wm w I yy 3 . ` i { r� A mei � „ h j •� �' �. �— � � — � v `.•.,,^.. SNIIINfI� .. .. GLI r. t i m, .. - m .., r ' ` � t Y �� v., �� —" •�` � -��`� e"-�� r„r E � 1A V p � 41 " � -.411A t 00 Tn jlr� 01, 00 ir Tn jlr� 01, 00 1-0 ou m ,-_ J . »� k'Y Aft y AIP M yy� tk w0c_ Ili -,-4, AWL 0 ■ ■ U�Aiik , I* L k;p to -,4 NJ kit _ „ �-s"` S1, AL 4 a W Item Number: 9.a. + r ui �1 lat • yyrrmr�� CITY Ok 10WA CITY www.icgov.org February 19, 2019 Mormon Trek Lane Reduction ATTACHMENTS: Description David Christ - Put Mormon Trek south of Melrose on a road diet Dennis Whited - Mormon Trek Le Reduction Jame Klutts - Road Diet on Mormon Trek Janice Fisher- Lane diet Jean Florman Mormon Trek changes [Staff response included] Bob Elliott - Letter about Road Diet Rex Pruess - Support Road Diet for Mormon Trek Blvd [Staff response included] Darrell Hansen - Mormon Trek Four Lane to Three Lane Conversion Project Kathleen Cave - Mormon Trek Brenda Kurtz - Mormon Trek Road D I et Concerns Kellie Fruehling From: David Christ <kristid@mchsi.com> Sent: Thursday, January 31, 2019 1:42 PM To: Geoff Fruin; Rochne-Cole@iowa-city.org; Susan Mims; Scott Sovers; Jason Havel; Kent Ralston; Council Subject: Put Mormon Trek south of Melrose on a road diet. I have been driving this stretch of road for over 20 years. From my observation drivers often have to move from the center lanes to the outer lanes to avoid left turners which effective makes this not much more than a two lane road with storage lanes already. Road diet will make for a more predictable traffic flow and should affect capacity to a minimal extent. I predict that if statistics could be collected you would find that the typical driver's time to travel that stretch would be affected by only a few seconds at most. David Christ 1335 Emily Ct IC Kellie Fruehling From: Dennis Whited <dkwhited@yahoo.com> Sent: Thursday, January 31, 2019 2:18 PM To: Council Subject: Mormon Trek Lane Reduction I live in the Weber Elementary School area and frequently drive on Mormon Trek. I am also a registered Professional Civil Engineer. The reduction of lanes on Mormon Trek to permit bike lanes would be a mistake because it will slow down traffic. Have you ever been on Mormon Trek when it is clogged with west high traffic or U of I traffic? You will be forcing more local traffic to take the Shannon and Dublin Streets through residential areas ( which is not safe) to avoid Mormon Trek. Of course, you can also add more annoying speed bumps along Shannon and Dublin to slow down traffic! As a Civil Engineer, I always tried to assist the driving public to get somewhere as fast as possible with minimal inconveniences (contrary to your approach of reducing lanes and adding speed bumps to slow down traffic!). I am also a bike rider and there are wide sidewalks on both sides of Mormon Trek and also alternative bike routes to avoid Mormon Trek. The west side neighborhoods are showing considerable growth. Yet I see no long term road plans to find alternative north -south routes other than Mormon Trek? If you have extra money to spend, why not repair the bumps on much of Benton Street? Benton is an alternative route to avoid some congestion on Mormon Trek and Melrose. A response to the above points would be much appreciated. Thanks for your time. Respectfully, Dennis Whited, P. E. Sent from my iPad Kellie Fruehling From: Klutts, James S <stacey-klutts@uiowa.edu> Sent: Friday, February 01, 2019 7:56 AM To: Geoff Fruin; Rochne-Cole@Iowa-City_org; Susan Mims; Scott Sovers; Jason Havel; Kent Ralston; Council Subject: Road Diet on Mormon Trek All - As a resident on the west side of Iowa City, I must strongly object to the 'road diet' plan for Mormon Trek Blvd. As you likely know, this idea has already been met with substantial resistance. If you implement, that resistance will only increase. I think that this type of conversion is a decent idea in certain areas. In others, it is a terrible idea. It is a TERRIBLE idea on Mormon Trek between Melrose and Rohret. DO NOT MOVE FORWARD WITH THIS PLAN. It will be a nightmare on so many levels, not to mention the winter driving issues it poses. As for the propaganda that DOT put out on road diets, it is baseless, without sufficiently supported references. As such, it is merely a presentation of one group's opinion of the idea with cute little figures. Data should drive decisions. We are bound to that concept in medicine, for many reasons, including safety. Let's see the data for Mormon Trek and please highlight the problem you are trying to solve before the solution is implemented. That is a major missing piece here, and you could actually be creating more harm than good. Respectfully, James Stacey Klutts 1132 Lake Shore Dr. Iowa City, 52246 1. Stacey Klutts, M.D., Ph.D. Clinical Associate Professor of Pathology University of Iowa Hospitals and Clinics Chief, Pathology and Laboratory Medicine Central Iowa VA Health Care System Staff Pathologist Iowa City VA Health Care System Pathology and Lab Medicine (113) 601 Highway 6 West Iowa City, IA 52246 319-338-0581 x5530 sta cey-klutts @ u i owa . ed u Notice: This UI Health Care e-mail (including attachments) is covered by the Electronic Communications Privacy Act, 18 U.S.C. 2510-2521 and is intended only for the use of the individual or entity to which it is addressed, and may contain information that is privileged, confidential, and exempt from disclosure under applicable law. If you are not the intended recipient, any dissemination, distribution or copying of this communication is strictly prohibited. If you have received this communication in error, please notify the sender immediately and delete or destroy all copies of the original message and attachments thereto. Email sent to or from UI Health Care may be retained as required by law or regulation. Thank you. Kellie Fruehling From: Janice Fisher <janicefisherrdn@gmail.com> Sent: Friday, February 01, 2019 1:21 PM To: Council Subject: Lane diet I am opposed to the lane diet for Mormon Trek. This is a very busy road. I think working on adding some turn signals at a few intersections would be helpful. Reducing lanes is not helpful. Last fall there were traffic jams around the UI Credit Union all the time. There are very wide sidewalks in this area. I would favor encouraging bikes to use the sidewalks. Safer for all. Janice Fisher 712 Spencer Dr Iowa City IA Sent from my iPhone Kellie Fruehling From: Kent Ralston Sent: Monday, February 04, 2019 11:43 AM To: jflorman2@aol.com'; Geoff Fruin; Rochne-Cole@Iowa-City.org; Susan Mims; Scott Sovers; Jason Havel; Council Subject: RE: Mormon Trek changes Hello Jean — Thank you very much for your correspondence in support of the changes proposed for Mormon Trek Boulevard. Several of the goals of the proposed project are to alleviate the exact concerns you've outlined and to generally make the roadway safer for the traveling public. Additional information about the Project, including the Federal Highway Administration Road Diet Informational Guide can be found on the City's Website: https://www.icgov.org/project/four-lane-three-lane-road-conversions. Please feel free to contact me should you have any additional questions or comments. Best Regards, Kent Ralston, AICP Executive Director I Metropolitan Planning Organization of Johnson County Transportation Planner I City of Iowa City 410 E. Washington St. Iowa City, IA 52240 319.356.5253 From: jflorman2@aol.com [mailto:jflorman2@aol.com] Sent: Saturday, February 02, 2019 4:04 PM To: Geoff Fruin <Geoff-Fruin@iowa-city.org>; Rochne-Cole@Iowa-City.org; Susan Mims <Susan-Mims@iowa-city.org>; Scott Sovers <Scott-Sovers@iowa-city.org>; Jason Havel <Jason-Havel@iowa-city.org>; Kent Ralston <Kent- Ralston@iowa-city.org>; Council <Council@iowa-city.org> Subject: Mormon Trek changes Hello, I see on our neighborhood listsery a lot of discussion about changes to Mormon Trek. It looks like most people are opposed (which I suppose is generally the response to change), but I want to strongly support turning lanes, particularly a left -turn lane from MT east onto Cae. I have been warning family members and friends for years about the death -defying trick it is to make that turn when another vehicle is facing you and trying to turn left onto Rohret. Because of the slope of MT, even a small north -facing vehicle can block the view of multiple vehicle passing it and heading north through that light. Thus, drivers trying to turn onto Cae think all's clear and have been T-boned by vehicles trying to proceed north that are passing the car turning left onto Rohret. I and several other neighbors have complained about this intersection for years, and unless you've experienced the surprise and fear of seeing multiple cars that you thought weren't there sail through that intersection as you turned east, you don't really understand why the design is so dangerous. I hope the City engineers will come out at some point and actually stage this arrangement of cars so they can see for themselves. Thanks, Jean 335-6085 Kellie Fruehling From: Bob Elliott <elliottb57@gmail.com> Sent: Sunday, February 03, 2019 4:29 PM To: Council Subject: Letter about "Road Diet" Attachments: City streets II.docx Please have copies of the attached letter made available to each City Council member. Thank you, Bob Elliott, Iowa City resident Bob Elliott 1108 Dover Street, Iowa City To: City Council, City of Iowa City Rockne Cole, At -Large Susan Mims, District B Mazahir Salik, At -Large Pauline Taylor, District A and Mayor Pro Tem Bruce Teague, At -Large John Thomas, District C Jim Throgmorton, At -Large and Mayor From: Bob Elliott Iowa City resident I'm writing to ask that you give thoughtful consideration to reviewing the city's recent questionable investment in the "road diet" approach for controlling traffic movement and safety on our city streets. I believe our city's streets/traffic engineering staff believed they were doing the best they could for motor vehicles, bicycles, and pedestrians regarding our city streets last year when they changed a major portion of First Avenue in southeast Iowa City from four to two lanes, plus a center turning lane. But I and many others believe it was a serious and expensive mistake. For years, traffic on that portion of First Avenue was plagued by periodic stoppage caused by trains at the street level railroad crossing near South East Jr. High. To address that, the city made the decision to spend a million or more dollars constructing an overpass for that railroad crossing. Well done. It's attractive and functionally eliminates traffic stoppage there. Unfortunately, that was negated by installing the now infamous "road diet." As a more than 50 -year resident on Dover Street in that area, I drive that portion of First Avenue multiple times a day. And thus, multiple times a day I'm reminded that this "road diet" is now worse than it was prior to constructing the railroad overpass. The First Avenue "road diet" seriously hampers traffic flow especially at morning and afternoon/evening drive times, as student drop-off and pick-up traffic involving City High, South East Jr. High, and Robert Lucas schools combines with regular rush hour traffic. Numerous times, I've sat in my car watching traffic backed up on First Avenue all the way from Lower Muscatine Ave. to the Muscatine Ave. intersection several blocks away. I've witnessed times when vehicles attempting to turn onto First Avenue between those locations are unable to do so because of a long line of backed up traffic. And now, despite the "road diet" mess creased on our First Avenue, the city continues to plan for repeating this serious mistake with Mormon Trek on the west side. Can we please learn from our mistakes. Take Des Moines, for instance. After implementing the "road diet" concept on some streets a few years ago, Des Moines officials recognized the mistake and has now returned those streets to the more functional four lanes. Please have our city council get input from not only traffic engineers, but from area residents and visitors who daily drive our streets. Then have a serious council investigation and discussion on returning to four lanes for our heavily traveled streets. With our metro area population and resulting street traffic increasing rapidly, how can "road diets" promote safety when it creates driving situations seriously frustrating and irritating so many drivers on a daily basis. With thanks for your service to our city, J308 £ffiatt 351-4056 ellioub57@gmail.com Kellie Fruehling From: Kent Ralston Sent: Monday, February 04, 2019 11:37 AM To: 'Rex Pruess'; Geoff Fruin; Rochne-Cole@Iowa-City.org; Susan Mims; Scott Sovers; Jason Havel; Council Subject: RE: Support Road Diet for Mormon Trek Blvd Mr. Pruess —Thank you very much for your correspondence in support of the changes proposed for Mormon Trek Boulevard. Several of the goals of the proposed project are to alleviate the exact concerns you've outlined and to generally make the roadway safer for the traveling public. Additional information about the Project, including the Federal Highway Administration Road Diet Informational Guide can be found on the City's Website: https://www.icgov.org/project/four-lane-three-lane-road-conversions. Please feel free to contact me should you have any additional questions or comments. Best Regards, Kent Ralston, AICP Executive Director I Metropolitan Planning Organization of Johnson County Transportation Planner I City of Iowa City 410 E. Washington St. Iowa City, IA 52240 319.356.5253 From: Rex Pruess [mailto:rex.pruess@live.com] Sent: Monday, February 04, 2019 8:14 AM To: Geoff Fruin <Geoff-Fruin@iowa-city.org>; Rochne-Cole@Iowa-City.org; Susan Mims <Susan-Mims@iowa-city.org>; Scott Sovers <Scott-Sovers@iowa-city.org>; Jason Havel <Jason-Havel@iowa-city.org>; Kent Ralston <Kent- Ralston@iowa-city.org>; Council <Council@iowa-city.org> Subject: Support Road Diet for Mormon Trek Blvd have been following the discussion on the Nextdoor social network regarding the Road Diet for Mormon Trek Blvd. A Nextdoor member has encouraged people to share their opinions with you. My opinion follows. I support converting Mormon Trek Blvd from four to three lanes. The continuous center left -turn lane should reduce rear -end collisions. The new right turn lane from Mormon Trek onto Benton Street has already improved traffic flow. New traffic signals, with improved signal phasing, will make the intersections safer. Less erratic driving will improve safety. These changes will improve the safety for all of us — motorized vehicles, bicyclists, and pedestrians — without significantly reducing travel time. Sincerely, Rex Pruess 1013 Pheasant Valley St On February 3, 2019 Darrell Hansen Southwest Estates posted on Nextdoor: Please send a email to the following people at the City on your opinion (for or against) the Road Diets on Mormon Trek or 1st Ave. Their email address is given below. Geoft Fruin, City Manager, IC Rochne Cole, IC Council Member, At -Large Susan Mims, IC Council Member Scott Sovers, IC Senior Civil Engineer Jason Havel, IC City Engineer Kent Ralston, IC Transportation Planner All City Council members Geoff-Fruin@Iowa-city.org; Rochne-Cole@Iowa-City.org; Susan-Mims@Iowa-city.org; Scott-Sovers@Iowa-city.org; Jason-Havel@Iowa-City.org; Kent-Ralston@Iowa-city.org; Council@Iowa-city.org Kellie Fruehling From: Darrell Hansen <dohjkh@yahoo.com> Sent: Friday, February 08, 2019 2:01 PM To: Geoff Fruin; Rochne-Cole@Iowa-City.org; Susan Mims; Scott Sovers; Jason Havel; Kent Ralston; Council Subject: Re: Mormon Trek Boulevard Four Lane to Three Lane Conversion Project Good Afternoon, Below is a response I sent to Scott Sovers email (also below) on the Road Diet conversion on Mormon Trek. I hope you will review the success of the Road Diet on 1st Ave on the East side and ask more questions about Mormon Trek before a Road Diet is implemented. There are many comments about the Road Diet on the Nextdoor.com Web Site. I am available for any questions. Darrell Hansen 83 Durango Place Iowa City, la 52246 dohjkh@yahoo.com 319--338-5253 (home) 319-621-3043 (cell) Good Morning Scott, Below is my response to moving Mormon Trek to a 3 lane project. I plan on sending my response to a few friends and neighbors on the Next Door web site. If you have any questions on this, please feel free to contact me. Thanks for getting back to me! Darrell A trip to "Abilene" the "Road Diet." Some one suggested that we take a road trip to Abilene, Tx, on a hot (100 plus degrees) summer & dry day with the sun beating down, the trip was 100 plus miles away. We all said, "let's go to Abilene" in response to the initial suggestion. When we got to Abilene, just exhausted, we all said, "Why did we go to 1 Abilene?" No one had an answer --- is this another trip to Abilene, the "Road Diet" for Iowa City? I have seen where the lanes on Mormon Trek have been limited to one lane due to construction. It is amazing how the traffic builds up! When I heard that the City was going to make this street a "Road Diet" I could not believe anybody would see how this could be done with the volume of traffic! The purpose given for the Road Diet is to "Reduce Accidents." The City has presented the results of their; research, consultants, and analysis of data. This was presented in a public hearing and given to me when I have asked questions why we're doing a "Road Diet" I believe that if you have a problem you should be able to quantify the problem (how many accidents have we had on the streets & intersections), have this as a base, make changes, and see if there has been any improvements. What are the reservations on success of the Road Diet --- Another trip to Abilene? What "Traffic volume study" was done? The answer given was, we drove a car on Mormon Trek, this told us it would take 39 seconds longer for someone to drive on one verse two lanes. This was done the 2nd week of Jan (peak week for traffic?). I asked the City did they collect actual volume of traffic during peak times (when the weather was good, University was in session, people were not on vacation, and school was in session for local schools)? What are the number of accidents at each of the intersections on Mormon Trek for the last 5 years? I was given Police report of accidents for 3 years, 2013 -- 2015. This was the latest data as of Aug 2018. There is only one z intersection on Mormon Trek (with Melrose Ave) that was significant. This intersection is at the end of the proposed Road Diet and is a major intersection with the traffic from the University and University Hospital. I do not see how the Road Diet will improve crashes at this location since there are turn lanes at this intersection, but might increase the number of accidents with a build up of traffic on Mormon Trek during peak travel times. What is the projected growth for traffic on Mormon Trek? The consultants projected growth in vehicle traffic to increase by 10% from 2010 to 2040 (30 years). The growth in populations in the Iowa City metro area has grown by 200% from 1960 to 2010 (50 years). These numbers do not add up! Mormon Trek is one of few North to South streets in Iowa City. Why are Much cheaper alternatives not being tried? Change the Stop light in existence today at the following locations to add a turning light: - corner of Benton Street and Mormon Trek - corner of Rohert Road and Mormon Trek On Monday, February 4, 2019, 12:36:47 PM CST, Scott Sovers <Scott-SoversO-iowa-citY.orq> wrote: Good Afternoon! Thank you for reaching out regarding the Mormon Trek 4 Lane to 3 Lane Conversion Project! To ensure that Mormon Trek was a good candidate for the conversion, both the existing and future forecasted traffic were carefully analyzed under both the 4 and 3 lane configurations. In summary, the result of the analysis indicated that the traffic volumes within the corridor do not necessitate the current number of lanes. Additionally, a travel time study showed a minimal increase in vehicle delay in travel time within the corridor under the 3 -lane scenario for the existing and future forecasted traffic. This delay is offset by the improved vehicular and pedestrian safety that can be expected through 4 to 3 -lane conversions. Upon review of the traffic data/analysis that was prepared, Snyder and Associates (Design Consultant for the Project), the City, the Metropolitan Planning Organization of Johnson County, and the Iowa 3 Department of Transportation are in support of the 4 to 3 lane Conversion on Mormon Trek Boulevard from 1,000 ft. north of Westside Drive to Melrose Avenue. Additional information about the Project, the Federal Highway Administration Road Diet Informational Guide and the AARP Road Diet Publication can be found on the City's Website: https://www.icgov.org/pro*ect/four-lane-three-lane-road-conversions. Please feel free to contact me should you have any additional questions or comments! Thanks and have a great day! Scott Sovers, P, E. Senior Civil Engineer City of Iowa City 410 Washington Street Iowa City, IA 52240 Phone: (319) 356-5142 Fax: (319) 356-5007 CITY Of IOWA CITY UNESM Cmr of UTERATURE .. Disclaimer The information contained in this communication from the sender is confidential. It is intended solely for use by the recipient and others authorized to receive it. If you are not the recipient, you are hereby notified that any disclosure, copying, distribution or taking action in relation of the contents of this information is strictly prohibited and may be unlawful. Kellie Fruehling From: Kathleen Cave <12klcave@gmail.com> Sent: Wednesday, February 13, 2019 3:08 PM To: Council Subject: Mormon Trek I oppose the proposed change to Mormon Trek. I drive this road daily and see no way in which this change will improve traffic flow on this already heavily used road. Please don't waste our tax dollars. Kathleen Cave 1006 Sunset St IC 52246 Sent from Mail for Windows 10 Kellie Fruehling From: Brenda Kurtz <kurtz.brenda@gmail.com> Sent: Thursday, February 14, 2019 10:15 AM To: Geoff Fruin; Rochne-Cole@iowa-city.org; Susan Mims; Scott Sovers; Jason Havel; Kent Ralston; Council Subject: Mormon Trek Road Diet Concerns Good morning, I've recently been looking into to the small amount of information that has been shared in regards to the upcoming changes to Mormon Trek Blvd. (Though I'm still looking for crash statistics/traffic studies/alternate proposals for THIS particular street (not of other streets in our city/state/country) which explain why this is the BEST solution to address a specific problem(?).) I definitely understand that the Mormon Trek/Melrose intersection is busy (and possibly dangerous?), as I pass through it several times a day, either as a driver, pedestrian, or cyclist. However, I don't see how the road diet south of this intersection will reduce potential accidents. (Though maybe there is a clear plan that addresses this, and I just haven't seen it?) Conversely, it seems that the road diet will back up southbound traffic merging to one lane j), which will lead to more frustrated drivers attempting to run a yellow -red light - - look out! Sidebar, while I'm thinking of it... I'd like to mention that the current timing of the stoplights at the Mormon Trek/Melrose intersection seems spot on! So kudos to whoever figured that out. I frequently pass through that intersection from almost every direction at various times throughout the day, and never feel that the timing is "off" (except maybe during extreme rush hour, which is better now that C`ville 1st Ave construction is complete). So, thank you!! But this raises another concern - - will the timing of the Mormon Trek/Melrose stoplight need to be changed (i.e., increased duration to accommodate single -lane north/southbound vehicles)? If so, then I imagine the Melrose traffic could back up significantly. Especially during UIHC and West High rush hours. Also, important to remember that Melrose is a primary ambulance route, so increasing Melrose delays can literally have life -and -death consequences. Of lesser importance, game days could be a huge mess, not so much due to that intersection (which is controlled by public safety after games), but due to the "single -file" traffic on Mormon Trek. Presumably, even more drivers will choose to leave town via Melrose Avenue, which is already a nightmare on game days. Living in Galway Hills for the past 12 years, we KNOW we are not leaving our neighborhood during game day traffic - LOL. Except... now there is a back way out of the neighborhood. Which is both a blessing and a curse. This brings me to my final concern. One that council members may not have considered?? The use of the (unsafe) Rohret-to-Melrose shortcut will dramatically increase due to the Mormon Trek road diet. I shared this concern via NextDoor, where someone suggested emailing our council members. Thus, my email.:-) The original post is below: Related concern: when Mormon Trek becomes increasingly congested due to the lane reduction, people will want to avoid those delays. Me included. ;-) Drivers in the Rohret Rd area currently accomplish this via a winding shortcut through the Walden Woods/Galway Hills neighborhoods (Shannon -Tipperary -Dublin -Melrose). Even though there is some sporadic "traffic calming" (a few speed bumps, curves, and parked car obstacles), drivers often speed along this route - - especially to/from school. This puts pedestrians/cyclists at risk as they are "sharing the road" (due to missing sidewalks) or crossing Dublin, which has no speed bumps or protected crossing. In addition, the traffic can get VERY backed up at Dublin & Melrose, as this was not designed to be a thoroughfare between Rohret and Camp Cardinal or WHS. I could be wrong, but I would foresee the Mormon Trek initiative only increasing these current issues. So the city might want to budget some additional dollars for traffic calming along Dublin, as well as perhaps adding turn lanes and/or stoplight at the Dublin -Melrose intersection. Just a suggestion.:-) This shortcut is a genuine concern, and I'm surprised that I haven't seen more accidents along this route. As a frequent walker/jogger/cyclist/driver of this route, I have seen many "near misses." Tipperary sidewalks are incomplete due to undeveloped lots (although this is improving), meaning that people are walking/biking in the (curved) road, watching out for speeding minivans as well as teen drivers. Also, many students park or live in Galway Hills, which means they cross Dublin (at their own risk) to get to West High. (This has improved slightly with the opening of Liberty, but is still a concern as drivers largely ignore the recently - painted, but unraised crosswalk.) Related point: the Dublin/Melrose intersection is getting MUCH more traffic than originally intended, once the Tipperary connection was completed. Many vehicles cut through Galway as a time-saver (?) to get from Rohret Rd to Camp Cardinal/Hwy 218. And the Dublin/Melrose corner homeowner's fence blocks driver visibility until vehicles nudge up to the pedestrian/bicycle crossing. Again, many close calls with drivers who are frustrated after sitting at a backed up intersection and cyclists/pedestrians who seem invisible to hurried drivers attempting to jet out into 35-40 mph traffic. If you made it this far, thank you! I hope you'll consider ALL ramifications of the planned Mormon Trek road diet, and possibly reconsider the Melrose-to-Rohret portion. Or at the very least budget some funds for improving the safety along the Rohret-to-Melrose shortcut, with proper attention to the overused Dublin/Melrose intersection. Please let me know if you have any questions. I'll look forward to reading additional information on this topic. Best regards, Brenda Kurtz 3442 Donegal Court Iowa City Kellie Fruehling From: Sent: To: Cc: Subject: /0,0, Brenda Kurtz <kurtz.brenda@gmail.com> Friday, February 15, 2019 2:10 PM Kent Ralston Council; Rockne Cole; Susan Mims; Mazahir Salih; PabJfftC%dRd@u16e[)ft*uW Thomas; Jim Throgmorton Re: Mormon Trek Road Diet Concerns Good afternoon, and thank you for your prompt reply! (Date) First, I want to apologize for simply copying/pasting the outdated council members' email address list that was given to me in my first email. I didn't even look at the names, and now see that most of that list was incorrect with many of our new council members omitted (welcome!!). I understand that the Mormon Trek project is happening as TSIP funding was pursued and acquired, and we're basically too far down the road now, so to speak. It is what it is now, and we will have to live with it. And hopefully it will surprise us all and be a fantastic update for west IC! But I will ask you to consider two points: 1. Is it possible that this decision was based on data of questionable relevance? And if so, how will the completed project be monitored and possibly corrected in the future? Reading the Snyder & Associates report, it surprised me to find that Mormon Trek traffic volumes "do not warrant" four lanes. Anyone who travels MT regularly would be scratching their head over that assertion. And lord help us all on game days... This struck me as an inaccurate premise, so I took a quick look at the data tables. Did anyone else find it odd that the travel time studies (and likely the peak hour traffic volume count) took place when the University of Iowa was not even in session on 1/12/16? This almost seems laughable... unless it was intentionally planned for 1/12 to better support the desired project narrative of insufficient traffic volumes (including "infrequency of buses stopping"?)? Either way, as a critical thinker, I'm immediately suspect of the accuracy of this report and the resulting conclusions. Clearly, I'm not a traffic engineer, so maybe January traffic studies are common in this field. But in a college town, the study could have at least been done at the end of the month to capture relevant vehicle volume, including bus usage. Consequently, it seems the council may want to see updated or properly extrapolated data for the tables presented in this report, as they may be flawed: Table 1 (DOT Counts) - should just be thrown out (explained below*). While hopefully omitted from any calculations, this improbable data was used to support a narrative of declining traffic along Mormon Trek Blvd? Table 2 (Peak Hour Counts) - conducted January 2016... on (non -)representative dates? Confirm this data represents RELEVANT peak hours during the semester and on normal weather/traffic days? Table 3 (Travel Time Study) - Data misrepresentative, considering the study was conducted on January 12th, right? Table 4 (MPOJC Traffic Model) - yes! Possibly the only table in this report that makes sense, but still would help to know when/how the modeling was done. Table 5 (2040 peak projections) - derived from (potentially -flawed) Tables 2 and 3... Table 617 (AM/PM peak hour analyses) - derived from (potentially -flawed) Tables 2 and 3... Table 8 (Current/Projected travel times) - derived from (potentially -flawed) Tables 6 & 7, and corroborated by invalid data from Table 3. *Table 1 shows traffic north of Rohret dropped by 43010 between the 2006 and 2014 readings This makes no sense, given that: - The Weber neighborhood development/population increased during those years, and - The Mormon Trek intersection is the main/only "escape" for residents of those neighborhoods, right? (Unless they wind through Walden Woods/Galway Hills or go off- roading via Slothower Street.) So I can only think of three likely explanations for that 43% reduction: (1) the data is invalid as it was collected on incomparable dates/times; (2) thousands of Weber families began carpooling, biking, or bus riding; and/or (3) large volumes of traffic have been rerouted during that period. Granted, the Shannon extension DID open circa 2009, but no way those extra 7,000 cars a day are rolling through Galway Hills. That said, I don't see where that huge anomaly was addressed, other than to assume the traffic had simply disappeared, which I think we can all agree (and which other report data show), it did not. Which brings me to my second point... 2. Do you have any thoughts/concerns about increased traffic on nearby residential streets? Specifically, traffic resulting from drivers avoiding delays on Mormon Trek? The Rohret-Shannon-Tipperary-Dublin-Melrose shortcut is already a preferred route (see how many twists/turns (and speed bumps) drivers are willing to navigate to avoid Mormon Trek?). So even a "minimal increase" in travel time (suspending skepticism of a study conducted over winter break) will not help that situation. For detail on the safety concerns regarding hundreds of cars zooming through this residential area, please see my previous email. Are there other neighborhoods along Mormon Trek that experience this same issue? I'm only aware of the Galway Hills issue because I live here (and walk/bike/drive this area frequently). But wouldn't be surprised if Westgate or other residential streets would see a similar impact. So is there any plan to address this (e.g., increased safety measures and traffic lights along those shortcut routes?, partnering with Johnson County to develop Slothower Street?)? Or at the very least - is there any plan to study or address the currently -rerouting traffic, along with the implications of adding to perceived existing delays on Mormon Trek? In closing, I realize that many of the current city council members were not present for the Mormon Trek "road diet" decision. So I'm only asking that perhaps we review it with a fresh set of eyes. And - ideally - with discerning minds that would recognize and reject (or at least question) some of the studies' methodologies and the integrity of the resulting data. Lastly, please note, I'm not suggesting that Mormon Trek does not need improvements. It most certainly does. And perhaps the 3 -lane model would work from Westside to Rohret, where traffic is more sparse and motorists tend to drive well above the speed limit. But frankly, the highly - traveled Rohret-to-Melrose section really needs all 4 lanes plus a turn lane. Thanks again for your time! Brenda Kurtz 3442 Donegal Court Iowa City 319-321-2560 On Fri, Feb 15, 2019 at 8:40 AM Kent Ralston <Kent-Ralston@iowa-citv.ora> wrote: Hello Ms. Kurtz—Thank you for reaching out regarding the Mormon Trek 4 Lane to 3 Lane Conversion Project. To ensure that Mormon Trek was a good candidate for the conversion, both the existing and future forecasted traffic were carefully analyzed under both the existing 4 lane, and proposed 3 lane configurations. In summary, the result of the analysis indicated that the traffic volumes within the corridor do not necessitate the current number of lanes. Additionally, a travel time study showed a minimal increase in anticipated vehicle delay within the corridor under the proposed 3 -lane scenario. However, any increase in delay should be offset by the improved vehicular and pedestrian safety expected from the proposed 4 to 3 -lane conversion. Upon review of the traffic data/analysis that was prepared, Snyder and Associates (Design Consultant for the Project), the City, the Metropolitan Planning Organization of Johnson County, and the Iowa Department of Transportation are in support of the 4 to 3 lane Conversion on Mormon Trek Boulevard from 1,000 ft. north of Westside Drive to Melrose Avenue. Additional information about the Project, the Federal Highway Administration Road Diet Informational Guide, and an AARP Road Diet Publication can be found on the City's Website: hftos://www.iccov.org/promeettfour-lane-three-lane- roadconversions. Please feel free to contact me should you have any additional questions or comments. Thanks and have a great day! Kent Ralston. AICP Execubve Director I Metropolitan Planning organization of Johnson County Transportation Planner I City of Iowa City 410 E. Washington St. Iowa City, IA 52240 319.356.5253 From: Brenda Kurtz [mailto:kurtz.brenda@rtmail.coml Sent: Thursday, February 14, 2019 10:15 AM To: Geoff Fruin <Geoff-Fruin@iowa-citv.ora>; Rochne-Cole@iowa-citv.ora: Susan Mims <Susan-Mims@iowa-citv.or¢>; Scott Sovers <Scott-Sovers@iowa-citv.ora>; Jason Havel <Jason-Havel@iowa-citv.ora>; Kent Ralston <Kent- RalstonCa@iowa-city.org>; Council <Council@iowa-city.orz> Subject: Mormon Trek Road Diet Concerns Good morning, I've recently been looking into to the small amount of information that has been shared in regards to the upcoming changes to Mormon Trek Blvd. (Though I'm still looking for crash statistics/traffic studies/alternate proposals for THIS particular street (not of other streets in our city/state/country) which explain why this is the BEST solution to address a specific problem(?).) I definitely understand that the Mormon Trek/Melrose intersection is busy (and possibly dangerous?), as I pass through it several times a day, either as a driver, pedestrian, or cyclist. However, I don't see how the road diet south of this intersection will reduce potential accidents. (Though maybe there is a clear plan that addresses this, and I just haven't seen it?) Conversely, it seems that the road diet will back up southbound traffic merging to one lane (?), which will lead to more frustrated drivers attempting to run a yellow -red light - - look out! Sidebar, while I'm thinking of it... I'd like to mention that the current timing of the stoplights at the Mormon Trek/Melrose intersection seems spot on! So kudos to whoever figured that out. I frequently pass through that intersection from almost every direction at various times throughout the day, and never feel that the timing is "off' (except maybe during extreme rush hour, which is better now that C'ville 1st Ave construction is complete). So, thank you!! But this raises another concern - - will the timing of the Mormon Trek/Melrose stoplight need to be changed (i.e., increased duration to accommodate single -lane north/southbound vehicles)? If so, then I imagine the Melrose traffic could back up significantly. Especially during UIHC and West High rush hours. Also, important to remember that Melrose is a primary ambulance route, so increasing Melrose delays can literally have life -and -death consequences. Of lesser importance, game days could be a huge mess, not so much due to that intersection (which is controlled by public safety after games), but due to the "single -file" traffic on Mormon Trek. Presumably, even more drivers will choose to leave town via Melrose Avenue, which is already a nightmare on game days. Living in Galway Hills for the past 12 years, we KNOW we are not leaving our neighborhood during game day traffic - LOL. Except... now there is a back way out of the neighborhood. Which is both a blessing and a curse. This brings me to my final concern. One that council members may not have considered?? The use of the (unsafe) Rohret-to-Melrose shortcut will dramatically increase due to the Mormon Trek road diet. I shared this concern via NextDoor, where someone suggested emailing our council members. Thus, my email.:-) The original post is below: Related concern: when Mormon Trek becomes increasingly congested due to the lane reduction, people will want to avoid those delays. Me included. ;-) Drivers in the Rohret Rd area currently accomplish this via a winding shortcut through the Walden Woods/Galway Hills neighborhoods (Shannon -Tipperary -Dublin -Melrose). Even though there is some sporadic "traffic calming" (a few speed bumps, curves, and parked car obstacles), drivers often speed along this route - - especially to/from school. This puts pedestrians/cyclists at risk as they are "sharing the road" (due to missing sidewalks) or crossing Dublin, which has no speed bumps or protected crossing. In addition, the traffic can get VERY backed up at Dublin & Melrose, as this was not designed to be a thoroughfare between Rohret and Camp Cardinal or WHS. I could be wrong, but I would foresee the Mormon Trek initiative only increasing these current issues. So the city might want to budget some additional dollars for traffic calming along Dublin, as well as perhaps adding turn lanes and/or stoplight at the Dublin -Melrose intersection. Just a suggestion. 4 This shortcut is a genuine concern, and I'm surprised that I haven't seen more accidents along this route. As a frequent walker/jogger/cyclist/driver of this route, I have seen many "near misses." Tipperary sidewalks are incomplete due to undeveloped lots (although this is improving), meaning that people are walking/biking in the (curved) road, watching out for speeding minivans as well as teen drivers. Also, many students park or live in Galway Hills, which means they cross Dublin (at their own risk) to get to West High. (This has improved slightly with the opening of Liberty, but is still a concern as drivers largely ignore the recently - painted, but unraised crosswalk.) Related point: the Dublin/Melrose intersection is getting MUCH more traffic than originally intended, once the Tipperary connection was completed. Many vehicles cut through Galway as a time-saver (?) to get from Rohret Rd to Camp Cardinal/Hwy 218. And the Dublin/Melrose corner homeowner's fence blocks driver visibility until vehicles nudge up to the pedestrian/bicycle crossing. Again, many close calls with drivers who are frustrated after sitting at a backed up intersection and cyclists/pedestrians who seem invisible to hurried drivers attempting to jet out into 35-40 mph traffic. If you made it this far, thank you! I hope you'll consider ALL ramifications of the planned Mormon Trek road diet, and possibly reconsider the Melrose-to-Rohret portion. Or at the very least budget some funds for improving the safety along the Rohret-to-Melrose shortcut, with proper attention to the overused Dublin/Melrose intersection. Please let me know if you have any questions. I'll look forward to reading additional information on this topic. Best regards, Brenda Kurtz 3442 Donegal Court Iowa City Disclaimer The information contained in this communication from the sender is confidential. It is intended solely for use by the recipient and others authorized to receive it. If you are not the recipient, you are hereby notified that any disclosure, copying, distribution or taking action In relation of the contents of this Information is strictly prohibited and may be unlawful. Kellie Fruehling From: Geoff Fruin Sent: Friday, February 15, 2019 9:09 AM Late Handouts Distributed To: 'Donald Baxter'; Council Subject: RE: Continue to support the MTB Road Diet 2-15-1°I Mr. Baxter, (Date) Thank you for the email. We fully intend to complete the project this spring. As soon as the weather allows we will install the new traffic signals at Benton and then complete the re -striping of lanes. We also have some landscaping and new street lighting in certain parts of the Mormon Trek corridor. Thank you again for reaching out, Geoff Fruin City Manager From: Donald Baxter [mailto:donald.baxter@gmail.comj Sent: Friday, February 15, 2019 8:25 AM To: Council <Council@iowa-city.org>; Geoff Fruin <Geoff - Fru in@iowa-city.org> Subject: Continue to support the MTB Road Diet To the Council and City Manager Fruin, I am writing because of concerns and opposition the Mormon Trek Blvd road diet project as expressed on the website/platform NextDoor/Neighborhoods. The arguments have been fact -free and full of fear mongering and no attempt to generate opposition has been spared. I've weighed in with opinion, statistics and FHWA literature as much as possible to convey support for the project and just to balance misinformation. I urge you to maintain support to complete this project as we enter Spring. A slower, calmer, Mormon Trek Blvd will be good for all road users and a safer more desirable street as well. In fact, MTB will start functioning more like a city street and less like a highway. Best regards, Donald Baxter Donald Baxter 316 Ridgeview Avenue University Heights, Iowa 52246 319/337-0494 413/294-1280 (e -fax) homepage: www.onanov.com The economy is a wholly owned subsidiary of the environment, not the other way around. —Gaylord Nelson Kellie Fruehling From: Kent Ralston Late Handouts Distributed Sent: Friday, February 15, 2019 8:54 AM To: 'Catherine Schiele' Cc: Geoff Fruin; Susan Mims; Scott Sovers; Jason Havel; Council Subject: RE: Mormon Trek Diet (Date) Hello Ms. Schiele — Thank you for reaching out regarding the Mormon Trek 4 Lane to 3 Lane Conversion Project. I'm certain that your concerns, as well as others, will be given additional consideration by staff and the City Council. To ensure that Mormon Trek was a good candidate for the conversion, both the existing and future forecasted traffic were carefully analyzed under both the existing 4 lane, and proposed 3 lane configurations. In summary, the result of the analysis indicated that the traffic volumes within the corridor do not necessitate the current number of lanes. Additionally, a travel time study showed a minimal increase in anticipated vehicle delay within the corridor under the proposed 3 -lane scenario. However, any increase in delay should be offset by the improved vehicular and pedestrian safety expected from the proposed 4 to 3 -lane conversion. Upon review of the traffic data/analysis that was prepared, Snyder and Associates (Design Consultant for the Project), the City, the Metropolitan Planning Organization of Johnson County, and the Iowa Department of Transportation are in support of the 4 to 3 lane Conversion on Mormon Trek Boulevard from 1,000 ft. north of Westside Drive to Melrose Avenue. Additional information about the Project, the Federal Highway Administration Road Diet Informational Guide, and an AARP Road Diet Publication can be found on the City's Website: https:/Iwww.icgov.org/project/four-lane-three-lane- road-conversions. Please feel free to contact me should you have any additional questions or comments. Best Regards, Kent Ralston, AICP Executive Director I Metropolitan Planning Organization of Johnson County Transportation Planner I City of Iowa City 410 E. Washington St. Iowa City, IA 52240 319.356.5253 From: Catherine Schiele [mailto:catherine1441@mchsi.com] Sent: Thursday, February 14, 2019 11:54 PM To: Kent Ralston <Kent-Ralston@iowa-city.org> Subject: Mormon Trek Diet I've lived near the intersection of Mormon Trek and Benton for over 40 years. I'm dumbfounded when I read that a road diet is needed in this area because of an increase in accidents. This is simply NOT TRUE. Where are the statistics to back this up? Why aren't you listening to those of us who actually live in this area and use these roads? Why can't some other options be tried first? Surely there are other streets in Iowa City that could actually benefit from spending this huge amount of money. By creating unnecessary congestion and inefficient travel patterns with a road diet in this area, you risk forcing drivers to use shortcuts/alternate routes such as Westwinds, Spencer/Cameron Way, and Dublin/Shannon. Using these alternate routes will lead to unnecessary and unsafe travel in residential areas not designed for this amount of traffic. I urge you to reconsider this road diet plan. Cathy Schiele 2119 Leonard Cr Sent from my iPhone C/10 - Kellie Fruehlin From: Kent Ralston late Handouts Distributed Sent: Friday, February 15, 2019 8:51 AM To: 'stlarson77@gmail.com' 2- i 5 Iq Cc: Geoff Fruin; Susan Mims; Scott Sovers; Jason HaveTEsuacil Subject: RE: Mormon trek road diet (Date) Hello Ms. Larson — Thank you for reaching out regarding the Mormon Trek 4 Lane to 3 Lane Conversion Project. I'm certain that your concerns, as well as others, will be given additional consideration by staff and the City Council. To ensure that Mormon Trek was a good candidate for the conversion, both the existing and future forecasted traffic were carefully analyzed under both the existing 4 lane, and proposed 3 lane configurations. In summary, the result of the analysis indicated that the traffic volumes within the corridor do not necessitate the current number of lanes. Additionally, a travel time study showed a minimal increase in anticipated vehicle delay within the corridor under the proposed 3 -lane scenario. However, any increase in delay should be offset by the improved vehicular and pedestrian safety expected from the proposed 4 to 34ane conversion. Upon review of the traffic data/analysis that was prepared, Snyder and Associates (Design Consultant for the Project), the City, the Metropolitan Planning Organization of Johnson County, and the Iowa Department of Transportation are in support of the 4 to 3 lane Conversion on Mormon Trek Boulevard from i,000 ft. north of Westside Drive to Melrose Avenue. Additional information about the Project, the Federal Highway Administration Road Diet Informational Guide, and an AARP Road Diet Publication can be found on the City's Website: https://www.icgov.org/project/four- lane-three-lane-road-conversions. Please feel free to contact me should you have any additional questions or comments. Best Regards, Kent Ralston, AICP Executive Director I Metropolitan Planning Organization of Johnson County Transportation Planner I City of Iowa City 410 E. Washington St. Iowa City, IA 52240 319.356.5253 -----Original Message ----- From: Terri Larson [mailto:stlarson77@gmail.com] Sent: Thursday, February 14, 2019 8:50 PM To: Geoff Fruin <Geoff-Fruin@iowa-city.org>; rodme-cole@iowa-city.org; Susan Mims <Susan-Mims@iowa- city.org>; Scott Severs <Scott-Severs@iowa-city.org>; Jason Havel <Jason-Havel@iowa-city.org>; Kent Ralston <Kent-Ralston@iowa-city.org>; Council <Council@iowa-city.org> Subject: Mormon trek road diet Hello to all! I've been told that writing and asking for reconsideration of the MT road diet is a moot point. Minds are made up, contracts signed, work to commence. What is frustrating is that most of us living in this area, daily traveling this route, can't understand why? And when others before me have asked, they feel they've been given lip service and patronized. As if we are all incapable of recognizing danger and knowing what's good for us. Folks who are researchers for a living, want to see the data. They know very well how data can be misrepresented to prove a point that really isn't based on solid data. They've been given percentages, told it's already done, and it doesn't matter. This isn't the Iowa city I moved into over 40 years ago. "That" Iowa city was tired of people/government lording over others. That Iowa city was a "to each his own" community, live and let live. It was a don't judge me community - if I'm not hurting you, someone else, or myself, then leave me alone. What has happened? I'm all for being progressive and keeping up with the times. In fact, I'm actually for being ahead of the times. But moving forward needs to be respectful - not bullying. Moving forward means listening to others, and realizing that maybe they do have a better idea. It's hard to learn when you're talking. Not for a million years would I run for city council and voluntarily sit in your seats - people are way too mean. So understand that I am not bashing or being mean. I am sad. I am disappointed that people are so easily dismissed when they question a rather major decision like reducing a road, which will have a major impact on their lives, because we've been told there's a problem and studies prove this to be effective. And what if all the people questioning the wisdom of this are proved right? That it seems there are actually more accidents, that commute times need to be increased 15-20 minutes because of the backlog of traffic? That buses are late to school and work because of long lines? That the many slight hills along MT prove treacherous with only one lane in icy and snowy weather? That people will use the Shannon Drive and Galway Hills cut through to get to the mall, interstate, or west high school, more than ever? It shouldn't be a win/lose proposition. How do we make it a win/win? How do we allow traffic, whether that be cars, pedestrians, or bicyclists, to get from point A to point B efficiently and safely? If the road diet works, then great! We all win. If the road diet causes huge issues, what then? Is it possible for reconsideration? Add left turning lanes or left turning lights at intersections? Folks are pretty upset, and feel discouraged at being dismissed. Providing a backup plan if this reduction doesn't work, with criteria on what "doesn't work" means or looks like, would go a long way towards your goal of working and providing for the people. Kind regards, Terri Larson 1321 Goldenrod Drive Terri Larson. Licensed agent in the state of Iowa. Sent from my iPhone. q,a-� Kellie Fruehling From: cmichel5l@aol.com Sent: Tuesday, February 19, 2019 3:44 PM To: Geoff Fruin; Rochne-Cole@Iowa-city.org; Susan Mims; Scott Sovers; Jason Havel; Kent Ralston; Council Subject: Mormon Trek Road Diet Didn't see there was a meeting. Wanted you to know I oppose the current plan to reduce the four lanes to three with a turning lane and bike lane. have to believe there are more reasonable alternatives. It is also my understanding there was little to no feasibility study completed. Maybe you could add a turn arrow at the lights? Maybe just widen the current sidewalk for a bike path? Late Handouts Distributed My vote is NO for this project. -i9-iq (Date) G� Kellie Fruehlin From: Brenda Kurtz <kurtz.brenda@gmail.com> Late Handouts Distributed Sent: Saturday, February 16, 20194:55 PM To: Kent Ralston Cc: Council; Rockne Cole; Susan Mims; Mazahir Salih; Pauline Taylor. Bruce Teaouem John Thomas; Jim Throgmorton (Date) Subject: Re: Mormon Trek Road Diet Concerns All, It occurred to me that I should include a map to show the shortcut that is of concern. It is highlighted in orange on the image below (with the Rohret-Mormon Trek -Melrose direct -yet - avoided route in yellow). I believe my email yesterday missed the cut-off for next week's meeting packet. I regret that I only discerned that traffic study after Kent Ralston forwarded it as rationale for the road diet. But I do feel that the relevance of the data collected in January 2016 is paramount to this discussion. So if Mormon Trek is discussed on Tuesday, I hope the council does consider that perhaps the decision was made based on data that may not be representative. It's possible that the same thing happened with the 1st Avenue road diet, which is why many motorists now complain about it. It appears that the emails the council has received in favor of the Mormon Trek road diet describe the problematic intersections and lack of protected turn lanes. I wholeheartedly agree those areas need to be addressed. However, it doesn't seem that a 4 -to -3 lane reduction is the proper solution for this highly -traveled road. Perhaps the City may request a second opinion of the data collected, in order to be assured that we are not on the verge of a multi-million dollar (permanent) mistake, which will have unforeseen consequences. 1 Thanks again for your time! Brenda Kurtz P.S. To get the image above, I ran a quick Google map from my house to McDonald's. Google gave me three options (including the neighborhood shortcut). None of those options took me all the way down Mormon Trek (see below). Why not? MTB is the most rational route, but Google doesn't want me to go that way. It would rather that I drive clear over to Sunset rather than just take that right onto MTB. Why? Because MTB traffic was showing a lot of orange/red between Melrose and Benton. On a Saturday afternoon (I checked repeatedly to make sure it wasn't an anomaly). Just imagine what a Friday afternoon must look like... T Finkbine Goll Course 1P R 9 min 3 2 miles On Fri, Feb 15, 2019 at 2:09 PM Brenda Kurtz <kurtz.brenda@email.com> wrote: Good afternoon, and thank you for your prompt reply! ni He Na. Nal First, I want to apologize for simply copying/pasting the outdated council members' email address list that was given to me in my first email. I didn't even look at the names, and now see that most of that list was incorrect with many of our new council members omitted (welcome!!). 2 I understand that the Mormon Trek project is happening as TSIP funding was pursued and acquired, and we're basically too far down the road now, so to speak. It is what it is now, and we will have to live with it. And hopefully it will surprise us all and be a fantastic update for west IC! But I will ask you to consider two points: 1. Is it possible that this decision was based on data of questionable relevance? And if so, how will the completed project be monitored and possibly corrected in the future? Reading the Snyder & Associates report, it surprised me to find that Mormon Trek traffic volumes "do not warrant" four lanes. Anyone who travels MT regularly would be scratching their head over that assertion. And lord help us all on game days... This struck me as an inaccurate premise, so I took a quick look at the data tables. Did anyone else find it odd that the travel time studies (and likely the peak hour traffic volume count) took place when the University of Iowa was not even in session on 1/12/16? This almost seems laughable... unless it was intentionally planned for 1/12 to better support the desired project narrative of insufficient traffic volumes (including "infrequency of buses stopping"?)? Either way, as a critical thinker, I'm immediately suspect of the accuracy of this report and the resulting conclusions. Clearly, I'm not a traffic engineer, so maybe January traffic studies are common in this field. But in a college town, the study could have at least been done at the end of the month to capture relevant vehicle volume, including bus usage. Consequently, it seems the council may want to see updated or properly extrapolated data for the tables presented in this report, as they may be flawed: Table 1 (DOT Counts) - should just be thrown out (explained below*). While hopefully omitted from any calculations, this improbable data was used to support a narrative of declining traffic along Mormon Trek Blvd? Table 2 (Peak Hour Counts) - conducted January 2016... on (non -)representative dates? Confirm this data represents RELEVANT peak hours during the semester and on normal weather/traffic days? Table 3 (Travel Time Study) - Data misrepresentative, considering the study was conducted on January 12th, right? Table 4 (MPOJC Traffic Model) - Yes! Possibly the only table in this report that makes sense, but still would help to know when/how the modeling was done. Table 5 (2040 peak projections) - derived from (potentially -flawed) Tables 2 and 3... Table 617 (AM" peak hour analyses) - derived from (potentially -flawed) Tables 2 and 3... Table 8 (Current/Projected travel times) - derived from (potentially -flawed) Tables 6 & 7, and corroborated by invalid data from Table 3. *Table 1 shows traffic north of Rohret dropped by 43% between the 2006 and 2014 readings This makes no sense, given that: - The Weber neighborhood development/population increased during those years, and - The Mormon Trek intersection is the main/only "escape" for residents of those neighborhoods, right? (Unless they wind through Walden Woods/Galway Hills or go off- roading via Slothower Street.) So I can only think of three likely explanations for that 43% reduction: (1) the data is invalid as it was collected on incomparable dates/times; (2) thousands of Weber families began carpooling, biking, or bus riding; and/or (3) large volumes of traffic have been rerouted during that period. Granted, the Shannon extension DID open circa 2009, but no way those extra 7,000 cars a day are rolling through Galway Hills. That said, I don't see where that huge anomaly was addressed, other than to assume the traffic had simply disappeared, which I think we can all agree (and which other report data show), it did not. 3 Which brings me to my second point... 2. Do you have any thoughts/concerns about increased traffic on nearby residential streets? Specifically, traffic resulting from drivers avoiding delays on Mormon Trek? The Rohret-Sha nnon-Tipperary- Dublin -Melrose shortcut is already a preferred route (see how many twists/turns (and speed bumps) drivers are willing to navigate to avoid Mormon Trek?). So even a "minimal increase" in travel time (suspending skepticism of a study conducted over winter break) will not help that situation. For detail on the safety concerns regarding hundreds of cars zooming through this residential area, please see my previous email. Are there other neighborhoods along Mormon Trek that experience this same issue? I'm only aware of the Galway Hills issue because I live here (and walk/bike/drive this area frequently). But wouldn't be surprised if Westgate or other residential streets would see a similar impact. So is there any plan to address this (e.g., increased safety measures and traffic lights along those shortcut routes?, partnering with Johnson County to develop Slothower Street?)? Or at the very least - is there any plan to study or address the currently -rerouting traffic, along with the implications of adding to perceived existing delays on Mormon Trek? In closing, I realize that many of the current city council members were not present for the Mormon Trek "road diet" decision. So I'm only asking that perhaps we review it with a fresh set of eyes. And - ideally - with discerning minds that would recognize and reject (or at least question) some of the studies' methodologies and the integrity of the resulting data. Lastly, please note, I'm not suggesting that Mormon Trek does not need improvements. It most certainly does. And perhaps the 3 -lane model would work from Westside to Rohret, where traffic is more sparse and motorists tend to drive well above the speed limit. But frankly, the highly -traveled Rohret-to-Melrose section really needs all 4 lanes DIUs a turn lane. Thanks again for your time! Brenda Kurtz 3442 Donegal Court Iowa City 319-321-2560 On Fri, Feb 15, 2019 at 8:40 AM Kent Ralston <Kent-Ralston&owa-citv.org> wrote: Hello Ms. Kurtz — Thank you for reaching out regarding the Mormon Trek 4 Lane to 3 Lane Conversion Project. To ensure that Mormon Trek was a good candidate for the conversion, both the existing and future forecasted traffic were carefully analyzed under both the existing 4 lane, and proposed 3 lane configurations. In summary, the result of the analysis indicated that the traffic volumes within the corridor do not necessitate the current number of lanes. Additionally, a travel time study showed a minimal increase in anticipated vehicle delay within the corridor under the proposed 3 -lane scenario. However, any increase in delay should be offset by the improved vehicular and pedestrian safety expected from the proposed 4 to 3 -lane conversion. Upon review of the traffic data/analysis that was prepared, Snyder and Associates (Design Consultant for the Project), the City, the Metropolitan Planning Organization of Johnson County, and the Iowa Department of Transportation are in support of the 4 to 3 lane Conversion on Mormon Trek Boulevard from 1,000 ft. north of Westside Drive to Melrose Avenue. Additional information about the Project, the Federal Highway Administration Road Diet Informational Guide, and an AARP Road Diet Publication can be found on the City's Website: https://www.icgov.ora/proiect/four-lane-three-lane- road-conversions. Please feel free to contact me should you have any additional questions or comments. Thanks and have a great day! Kent Ralston, AICP Executive Director I Metropolitan Planning Organization of Johnson County Transportation Planner I City of Iowa City 410 E. Washington St. Iowa City, IA 52240 319.356.5253 From: Brenda Kurtz [mailto:kurtz.brenda@>?mail.com] Sent: Thursday, February 14, 2019 10:15 AM To: Geoff Fruin <Geoff-Fruin@iowa-citv.org>; Rochne-Cole@iowa-citv.ore; Susan Mims <Susan-Mims@iowa-citv.ore>; Scott Sovers <Scott-Sovers@iowa-citv.ora>; Jason Havel <Jason - Have l@iowa-citv.ora>; Kent Ralston <Kent- Ralston@iowa-city.orK>; Council <Council@iowa-city.orh> Subject: Mormon Trek Road Diet Concerns Good morning, I've recently been looking into to the small amount of information that has been shared in regards to the upcoming changes to Mormon Trek Blvd. (Though I'm still looking for crash statistics/traffic studies/alternate proposals for THIS particular street (not of other streets in our city/state/country) which explain why this is the BEST solution to address a specific problem(?).) I definitely understand that the Mormon Trek/Melrose intersection is busy (and possibly dangerous?), as I pass through it several times a day, either as a driver, pedestrian, or cyclist. However, I don't see how the road diet south of this intersection will reduce potential accidents. (Though maybe there is a clear plan that addresses this, and I just haven't seen it?) Conversely, it seems that the road diet will back uD southbound traffic merging to one lane (?), which will lead to more frustrated drivers attempting to run a yellow -red light - - look out! Sidebar, while I'm thinking of it... I'd like to mention that the current timing of the stoplights at the Mormon Trek/Melrose intersection seems spot on! So kudos to whoever figured that out. I frequently pass through that intersection from almost every direction at various times throughout the day, and never feel that the timing is "off' (except maybe during extreme rush hour, which is better now that C'ville 1st Ave construction is complete). So, thank you!! 3 But this raises another concern - - will the timing of the Mormon Trek/Melrose stoplight need to be changed (i.e., increased duration to accommodate single -lane north/southbound vehicles)? If so, then I imagine the Melrose traffic could back up significantly. Especially during UIHC and West High rush hours. Also, important to remember that Melrose is a primary ambulance route, so increasing Melrose delays can literally have life -and -death consequences. Of lesser importance, game days could be a huge mess, not so much due to that intersection (which is controlled by public safety after games), but due to the "single -file" traffic on Mormon Trek. Presumably, even more drivers will choose to leave town via Melrose Avenue, which is already a nightmare on game days. Living in Galway Hills for the past 12 years, we KNOW we are not leaving our neighborhood during game day traffic - LOL. Except... now there is a back way out of the neighborhood. Which is both a blessing and a curse. This brings me to my final concern. One that council members may not have considered?? The use of the (unsafel Rohret-to-Melrose shortcut will dramatically increase due to the Mormon Trek road diet. I shared this concern via NextDoor, where someone suggested emailing our council members. Thus, my email.:-) The original post is below: Related concern: when Mormon Trek becomes increasingly congested due to the lane reduction, people will want to avoid those delays. Me included. ;-) Drivers in the Rohret Rd area currently accomplish this via a winding shortcut through the Walden Woods/Galway Hills neighborhoods (Shannon -Tipperary -Dublin -Melrose). Even though there is some sporadic "traffic calming" (a few speed bumps, curves, and parked car obstacles), drivers often speed along this route - - especially to/from school. This puts pedestrians/cyclists at risk as they are "sharing the road" (due to missing sidewalks) or crossing Dublin, which has no speed bumps or protected crossing. In addition, the traffic can get VERY backed up at Dublin & Melrose, as this was not designed to be a thoroughfare between Rohret and Camp Cardinal or WHS. I could be wrong, but I would foresee the Mormon Trek initiative only increasing these current issues. So the city might want to budget some additional dollars for traffic calming along Dublin, as well as perhaps adding turn lanes and/or stoplight at the Dublin -Melrose intersection. Just a suggestion.:-) This shortcut is a genuine concern, and I'm surprised that I haven't seen more accidents along this route. As a frequent walker/jogger/cyclist/driver of this route, I have seen many "near misses." Tipperary sidewalks are incomplete due to undeveloped lots (although this is improving), meaning that people are walking/biking in the (curved) road, watching out for speeding minivans as well as teen drivers. Also, many students park or live in Galway Hills, which means they cross Dublin (at their own risk) to get to West High. (This has improved slightly with the opening of Liberty, but is still a concern as drivers largely ignore the recently - painted, but unraised crosswalk.) Related point: the Dublin/Melrose intersection is getting MUCH more traffic than originally intended, once the Tipperary connection was completed. Many vehicles cut through Galway as a time-saver (?) to get from Rohret Rd to Camp Cardinal/Hwy 218. And the Dublin/Melrose corner homeowner's fence blocks driver visibility until vehicles nudge up to the pedestrian/bicycle crossing. Again, many close calls with drivers who are frustrated after sitting at a backed up intersection and cyclists/pedestrians who seem invisible to hurried drivers attempting to jet out into 35-40 mph traffic. 6 If you made it this far, thank you! I hope you'll consider ALL ramifications of the planned Mormon Trek road diet, and possibly reconsider the Melrose-to-Rohret portion. Or at the very least budget some funds for improving the safety along the Rohret-to-Melrose shortcut, with proper attention to the overused Dublin/Melrose intersection. Please let me know if you have any questions. I'll look forward to reading additional information on this topic. Best regards, Brenda Kurtz 3442 Donegal Court Iowa City Disclaimer The information contained in this communication from the sender is confidential. It is intended solely for use by the recipient and others authorized to receive it. If you are not the recipient, you are hereby notified that any disclosure, copying, distribution or taking action in relation of the contents of this information is strictly prohibited and may be unlawful. + r ui �1 lat • yyrrmr�� CITY Ok IOWA CITY www.icgov.org February 19, 2019 ATTACHMENTS: Description Russell Stubbles - Monarch City USA Item Number: 9.b. Kellie Fruehling From: Russell Stubbles <prairie.professor@hotmail.com> Sent: Sunday, February 03, 2019 5:36 PM To: Council Subject: Official: MONARCH CITY USA Congratulations to everyone involved in making Iowa City a monarch haven!! We at MONARCH CITY USA have almost 30 cities nationwide as members with appropriate festivals and activities. We continue to add members and help the monarch population You might consider joining our association. Please see our web page for more information. You would be the first official Monarch City USA member in Iowa. monarchcityusa.com Let us know if you have any questions about our non-profit corporation. WINGS UP!! Russ Stubbles, Director 605-691-1074 russ@monarchcityusa.com Sent from Mru l for Windows 10 + r , • yyrrmr�� CITY OE IOWA CITY www.icgov.org February 19, 2019 ATTACHMENTS: Description Becky Eiting - Dumpsters Item Number: 9.c. C) s /0,5 c,6 c� G �paA-J� xe� � Aj C) CL 5q 8 A I L cv a17, FI � �N• Ilii �' may" • ... � ;� -' F � r !!! e dft + ..._ . Imam J � h.:.1 �.n� t d.a.._ 1.:''1 1.»:� ��� 77w Item Number: 9-d- M .d. + r ui �1 lat • yyrrmr�� CITY Ok 10WA CITY www.icgov.org February 19, 2019 ATTACHMENTS: Description Joyce Gromko - Deer Control [Staff response included] Kellie Fruehling From: Geoff Fruin Sent: Wednesday, February 06, 2019 1:43 PM To: 'Joyce Eastlund Gromko'; Council Subject: RE: Deer Control Joyce, Thank you for email. I am sorry to hear about your hemlocks that have been damaged or destroyed by deer. The city is actively working with the State of Iowa on a deer reduction strategy. We hope to be in a position to reduce the deer population in 2019. In the meantime, I will have someone from our staff reach out to you regarding fence regulations. Best, Geoff Fruin City Manager From: Joyce Eastlund Gromko [mailto:jgromko@bgsu.edu] Sent: Tuesday, February 05, 2019 4:51 PM To: Council <Council@iowa-city.org> Subject: Deer Control To Whom It May Concern: Over the past two weeks, deer have destroyed four hemlocks on our property at 72 White Oak Place. We will have to fence our property in order to save our landscape which is being destroyed by a herd of deer. I have read that deer exclosure fencing is perhaps the only effective way to protect a landscape from destruction by deer. Please confirm that we are within our rights as tax -paying citizens of Iowa City to take this drastic measure to protect our trees, bushes, grass, and plants. If this kind of fence is not allowed, please suggest truly effective alternatives.. Thank you, Joyce Gromko 72 White Oak PI Iowa City, Iowa 52245 + r ui �1 lat • yyrrmr�� CITY Ok IOWA CITY www.icgov.org February 19, 2019 ATTACHMENTS: Item Number: 9.e. Description I owa City Public Art Advisory Committee - Prposed I ncrease in FY20 Public Art Program Funding February 6, 2019 Mayor Jim Throgmorton Iowa City City Council Members 410 E Washington Street Iowa City, Iowa 52240 F;J 0 �) 2019 City Clerk Iowa City, Iowa Re: Proposed Increase in FY20 Public Art Program Funding Dear Mayor Throgmorton and Iowa City City Council members: The Iowa City Public Art Advisory Committee would like to thank the City Council for their thoughtful consideration for the proposal that was presented to you at your December 18, 2018 meeting by Thomas Agran. Thomas is a passionate advocate for the arts in Iowa City and we appreciate the time and effort he invested in the proposal and presentation. Although the Public Art Advisory Committee did not review the proposal before it was presented to the City Council, we do appreciate that the City Council recommended an increase of funding to the Public Art Program for Fiscal Year 2020. As we understand from the City Council's discussion regarding the proposed increase, the Pubic Art Advisory Committee is working towards completing a strategic plan which will be presented to the City Council in the next few months. A subcommittee of the Public Art Advisory Committee has already met and drafted a schedule for a process that includes a community survey, stakeholder meetings and two public meetings. The expectation is to have the plan presented to the City Council in June or July 2019. One focus of the plan will be to ensure the identified programs and projects are available to a broad segment of the Iowa City population particularly in areas that are currently underserved by art installations or programming. The Public Art Strategic Plan will be reviewed and approved by the full membership of the Public Art Advisory Committee prior to City Council review. Please feel free to contact Marcia Bollinger at Marcia -Bollinger c(7.iowa-city.org or 319-356-5237 if you should have questions or need additional information. Best, Vero Rose Smith, Chairperson Iowa City Public Art Advisory Committee + r ui �1 lat • yyrrmr�� CITY Ok IOWA CITY www.icgov.org February 19, 2019 ATTACHMENTS: Description Tod Towers -Article Item Number: 9.f. GA -7tt- --0-,- '- –f f •guy w ao cnHT. were woriang to age 90. But the exigencies of an r ° `°" 1 POP- we 11 pmhably have to choose. STEVE u� ui neunee STEVE SACK STAR TRIBUNE THE EQUAL RIGHTS A14MOM IIT Long dormant the ER iSN"s4ve OUR 5iTP T Te - has awakened with vi. ASSociAT@G WITH - y t Tme RACiS'T m ' Bs*GOTW GR Apairofbillssupportingstateandfederalamendmentsan STOW19 kiN 6 r F L%L for action in Minnesota, and the issue has gained steam na COUN'MPOINT Further discussion on medical aid in dying Points raised in a recent commentary call for a response, not over matters of faith, but interpretations of facts, who choose medical aid in dying are suffering from end-stage cancer or a neurodegenerative disorder like ALS where pain is only one of many symptoms. Anyone who has sat at the bedside ofa slowly dying loved one knows that the deterioration of the body with anintact mental state is its own kind ofsuffering. In the United States, the medical aid in dyingpro- tocol is limited to adults with terminal illness and decisiomnaking capacity. This has not changed in mare than two decades and, duty to Its track record BgDrMFoLUARy, . Coagreas 0971J, authare, he Equal Flights ,amendment (ERA)IiMthemarchandcom- ThW Rena Moran, DFL -St. Pat companion bill authorec to Sandy Pappas,DFL-St.Pau: a constitution near you, After decadea of dormancy, the 'URA 1004 is being conaldvred In the rializes congress toren m tr9rydcadline0f'7tme30,1S MtdWWA Bound with a majority of tremboaittaupIwrt.Senatecompan- iota bW1 wilj ihatttre >7FF, and GOP the ERA, For a federal coni amendment to be made p: US.Constitution, three qus co»authora, Signaling a majority of the votes. 38) of the states must ratip count yisnowsittingat37s Thefirst-eVerwonten'srightscon- ified. With the tremendous ratifying the ERA inNevad voodoo was held in 1848 in Seneca Falls, N.Y.Out ofit came the Deelara- tion and Minoisin2018,huge ,stiy brought the ERA to a tippini of Sentiments, a document that declared equality with then under the I8% saying: "Nov4 in view of this entire disfranchisement of one half Currently, 2' tltepaopieofthiscountry,theirsocial States havi w, and religious degradation, inview of theunjustlaws abovementIaned,and Itine1 Of eqw use women do feel themselves rights ame cj= aggrieved, oppressed, and fraudu- lently deprived of their most sacred lmg p in t11 rights,wehtsistthattheybaveimme- diate admission to all the rights and Cois itutimm privileges which belong to them as citizens ON— United States" Virginia is the verge of Two bills are before the statese; stori moretoobeoomen Houthe Minnesota State ERA Bill, to rat' the the 38t a constitutional amendment bill gt to stItukinn to catch p with embed an ERA into our atAte CoNtl- Ito majority of Amarlom b hid.. rsrnae% ._A __ - . . __ + r , • yyrrmr�� CITY OE IOWA CITY www.icgov.org February 19, 2019 ATTACHMENTS: Description Dennis Mahan - Benches Downtown Item Number: 9.g. Item Number: 9.h. + r , • yyrrmr�� CITY OE IOWA CITY www.icgov.org February 19, 2019 ATTACHMENTS: Description John McKinstry -Aid to Agencies Funding Kellie Fruehling From: JOHN MCKINSTRY <Adisciple0040@msn.com> Sent: Tuesday, February 12, 2019 2:18 PM To: Council Subject: Aid to Agencies Funding Dear City Council Members, As a member of the Housing and Community Development Commission I have shared, in some small part, the pain that you have all felt in trying to use limited resources in the most efficient and effective way to meet our highest priority needs. I have shared your frustration that property tax relief for landlords has neither reduced rents nor replaced lost revenue to our City but mainly enriched landlords, that our county -wide minimum wage was struck down, and that Medicaid privatization has only further strangled the revenue stream to some of our most crucial local non-profit agencies. Therefore I am profoundly grateful for your collective intention to fully fund the requested Aid to Agencies in the upcoming budget after years in which that assistance shrank as our City and those services grew. Once again you have shown wisdom and provided leadership in a way that makes us citizens proud of you. Peace John McKinstry Item Number: 9.i. + r ui �1 lat • yyrrmr�� CITY Ok IOWA CITY www.icgov.org February 19, 2019 ATTACHMENTS: Description Greg Shill: Dangerous and inaccessible sidewalks, curbcuts, and crosswalks Kellie Fruehling From: Greg Shill <gshill@gmail.com> Sent: Wednesday, February 13, 2019 5:58 PM To: Council Subject: Dangerous and inaccessible sidewalks, curbcuts, and crosswalks Attachments: IMG_0095 jpg; IMG_0095 2 jpg; IMG_0274 jpg Dear Members of the City Council, I am a homeowner in downtown Iowa City (332 S. Linn St.) and a professor at the University of Iowa law school. I am writing to express my grave concern regarding the dangerous situation for people who walk and people who use mobility assistants in the winter. The attached photos indicate some of the issues. The problem is multifaceted: 1. During construction projects in all seasons, sidewalks are routinely closed and no safe, accessible alternative route is provided. This is particularly problematic when, as now, we have many simultaneous construction projects occurring in our relatively dense downtown. 2. During winter weather, roads are cleared by the city but sidewalk clearing—and thus the network for transportation by foot or wheelchair—is dependent on the perfect diligence of thousands of individual private property owners. This fragile system creates major problems when, as always happens, one or more property owners on a given block fail to clear their sidewalk. The process for submitting complaints and rectifying the situation takes far too long, and risks stranding people—particularly people who are elderly or have disabilities—in dangerously cold weather. Taking this issue seriously requires a city initiative not dependent on a miracle of perfect coordination among individual property owners. Our road network does not depend on private property owners to clear the streets in front of their homes; instead, the city does that so that people may pass in safety and efficiency by car. We owe the same to people who walk or rely on wheelchairs, especially in the downtown area. I believe this obligation emanates from law—the Americans with Disabilities Act—as well as good sustainability policy and common decency. 3. In particular, crosswalks and curb cuts—which, in contrast to sidewalks, are maintained by the city by law—are routinely impassable on foot and in a wheelchair. This situation that results can be nightmarish, especially for the elderly, infirm, and wheelchair users. Today I saw an elderly man using a makeshift walker on the east side of Linn Street opposite the public library struggle to get into and through a build up of snow and ice covering a curb cut and crosswalk. (I was too far away to help in time.) It was tragic to see the needs of such a vulnerable person so neglected by his city. Fortunately he was uninjured, but over time this situation will predictably yield injuries and possibly deaths (I suspect it already has). It also violates the mobility rights and dignity of large segments of the population, some of whom are protected by the Americans with Disabilities Act and other legislation. 4. The issue noted in 3. isn't merely that the city fails to clear or adequately crosswalks and curbcuts, it is that city snow clearing policy actively obstructs these spaces and with them the rights of vulnerable people. Snow is regularly plowed from streets into crosswalks and curbcuts, making these areas—which are already high-risk sites for injury motorist - pedestrian crashes—even more dangerous. The more vulnerable the road user, the more dangerous this condition is. The attached photos give a hint of the extent of the problem. In the first two, you see a person in a mobility scooter after snowfall in November traveling in motor vehicle traffic at the intersection of Clinton and Burlington because all the sidewalks had been shut down and no safe alternative was provided. In another, taken half a block from my home last night, you see the intersection of Linn and Burlington—which is dangerously designed and one of the highest -collision intersections in the city in good weather—rendered virtually impassable by snow and ice build up in the curb cuts and crosswalk. It was even worse on the south side of Burlington (once I crossed the street) but given the shortness of the walk signal and the cold temperature, I opted to get out of traffic rather than take another photo. I raised these issue with the city via Twitter and have not heard anything in response. I look forward to hearing from you. Best, Greg Shill IL am a® Bu Lll _ LIGWi + I 'Y,sm Ai I B rxA x n Mi le, w u , w a" h ,cam hF rc s ,. ..... 1 Now � 5 "J� f Y q d7 ..r r � � p \ � yl�, y . n�'i� • Ali µ y, .r oa� • � � � X • ,�� � 1,�4`� �+'aF. UG - • of � � � � I � "ter �" _ 1k� I Aw� ■ ■ Kellie Fruehling From: Sent: To: Cc: Subject: Dear Mr. Fruin, Greg Shill <gshill@gmail.com> Thursday, February 14, 2019 5:48 PM Geoff Fruin Cl. i Late Handouts Distributed Council Z—�`�— Jif Re: Dangerous and inaccessible sidewalks, curbcuts, and Eresswalks (Date) Thank you for your reply and detail regarding City policy. Unfortunately, the reality of walking around downtown Iowa City—even if one is fortunate to be healthy and able-bodied—shows that the City's policy is not delivering accessibility for its residents. The measures you've described may sound reasonable in principle, but as the photos I sent suggest, in practice they create gross inequities and systematic risks for our most vulnerable population. I'm surprised that you would implicitly criticize that scooter user for not using a pedestrian detour. Please have another look at the first photo. There was no detour available on either side of the street. This was the situation for months prior to the photo. How many blocks out of the way is it appropriate to ask someone who uses a wheelchair to travel in order to safely cross the street? Even when pedestrian detours are available in Iowa City, they are implemented in a dangerous way. Nearly always, they involve waiting on the side of the road for long stretches for motor vehicles—fast-moving, climate -controlled single - occupancy cars—to clear before the person can safely cross the street. These detours are particularly bad on the Burlington corridor. It takes a very long time for the light to change; at many key intersections, the pedestrian walk signal will only activate upon pressing a button to beg for permission to cross the street; and the duration of the walk signal is frequently too short to permit crossing. These problems also interact and compound. For example, sometimes the buildup of snow and ice is so bad in the curb cut that it can be difficult or dangerous to get near enough to the beg button to push it, and subzero temperatures make long waits more uncomfortable (and dangerous, depending on the temperature and person). I have this experience as an able-bodied person, and cannot imagine how distressing it is for someone living with major disabilities who has trouble pushing the beg button on a summer's day. we would never dream of subjecting people who drive to the dangers and indignities to which Iowa City regularly subjects people who walk and use wheelchairs. In other places I have lived, pedestrian detours are handled differently, to prioritize pedestrian access and safety. A lane of vehicle traffic will be closed and jersey barriers deployed to the outside to permit pedestrians to walk safely in the street. Even though it necessarily means more inconvenience for motorists, this treatment is most often implemented on major routes, because they are where pedestrians face the most danger. A city like ours that has such a large and concentrated population of walkers and other vulnerable road users downtown—and that recently approved climate action and bike facilities plans—should be eager to embrace a practice like that. Pedestrian -first treatments have also been found to benefit small business and increase opportunistic consumption, since they enhance the walking experience and make it easier to casually drop in to businesses. I live a half block from Burlington, and on several occasions a month I see an elderly person or wheelchair user struggle to cross the five -lane road in time. Often they are just not able to make it, and their physical safety is dependent on the vigilance and grace of dozens of individual motorists. Burlington in the downtown area is badly in need of a road diet to address this dangerous design, something I understand the City has been contemplating for some time but has thus far not acted on. The City should move forward with a road diet on Burlington, but it can and should take other measures right now, this winter. First, it should immediately take upon itself to clear sidewalks, curb cuts, and intersections downtown. Currently, the City delegates responsibility for ensuring safe pedestrian access to thousands of individual landowners, rendering conditions very dangerous for people who walk and rely on mobility devices. Decency demands that vulnerable road users be permitted to exercise their full mobility rights—year-round, but especially when it's 25 or more degrees below zero. It should also lengthen walk cycles; replace beg buttons with walk signals that automatically activate in tandem with traffic lights; and reverse its detour policy, which requires vulnerable road users to cross major roads—often twice—in order to proceed to their destination in safety. In short, I ask that you center the rights of vulnerable road users in your decisions regarding pedestrian safety. Uncleared ice and snow, lengthy detours, beg buttons, short walk cycles, and ultra -wide roads are a recipe for injury and death and lost economic potential. I imagine you're familiar with the NACTO design guide and Vision Zero design principles (which aim to help eliminate traffic deaths). Per the latter, a Vision Zero street should: 1. Discourage speeding by design 2. Encourage walking, biking, and/or public transit use, and 3. Provide accessibility to all, regardless of age or physical ability Currently, with extremely limited exceptions such as the ped mall, Iowa City streets do none of these things. In particular, Iowa City's winter street management policy actively frustrates goals 2 and 3. Best, Gregory Shill Disclosure: I am a member of the Road to Zero Coalition a joint project of the National Safety Council and the U.S. DOT, though I write in my capacity as an Iowa City resident and do not speak for any organization. On Thu, Feb 14, 2019 at 4:49 PM Geoff Fruin {Geoff-Fruin@iowa-citv.org> wrote: Professor Shill, Thank you for taking the time to email your concerns. I apologize you did not get a response to your Twitter inquiry. You are correct that we depend on private property owners to clear adjacent sidewalks and curb ramps. We work hard to spread the word on the importance of this responsibility and the ramifications of non-compliance. Nonetheless, each year we spend considerable time enforcing sidewalk clearing regulations and contracting for removal work when we do not get compliance. The construction projects over the last couple of years have also complicated pedestrian travel in the downtown. With each project we do require appropriate detours at safe, marked crossings that are suitable for people of all mobility levels. However, it is common for people for bypass these detour signs and move through closed areas or in the street. We try to be diligent in ensuring contractor compliance with our requirements and that appropriate signage remains in place throughout the construction project. We will continue to try to create a stronger walkable environment during all seasons. However, we truly do need the community to help us with this task in the winter season. I would be happy to talk further if you would like to give me a call. I can be reached at 319.356.5013. Best, CITY OF IOWA CITY Geoff Fruin UNESCO CITY OF UTERATURE WVW✓.ICGOV ORG City Manager p:319-356-5013 0 0 GO 4 410 E Washington St Iowa City, IA 52240 From: Greg Shill [mailto:gshill@gmail.com] Sent: Wednesday, February 13, 2019 5:58 PM To: Council <Council@iowa-citv.org> Subject: Dangerous and inaccessible sidewalks, curbcuts, and crosswalks Dear Members of the City Council, I am a homeowner in downtown Iowa City (332 S. Linn St.) and a professor at the University of Iowa law school. I am writing to express my grave concern regarding the dangerous situation for people who walk and people who use mobility assistants in the winter. The attached photos indicate some of the issues. The problem is multifaceted: 1. During construction projects in all seasons, sidewalks are routinely closed and no safe, accessible alternative route is provided. This is particularly problematic when, as now, we have many simultaneous construction projects occurring in our relatively dense downtown. 2. During winter weather, roads are cleared by the city but sidewalk clearing—and thus the network for transportation by foot or wheelchair—is dependent on the perfect diligence of thousands of individual private property owners. This fragile system creates major problems when, as always happens, one or more property owners on a given block fail to clear their sidewalk. The process for submitting complaints and rectifying the situation takes far too long, and risks stranding people—particularly people who are elderly or have disabilities—in dangerously cold weather. Taking this issue seriously requires a city initiative not dependent on a miracle of perfect coordination among individual property owners. Our road network does not depend on private property owners to clear the streets in front of their homes; instead, the city does that so that people may pass in safety and efficiency by car. We owe the same to people who walk or rely on wheelchairs, especially in the downtown area. I believe this obligation emanates from law—the Americans with Disabilities Act—as well as good sustainability policy and common decency. 3. In particular, crosswalks and curb cuts—which, in contrast to sidewalks, are maintained by the city by law—are routinely impassable on foot and in a wheelchair. This situation that results can be nightmarish, especially for the elderly, infirm, and wheelchair users. Today I saw an elderly man using a makeshift walker on the east side of Linn Street opposite the public library struggle to get into and through a build up of snow and ice covering a curb cut and crosswalk. (I was too far away to help in time.) It was tragic to see the needs of such a vulnerable person so neglected by his city. Fortunately he was uninjured, but over time this situation will predictably yield injuries and possibly deaths (I suspect it already has). It also violates the mobility rights and dignity of large segments of the population, some of whom are protected by the Americans with Disabilities Act and other legislation. 4. The issue noted in 3. isn't merely that the cityfails to clear or adequately crosswalks and curbcuts, it is that city snow clearing policy actively obstructs these spaces and with them the rights of vulnerable people. Snow is regularly plowed from streets into crosswalks and curbcuts, making these areas—which are already high-risk sites for injury motorist - pedestrian crashes—even more dangerous. The more vulnerable the road user, the more dangerous this condition is. The attached photos give a hint of the extent of the problem. In the first two, you see a person in a mobility scooter after snowfall in November traveling in motor vehicle traffic at the intersection of Clinton and Burlington because all the sidewalks had been shut down and no safe alternative was provided. In another, taken half a block from my home last night, you see the intersection of Linn and Burlington—which is dangerously designed and one of the highest - collision intersections in the city in good weather—rendered virtually impassable by snow and ice build up in the curb cuts and crosswalk. It was even worse on the south side of Burlington (once I crossed the street) but given the shortness of the walk signal and the cold temperature, I opted to get out of traffic rather than take another photo. I raised these issue with the city via Twitter and have not heard anything in response. I look forward to hearing from you. Best, Greg Shill Disclaimer The information contained in this communication from the sender is confidential. It is intended solely for use by the recipient and others authorized to receive it. If you are not the recipient, you are hereby notified that any disclosure, copying, distribution or taking action in relation of the contents of this information is strictly prohibited and may be unlawful. + r tui�1r.� • yyrrmr�� CITY Ok IOWA CITY www.icgov.org February 19, 2019 ATTACHMENTS: Description Rod Sullivan: City budget priorities Item Number: 9.j. Kellie Fruehling From: Sent: To: Subject: Dear Iowa City Council: Rod Sullivan <rodsullivan@mchsi.com> Thursday, February 14, 2019 10:58 AM Council City budget priorities My name is Rod Sullivan, and I am a 35 -year resident of Iowa City. I am writing you today about the city budget. Please allow me to begin this letter by thanking you for your service. I appreciate the fact that you are willing to do this work on behalf of our community. First, I would like to call your attention to the city's goals. One goal (explained on page 21 of your budget presentation) says, and I quote: "Despite the continued efforts to reduce Iowa City's property tax rate." It later continues, "Continued emphasis on a competitive tax rate will help facilitate additional growth in future years through a more affordable environment for residents and businesses. Looking ahead, it is likely Iowa City will be able to further reduce its property tax rate in the debt service levy over the next two years." Councilors, is this YOUR goal? Because I paid extremely close attention to each of your campaigns. I know what you said and what you wrote. And NONE of you ran on the idea that Iowa City needed to lower property taxes. (This is the point in the letter where some attempt to get dismissive/patronizing. "He just doesn't understand municipal finances.") Let me assure you — I DO understand. I have spent 15 years in a position not unlike your own. I have to vote on a budget every year. Every year I hear from people who want more services. Every year I hear from people who want lower taxes. The point is, I know what I am saying here! Again, NONE of you ran on lower property taxes. Personally, I think you should remove all references to lower property taxes as a goal. Because when the City Manager gives you a draft budget, he gives you a budget that lowers taxes. That is what your goal demands. But at what cost? We never discuss the downsides of tax cuts at the local level. I am certain all seven of you have complained about the State of Iowa cutting taxes and hurting vulnerable people in the process. I think you need to recognize that your budget can have the very same effect. This is why you should stop listing "cutting taxes" as a goal. (This is the point in the letter where some attempt to get dismissive/patronizing. "He's just a tax and spend liberal. He doesn't represent the average voter.") Remember, I have a very similar job. The residents of Johnson County (on the whole) are more conservative than the residents of Iowa City. Yet we have been able to provide progressive programs and services with very minor tax increases. It can be done. Just don't hamstring yourselves with this arbitrary goal of no tax increases. In my opinion, Geoff Fruin is the best City Manager we have ever had. I think we are very lucky. That said, City Managers do not relish the idea of tax increases — even small ones. Every City Manager would like to have a resume that says, "Reduced property taxes eight straight years." I get that. But is that what this city wants and needs? That direction needs to come from the seven of you. I would also like to address the issue of attracting residents. Iowa City is a special place. People move here for a vibe. Very few people move here because taxes are low. And if you attempt to get taxes as low enough to "compete" with surrounding cities? You will have lost much of what makes Iowa City attractive in the first place. Rather than cutting the things that make us special, let's double down and invest in those areas! Spend on arts and culture! Pay employees what they deserve! As for attracting businesses — ICAD does an annual survey of the companies they serve. Property taxes always rate somewhere between #6 and #10 in importance. Most employers are not simply chasing a better tax rate. For those that are, I would say be careful what you wish for. The grass is always greener. In addition, any new big employer is going to be showered with TIF, property tax abatements, etc. Such a business will NEVER pay your basic tax rate, anyway! You have hard jobs. I understand that. I just want you to think hard about this budget process, and make certain that the city budget reflects your values. Don't be afraid of a small tax increase. Don't unnecessarily tie your own hands. We live in a great city. Let's build upon that. Thank you for your time. Sincerely, Rod Sullivan 2326 E. Court St. Iowa City, IA 52245 z Kellie Fruehling From: Sent: To: Cc: Subject: Hello Ms. Castlebury, Darian Nagle -Lamm Friday, February 15, 2019 1:27 PM 'sara-aalderks@uiowa.edu' Council RE: transit issue Late Handouts Distributed (Date) 2--15-1 Thanks for reaching out to us about transit service in your neighborhood — It is always helpful and important to understand situations from our customer's perspective. We apologize for the inconvenience when Iowa City Transit had to unexpectedly suspended service to several stops on the Lakeside bus route last week. The recent onslaught of winter weather has created dangerous conditions on many roadways. The frontage road that travels between Bon Aire and Lakeside Dr. had become especially treacherous. The entire length of the road was covered in thick, jagged ice. It was also very slick and we had several close calls on the morning of the 51. It became apparent that it was not safe to operate a bus under those conditions. Because it is not a public road, the responsibility to address conditions falls to the adjacent landholders. We contacted Bon Aire management that morning, hoping to address the situation in the least disruptive manner. Unfortunately, the road conditions were beyond their capabilities, despite their genuine effort to help. It remained dangerously slick and was also filled with large damaging pot holes. We had no choice but to close those stops until conditions improved. The decision was made mid-morning on February 5. At that time "Not in Service" signs were placed at the four affected stops, and Bon Aire management was notified as well. A city-wide media release was issued at noon, alerting the public to the closures. We monitored the conditions daily, and resumed normal service as soon as it was safe to do so. The land owners in the area have always been aware of their responsibility regarding the road, but the recent bad weather has been a real challenge for everyone. Because it's a private entity, we are not required to travel to Bon Aire but have done so for many years due to the loyal customers, like you, that utilize Iowa City Transit daily. If you have not already done so, please check out the City website, icgov.org. You can sign up for e-mail and text alerts, providing the latest updates for Transit, and many other services provided by the City of Iowa City. It's a great resource. Please note also that there is a Mall route servicing Saddlebrook daily - that might be a good alternative to avoid the long walk. Again, we sincerely apologize for the recent disruption in service and the inconveniences you encountered with our Lakeside route. Service has been restored to the affected stops. In the future, don't hesitate to request a supervisor when you call, they are happy to help! Have a good weekend and stay warm. ® IOWA aN Darian L. Nagle -Lamm, AICP A UNESCO V I E Of 11 MAIui[ Director of Transportation Services WWWICGOVORG p:319-356-5156 4 a 0 0 1200 S. Riverside Drive 1 335 Iowa Avenue Iowa City, IA 52240 darian-nagle-gamm@iowa-city.org From: Geoff Fruin Sent: Thursday, February 14, 2019 3:52 PM To: Darian Nagle-Gamm <Darian-Nagle-Lamm@iowa-city.org> Subject: FW: transit issue Darian, Please respond to this email and cc the City Council email address. Thank you, Geoff Fruin City Manager From: Castlebury, Sara A A f mailto:sara-aalderks@uiowa.edul Sent: Thursday, February 14, 2019 2:02 PM To: Council <Council@iowa-city.ore> Subject: transit issue Hi- I am emailing with a concern about the Iowa City Transit. For a week bus service did not run to Bon Aire Mobile Park. Service stopped on Wednesday the 6th with no notification; I usually ride the first route of the morning and the person who answered the transit office phone had no reason for why it wasn't running to Bon Aire, but told me that I could go to the Lakeside Stop which is a 15 minute walk away. As a consequence I had to go back to my house in Saddlebrook- a 10 minute walk- drive in, pay $20 in parking fees and be 15 minutes late. Later that day I called again for a reason, but was only told it was because of ice and I could talk to a supervisor. They had no idea how long it would last. The end of last week and beginning of this one I would call and only receive an answer that it was weather related. Still, Bongo would show that a bus was set to arrive at Bon Aire so that was never updated. Finally today- Thursday the 14th I got the real answer from a transit employee who told me that buses would run'as soon as Bon Aire cleaned up the frontage road, so it's up to them: I called Bon Aire and was told that a bus just went by the office, so buses are running there today. I don't know if there will be one tomorrow since no one at transit seems to know what is happening. From my limited knowledge this seems to be a squabble between Bon Aire and the Transit department about the road conditions. I don't know if Bon Aire was even aware that this was an issue 'on them' to fix, but I do know that by not having a bus easily accessible has made me not want to use the service in the future. I'm forced too since I do not want to pay for downtown parking everyday- as I have the last week. I have been taking this bus for the last 6 years and to have this bean issue now, especially with the horrible weather we have been having is not excusable. Forcing people to walk 6 blocks or more in winter conditions because the road isn't cleaned up enough is dangerous and even petty. And not knowing if this is going to be an ongoing issue leaves me feeling like the bus service is not stable at all. Thank you for your time, Sara Castlebury Food Coordinator 2 EMRB Cafe Late Handouts Distributed Kellie Fruehlina From: Sara Barron <jcaffordablehousing@gmail.com> Sent: Friday, February 15, 2019 11:53 AM (Date) To: Council; Geoff Fruin; Tracy Hightshoe; Kirk Lehmann; Erika Kubly, Steven Rackis Subject: Creating affordable rental opportunities among existing unsubsidized units Attachments: gmhf-space-between(l).pdf Dear Council and Staff, The Affordable Rental Advocacy Committee of the Johnson County Affordable Housing Coalition is undergoing a study of the attached document, `"rhe Space Between: Realities and Possibilities in Preserving Unsubsidized Affordable Rental Housing." You may not be able to get through all 100+ pages, but I encourage you to read the executive summary. As you know, our need for more affordable housing options cannot be met simply through new construction. This document may identify some effective strategies for working with owners of currently unsubsidized, ie, market -rate, units to increase the supply of affordable rentals in Iowa City/Johnson County. As we continue to study this issue, the JCAHC will be proposing some specific strategies that we think are most appropriate locally, and we look forward to having this conversation with you. Sincerely, Sara Barron AL JOHNSON COUNTY Affordable Housing Coalition Sara Barron I she/her/hers Executive Director www.icaffordablehousine.org I www.facebook.com/icaffordablehousing I @jcahcoalition THE SPACE BETWEEN Realities and Possibilities in Preserving Unsubsidized Affordable Rental Housing Table of Contents PRELIMINARIES Listof Figures.......................................................................... i Introduction Minnesota Preservation Plus Initiative (MPPI)....................................... ii Unsubsidized Affordable Housing; Its Place in Preservation Efforts ................... ii Executive Summary.................................................................... in REPORT SECTIONS 1 Framing the Issue Context for this Investigation........................................................ 1 Subsidized Rental Housing; Losing Ground .......................................... 2 The Important Role of Unsubsidized Affordable Rental Housing ...................... 5 2 Tensions "Affordable Housing" as a Brand ..................................................... 9 Scarcity of Resources................................................................. 10 Rising Rents: A Problem in Whose Opinion? ......................................... 10 Nonprofit vs. For-profit Owners ....................................................... 11 Subsidized Housing Industry vs. Market Housing Industry ........................... 12 Realistic Opportunities for Nonprofits in Unsubsidized Rental ........................ 13 Defining "Affordable" in the Unsubsidized Market .................................... 13 Resolving or Lessening Tensions ..................................................... 14 3 Characterizing Unsubsidized Affordable Rental Housing Roots of Affordability................................................................ 16 The Shadow Market.................................................................. 19 Owners of Unsubsidized Affordable Rental Housing .................................. 20 Efforts on the Part of Cities........................................................... 24 4 Challenges of Intervening in the Unsubsidized Affordable Rental Market Housing Market Defining Affordability................................................................ 26 Physical Quality/Condition.......................................................... 27 Management Quality................................................................. 27 Duration of Affordability............................................................. 27 Mechanisms to Ensure Affordability.................................................. 28 Eligibility............................................................................ 28 Compelling Incentives............................................................... 28 Income/Means Testing............................................................... 28 Recognition or Counting of These Units .............................................. 29 Diagnostic Framework............................................................... 29 Table of Contents (continued) 5 Financing in Subsidized Affordable Rental Housing Private Sector Lending............................................................... 32 Public Sector Lending................................................................ 35 Equity................................................................................ 37 6 Potential Interventions in Unsubsidized Affordable Rental Housing Types of Interventions............................................................... 38 Potential Outcomes.................................................................. 40 Intervention Capture Document...................................................... 40 Intervention Deep Dives Overview ................................................... 41 7 Guiding Principles...................................................................... 47 8 Recommendations Summary of Recommendations...................................................... 48 First Order Recommendations........................................................ 48 Direct Intervention Recommendations............................................... 51 System -wide Intervention Recommendations ......................................... 52 Long -Term Recommendations........................................................ 54 9 Attachments Attachment A: Methodology........................................................... 55 Attachment B: Deep Dive Interventions Attachment Bl—Local Government Rent Subsidy Program ........................... 58 Attachment B2—Second Mortgage/Mezzanine Debt Product ......................... 62 Attachment B3—Section 4(d) Property Tax Program .................................. 67 Attachment B4 Variable Rate Demand Note (Low -Floater Bond) Financing.......... 71 Attachment BS—Clearinghouse for Mission -Driven Owners .......................... 74 Attachment C: National Examples Attachment Cl—Rent Control........................................................ 76 Attachment C2—Mezzanine Financing ............................................... 78 Attachment C3—Rent Assistance Programs .......................................... 81 Attachment C4—Housing Partnership Equity Trust ................................... 83 Attachment CS—Property Tax Relief .................................................. 84 Attachment C6—Cost Saving Measures .............................................. 86 Attachment D: Interventions Matrix ................................................... 88 Attachment E: Alternatives to the Term, "Unsubsidized Affordable Rental Housing" 96 Attachment F. Minnesota Cost -Burden Map ........................................... 97 Attachment G: Twin Cities Metro Area Renter Income Map ........................... 98 Attachment H: Twin Cities Metro Area Cost -Burden Map ............................. 99 Attachment I: Twin Cities Metro Area Crisis Map ..................................... 100 Attachment J: Species Definition...................................................... 101 10 Acknowledgements.....................................................................102 List of Figures in Report Section Figure 1: Renter -Occupied Units by Building Size in Minnesota ........................... 2 Figure 2: Renter -Occupied Units by Building Size in the Twin Cities Metro Area ......... 2 Figure 3: Rental Units by Affordability & Building Size in the Twin Cities Metro Area .... 5 Figure 4: Subsidized vs. Unsubsidized Affordable Rental Units in the Twin Cities Metro Area........................................................... 5 Figure 5: The Loss of Affordable Rental Housing ........................................... 8 Figure 6: Three Species of Affordable Rental Housing (Summary) ........................ 15 Figure 7. Cost of Turnover: An Example of Earn -Back Time ............................... 17 Figure 8: Framework of Specific Considerations for Local Governments .............. 30-31 Figure 9: Financing Unsubsidized Rental: Scan of the Minnesota Market.................33 Figure 10: Rental Rehab Deferred Loan Pilot Program: A Local Experiment........... 36-37 Figure 11: Possible Operating Cost Savings and Their Impact on Rents ................... 39 Figure 12: A Suggested Strategy to Test Key Interventions ................................ 53 THE SPACE BETWEEN M R;q Preservation Plus Initiative June 2013 Minnesota Preservation Plus Initiative (MPPI) The Minnesota Preservation Plus Initiative is about proactive, sustainable housing policy and practice and reflects Minnesota's longstanding commitment to systemic, long-term approaches to stabilization/preservation needs. This initiative is a community -wide approach to stewardship, focused not only on real estate but also on ownership and management. Every project that is capitalized properly, maintained, and operated capably—thereby avoiding costly preservation interventions—stretches existing resources further. Preservation responses fall along a continuum, ranging from a passive system (limited ability to intervene) to a responsive system (response after opt -out notice is received or deterioration is at a critical point) to a preventive system (policies and resources support pre-emptive pre- vention). Passive Responsive Preventive Unsubsidized Affordable Housing; Its Place in Preservation Efforts Just as preservation activity falls along a continuum of differing responses, the type of affordable housing addressed also varies. Typically, jurisdictions start by developing policies/resources to target properties with federal subsidies. Later, properties with local investment are a focus, and finally unsubsidized yet affordable properties can be addressed. Federally Subsidized Locally Subsidized Usubsidized Affordable Rental —� Affordable Rental —� Affordable Rental Minnesota In Minnesota, the current system addresses federally and locally subsidized properties, but a comparatively less systemic response exists to address unsubsidized properties that are afford- able to lower-income households. These properties, however, provide more affordable housing than the aggregate of all privately owned subsidized rental properties, and constitute valuable resources that merit preservation consideration. Included in this group are properties that have affordable rents and are currently occupied by lower-income households, as well as those that have affordable rents but are occupied by higher -income households. The following report details the findings of a study conducted through MPPI to explore the nature and challenges inherent in this stock, and make recommendations for specific policies and strategies to identify and preserve these units. It was developed over several months of intensive research conducted by a Project Team, with valuable input from the Strategic Partners. However, the opinions expressed here are that of the Project Team and should not be viewed as a formal opinion or endorsement from any particular Strategic Partner agency. Strategic Partners Project Team IInnes0g Housing �PP Urban Land Institute P- se.eq weesvm'm A^M Minnesota THE SPACE BETWEEN The Nature of the Opportunity as We See It Definitions for This Discussion Minnesota policy makers have focused worthwhile and appropriate attention on preserving and SUBSIDIZED increasing the state's supply of subsidized rental housing. However, most low-income renters Units with project -based rent assis- do not live in subsidized housing, but instead, rely on the larger market of unsubsidizedyet tance or recipients of capital funding affordable—rental for their housing. For this reason, optimizing this unsubsidized housing stock (with income and rent restrictions). is also in the public interest and policy makers should seize select opportunities to maximize UNSUBSIDIZED his important resource. Units without project -based rent The majority of the unsubsidized rental market functionsjustfine without further governmental assistance or capital funding (may or nonprofit involvement. However, there are specific circumstances where a light -touch inter - include tenant -based assistance). vention can address a threat to this supply or an underutilized opportunity. This research LIGHT -TOUCH focused on those limited, but important circumstances. New, highly -tailored interventions with Ultimately, we believe that there is potential for limited, light -touch interventions in the unsub customized affordability, compliance. sidized rental housing market that could result in the preservation, creation, or better matching of existing affordable housing opportunities to those who need these resources most. Interventions in the unsubsidized housing space, however, will look less like the highly - standardized programs often used in the subsidized housing industry; where resources, regulations, and structures are prescribed at federal and state levels with very little variation in their implementation. These standardized programs are operated largely outside of the influence of market dynamics and depend on consistently applied—if somewhat arbitrary—requirements. This strategy may be appropriate given the nature of subsidized affordable rental housing as a production backbone, where deep capital subsidies buy long-term affordability and where strict compliance and monitoring ensure the soundness of that investment. By contrast, any light -touch interventions should be targeted toward only certain limited areas of the unsubsidized rental market, and need to be: • responsive to a clearly identified reason to intervene; • designed for the specific situations at hand; and • re -engineered with changes in the local rental market over time. Intervention Outcomes Preservation. Prevent the loss of units to deterioration, demolition, or rent increases that would move the unit "up-market" These may not necessarily decrease rem burden for existing residents or new residents. Creation. Create new affordable rental housing opportunities by lowering otherwise out of reach rents. For instance, cost reduction programs might help drop rents to new/greater afford- ability levels. Matching. Ensure that those who need affordable rental housing are getting access to it; matching rent and incomes to lessen or avoid rent burden. Examples include providing incentives for landlords to dedicate units upon turnover to lower-income households, or a voucher program that might help residents gain affordable access to units for which they could not otherwise compete. THE SPACE BETWEEN The Nature of Opportunity To effectively engage in this work, philanthropic and public entities will need to leave behind (continued) the comfort of strict program guidelines and seize the opportunity and responsibility to act in real time and in the context of market fluctuations. Prudent public or philanthropic interven tions in this segment of the market require a tailored approach, taking into account local market dynamics (even to a micro -market level) while simultaneously keeping the regional context in view. Any intervention will require a nuanced understanding of what is needed in the local market, a knowledge of changing market dynamics, and consideration of the cost and benefit of any action against others. Rather than being the core or primary response to housing need, intervention in the unsub- sidized rental market may play a complementary role to that of deep -subsidy programs and might allow our communities to respond more fluidly and nimbly than possible through these existing programs. Much of the investigation leading to this report focused on distinguishing the difference between the unsubsidized affordable rental housing space and that of subsidized affordable housing. Our Charge This investigation was undertaken at the request of three Strategic Partners; the Family Housing Fund (THE), the Greater Minnesota Housing Fund (GRILLE) and the Minnesota Housing Finance Agency (Minnesota Housing) and is one component of a multi-year grant under the Minnesota Preservation Plus Initiative (MPP1) funded by the MacArthur Foundation. The vast majority of MPPI efforts focused on preserving existing subsidized affordable rental housing. This study is a complement to that work and does not indicate a wavering in the Strategic Partners' commitment to the preservation of subsidized units. A Project Team was led by One Roof Global Consulting (One Roof) with instrumental participation of the Housing Preservation Project (LIPP) and Urban Land Institute of Minnesota (ULI MIS. This team combined significant technical expertise and a broad perspective on the importance of and issues surrounding affordable housing. Our charge was to explore ways in which the Strategic Partners might support the continued affordability of rental housing that does not currently receive direct public subsidy.' This was envisioned to include the following light -touch intervention possibilities: • Shallow, direct financial incentives • Operating cost reduction efforts • Technical assistance • Regulatory options The intent was not to simply convert unsubsidized rental housing into subsidized rental housing, which would create greater competition for already oversubscribed subsidy funds. Rather, it was to think of new ways to influence select portions of the unsubsidized market to bring these properties closer to the characteristics that provide public benefit (depth and durability of affordability, quality assurance, etc.). 1. This refers to deep capital subsidies like LIHTT HOME, etc. Properties that accept Section 8 vouchers from individual tenants would not be considered subsidized for the purposes of this study. THE SPACE BETWEEN Creating Light -Touch Rental Housing Universe of Housing 73% Ownership 27% Rental Unaffordatle Affordable Unsubsidized Light -touch rental housing is a new approach to ensure housing affordability in the unsubsidized affordable market. It should be highly -tailored to respond to specific market conditions and local community needs. fight Touch Rental ew Approach) Affordable Unsubsidized Rental ,a. (Current State) Total Affordable Portion of Cast of Intervention 0 Rental Housing Compliance .........None Quality Control .... .........Minimal Affordability Commitment..... None fight Touch Rental ew Approach) $$$ Cost of Intervention $ Compliance .................Light j Quality Control ..................Moderate Longest Affordability Commitment Variable ------------------------------- Subsidized Rental (Current State) Cast of Intervention $$$ Compliance ...........High Quality Control .........High Affordability Commitment Longest Our Charge We sought to define and understand the existing unsubsidized rental housing market and (continued) identify what could be done if the Strategic Partners were to decide to take action. This was an open and practically -oriented investigation of the current realities and possibilities in Minnesota, with a focus on the Twin Cities Metropolitan Area. The following is a summary of our findings regarding the dynamics of this housing market, the categorical interventions possible in this space, and our recommendations to the Strategic Partners to pursue specific steps to enact particular interventions. The Unsubsidized Affordable Rental Housing Market in Minnesota The Importance of Unsubsidized Rental In the Twin Cities Metropolitan Area unsubsidized rental comprises at least 57% of all units with rents affordable to households at or below 50% of area median income (AMD; equating to as many as 120,000 units of housing.' The continued affordability of this unsubsidized housing— and its occupancy by those with corresponding need—cannot be taken for granted. There are neither controls to ensure the enduring affordability of these unsubsidized units, nor are there forces in the unsubsidized market to place low-income households, rather than high-income households, in the most affordable units. 2. Housing Preserwat o r Project (HPw calculation based on HUD's 2005-2009 CHAS data and HousingLink's Streams data. Depending on whether unsubsidized affordable units currently occupied by Section 8 voucher holders are counted in this supply or not, the share of the affordable rental market that is unsubsidized is either 57% or two-thirds. As noted elsewhere herein, a good argument can be made either way. THE SPACE BETWEEN M The Importance of Unsubsidized Rental Over the past decade, statewide rents have increased a seemingly modest 6%. However, incomes (continued) over the same period have dropped by 16%.2 As a result, the percentage of very low-income households' who are cost burdened increased by over 20%.' Moreover, Minnesota Housing Partnership reports that from 2000-2010, Minnesota had the fastest increase in households paying more than half their income for housing of any state.6 Most recent reports and our discussions with stakeholders indicate that Metro Area landlords are currently making up for an extended period of rent stagnation, with continued plans to raise rents. Furthermore, new units being constructed in the unsubsidized market necessitate charging the highest rents (particularly on a per square foot basis) in order to cover development costs. Dependence on unsubsidized market self-regulation or adjustment is unlikely to benefit low-income people. The trickling down of any benefit of new construction currently underway is likely a very long- term, if not dubious proposition. Unsubsidized Owners: Motivations and Challenges Most, but not all, possible interventions in this space are simply different ways to influence the behavior of owners. In order to entertain the full spectrum of these possibilities we sought to understand the types of owners, their existing motivations, and the challenges they face in operating unsubsidized rental property by talking to them directly. Our observations are outlined here. Types of Owners While these owners are diverse, we have categorized them into three broad types: • Do -It -Yourself (DIY)/Part-time. Owners with small portfolios consisting primarily of four- plexes, duplexes, and single-family homes that are self -managed and considered secondary sources of personal income or investment. These owners are most often employed in another industry with rental property as a side business. • Small-scale Professional. Owners with portfolios that are less than 100 units that may or may not have professional management, but view property ownership and/or management as their full-time occupation. • Large-scale Professional. Owners with portfolios of 100+ units that provide professional management as a related business line or through a fee-for-service arrangement. These are mostly formal business organizations that operate as an on-going concern, rather than individuals or partnerships. In Greater Minnesota this typology exists, but is also greatly influenced by the size, economic growth, and demographics of the communities in which they work. It is worth noting that, across the board, nonprofit organizations are largely absent from ownership in the unsubsidized rental housing market. 3. Minnesota Housing Partnership. Slides for Houszng Advocates, January 2013. 4. Households earning 50% or less of AMI. 5. HDP calculation based on HUD's 2000 & 2009 CHAS data. This figure also includes housing deficits of overcrowding and lack of basic services, which are thought to be de minimus. 6. Minnesota Housing Partnership. Slides for HouszngAdvocates. January 2013. THE SPACE BETWEEN Unsubsidized Owners: Owner Motivations Motivations and Challenges (continued) Cash flow. The main motivator for each group is cash flow, with the DIY/part-time owners being more acutely affected by property cash flow disruptions. • Long-term investment. Virtually all owners claimed to acquire properties with the intent to hold them for the "long-term," defined variously, but always reported as longer than 10 years. Admittedly, our focus groups were more likely to attract conscientious and committed owners willing to discuss their business and its relationship to affordability; thus, we may not have been exposed to those involved in speculation. • Asset building. Large-scale owners were the most concerned with and best equipped to main- tain or build value in the real estate, meaning they are motivated to plan for and methodically address the capital improvement needs of their housing. DIY/part-time owners' motivation in this regard is more varied, and the distance the owner must travel to the housing is a key factor in such improvements over time. Appreciation is a secondary factor to cash flow in buying decisions and return expectations. • Interaction with government. Generally speaking, the DIY/part-time owners were more likely to want to avoid any involvement in government programs; thus, making intervention there much more challenging. Owner Challenges Management. Property management can be particularly challenging for DIY/part-time owners, but even large-scale professional owners detail the challenges presented by marketing, tenant screening, maintenance, and rules enforcement. Management challenges/ shortcomings can become community concerns in the case of problem tenants and exterior maintenance. • Operating costs. Operating costs are continuously rising often independently from an owner's ability to recoup them in rents. The two most frequently mentioned/troublesome operating costs were: o Property taxes—both pace and unpredictability of increases; and o Utilities—particularly the variability of publicly -provided ones. • Financing. Access to and terms of financing for acquisition, rehabilitation/improvements, and refinance of existing debt varies greatly. Large-scale professional owners appear to be in a very liquid market for capital. Several lenders described a frenzy driven by low rates. Access to finance continues to be difficult for DIY/part-time owners, inexperienced owners, and any small-scale professional owners who lack strong banking relationships. The short- term nature of the financing currently available in the market is of concern when considering long-term affordability or even stability of properties. THE SPACE BETWEEN Identifying and Exploring Possible Interventions Throughout interviews and focus groups with over 150 Minnesota stakeholders and national experts, we solicited ideas on possible interventions that might preserve, create, or match affordability in unsubsidized rental housing. Through this process we identified nearly 50 intervention ideas, sought existing examples or parallels, and cataloged them. We then selected a few of these ideas, which appeared to have promise, but needed more investigation in order to understand their potential. The Strategic Partners, as the state's policy makers and affordable housing administrators, guided the selection of five promising ideas. These selections became the subject of deep -dive work groups with local technical experts. The Project Team then revisited all the suggested interventions (those that were the subject of deep -dives and others) to make recommendations to the Strategic Partners. Guiding Principles for Action We suggest that any action that the Strategic Partners consider taking in the unsubsidized affordable rental space be guided by the following principles: • Recognize that this is different than subsidized affordable rental. • Capitalize on the lack of rules/dictates. • Use local touch/knowledge. • Pay attention to regional context. • Choose partners/targets wisely. • Monitor, evaluate, and actively manage. A Suggested Strategy to Test Key Interventions The Project Team recommends that the Strategic Partners engage in a demonstration program(s) with select cities to more fully understand if the identified interventions, and in what combinations, would achieve the goals of pre serving or creating affordable housing within the unsubsidized rental market The demonstration(s) would test the political, financial, and administrative viability of such interventions. It would also allow for the Strategic Partners to tailor interventions based on local dynamics in a demonstration context where financial and reputational risk can be minimized. These should be phased and managed by the Strategic Partners, or their designee, as follows: Phase 1: Determine the scope of the demonstration program Phase 2: Test intervention(s) Phase 3: Evaluate and adjust THE SPACE BETWEEN Recommendations We have made four different types of recommendations. 1. First Order Recommendations—recommendations that we advise even if no other actions are taken. 2. Direct Interventions—project or program level interventions that are designed to impact a subset of properties, and/or provide a direct incentive to a property owner in exchange for an affordability pledge. 3. System -wide Interventions—interventions that provide benefit on many levels to all property owners and property types. y. Long-term Recommendations—ideas to monitor as the market changes. 1. First Order Recommendations We recommend that the Strategic Partners take these steps, even if no other interventions are contemplated. • Communication. Promote understanding of the importance of the unsubsidized inventory as part of the affordable housing delivery system. Communicate the issues explored in this work with other important public, private, and philanthropic audiences that could be implementation partners. • Data. Determine when andwhat kind of data is important enoughtojustifythe resources to collect it. Establish a data protocol for the gathering and analysis of this useful and practical data. Start first with existing data. The protocol could provide for better tracking of unsubsidized properties, rent levels, etc. Highlight successful city inventories and encourage other cities to do similar work. Metropolitan Council Regional Housing Policy Planning. The Metropolitan Council has a unique function and influence that ranges beyond that of the subsidized housing realm. For that reason, we highly recommend involving this agency in any efforts. Their involve- ment would enhance the ability of the region to recognize the value that unsubsidized rental housing contributes to our communities. Recommendations relating to this organization include: o Increase the understanding of their process for determining regional affordable housing goals. o Encourage a new formula for calculating affordable housing goals including a more nuanced definition for what counts as credit towards the Livable Communities housing goals? o Create incentives for local governments to test identified interventions. • Build this work into the Metropolitan Council Regional Housing Policy Plan. Support mission -driven owners' entry into the unsubsidized space. Continue to explore and understand the barriers and hesitations of mission -driven actors (both nonprofit and for-profit) and assist those who are interested in doing so to become involved. 7 The Livable Communities Act is a grant program operated by Metropolitan Council in which Cities elect to participate by agreeing to work towards providing them share of affordable housing needed, as calculated by Metropolitan Council, for the metropolitan region. Participant cities also agree to invest annually towards building or preserving affordable housing within their communities. THE SPACE BETWEEN 0 Recommendations p, Direct Interventions (continued) Consistent with the spirit of this investigation, our suggested interventions focus on light -touch approaches; a much lower level of financial incentive than existing deep -subsidy sources, with fewer requirements and more flexibility. • Local government rent subsidy. This is a potentially cost efficient method for creating or retaining affordable housing opportunities through a locally -funded and administered rent subsidy program(s). Cities that have limited opportunities to invest in the development of new affordable units could use local funds to create new affordable opportunities by writing down rents on existing units. This could also help to ensure that there is a match of lower- income households to the existing unsubsidized affordable housing supply. We recommend the Strategic Partners take the following steps: o Solicit interest from cities and property owners and include within a demonstration program administered by the Strategic Partners. o Encourage Metropolitan Council to recognize a rent subsidy program as contributing toward the local Livable Communities affordable housing goals. • Second mortgage/mezzanine debt/loan participation. A second mortgage, mezzanine debt or loan participation product might increase the availability of long-term, private sector debt for acquisition, rehabilitation, and/or refinance of properties that are currently offering some level of de -facto affordability. We recommend the Strategic Partners take the following next steps: o Solicit interest on the part of existing CDFI or funding intermediary to implement such a lending program and determine the parameters under which they would consider participation. o Provide resources (existing or through new program -related investment sources) to use alongside commercial debt. • Property tax incentives. Through our research, it was revealed that Minnesota's Low Income Rental Classification Program (LIRC) or Section 4(d) program allows a local government to qualify properties for tax property breaks if some form of local financial assistance is provided and the owner agrees to income and rent restrictions. This underutilized provision creates the possibility for local governments to address housing goals by foregoing tax revenue in addition to offering cash incentives or regulation. We recommend that the Strategic Partners take these next steps: o Track any modifications to the Section 4(d) legislative authority through the upcoming legislative session and understand how a rewrite of the property tax laws would alter or eliminate Section 4(d). o Convene a broader conversation with a wide range of local governments (specifically targeting cities along emerging transit corridors), including counties, and perhaps the Metropolitan Council to discuss this tool and attempt to garner support for its prudent use. THE SPACE BETWEEN Recommendations 3. System -wide Interventions (continued) The Strategic Partners should consider enacting these interventions themselves or enlisting the right implementation partners to do so. • Encourage cities to: o Use rental licensing programs to communicate with owners regarding interventions for maintaining quality and value in their investment. o Link educational and regulatory approaches. There are examples of cities that promote training by lowering licensing fees for participants. o Enact rental licensing regulations that include the stick and carrot approach, incentivizing and rewarding good behavior, and penalizing poor performance. • Reward cities that adopt rental licensing programs by: o Providing added points within funding applications. o Favoring cities that require rental licensing in a newly weighted formula for determining contribution to regional affordable housing goals by Metropolitan Council. • Maximize the usefulness of the MN Housing Policy Toolbox to support unsubsidized rental housing efforts by: o Promoting use of the Toolbox through Metropolitan Council, Minnesota Housing Partnership, Minnesota Multi Housing Association, ULI-MN/RCM, etc. o Incorporating strategies and recommendations from this report into the Toolbox where appropriate. o Developing a navigational tool within the Toolbox that can make accessing information on unsubsidized rental resources easier. o Identifying an ombudsman to help connect educational resources with technical and financial expertise depending upon the issue. o Creating a section specifically for rental property owners: "Help Rental Owners Succeed." • Promote existing landlord/owner educational efforts. Work through the Minnesota Multi Housing Association, Lutheran Social Services, local city property owners associations, the Crime Free Multi -Housing program, etc. Consider models for a single point of contact for information, technical assistance, and training similar to Chicago's Preservation Compact. 4. Long-term Recommendations The Project Team identified specific ideas that should be monitored in the future by the Strategic Partners as the market changes. The market conditions could impact the opportunity to intervene. • Short-termdebtrefinance. Many properties taking advantage of the verylow rates currently being offered in the marketwill need to find new financing in the next three to five years. This may provide an opportunity for intervention bypublic orphilanthropic entities—exchanging debt for affordability commitments. • Use of Variable Rate Demand Notes (VRDN) or "low -floaters:' While this financing option has been altered—possibly permanently—by changes in bank regulation and is currently not competitive with federally insured debt mechanisms, we recommend that the Strategic Partners monitor the changes in capital markets as this tool could lend itself well to acquisition of unsubsidized affordable rental housing. THE SPACE BETWEEN 0 Section 1 In This Section: 1 Context for This Investigation 2 Subsidized Rental Housing: Losing Ground 5 The Important Role of Unsubsidized Affordable Rental Housing In 2009, the share of U.S. renters paying over 300/o of their income for housing reached 490/o -up from 38% in 2000. In 2011, the portion of rent - burdened households in Minnesota was over 500/o. Context for This Investigation Over 18 million households in the United States are considered very low-income renters.' Yet available affordable rental housing units number only roughly 11.6 million, reflecting a Sig- nificant supply gap and leaving no doubt that the U.S. continues to face an affordable rental housing crisis. The recent homeownership housing market bubble compounded by the Great Recession has led to declining median household incomes nationwide and an increased demand for affordable rental housing. This is evidenced by the unusually low rental vacancy rates found in major cities across the country and demonstrates that the supply gap is only continuing to widen. In turn, the share of rent -burdened households is skyrocketing. In 2009, the share of all renters who paid over 30% of their income in rent reached 49% (up from 29% in 2000).' Unfortunately, the lowest -income populations suffer most in these market conditions and are more vulnerable than ever to absorbing substantial rent burdens as the dearth of affordable housing options grows and income stagnation persists.For instance, in 2009 79% of extremely low-income households and 77% of very low-income households' were facing moderate to severe rent -burdens.' Minnesota follows these national trends, resulting in a tighter rental housing market and less affordability. In 2012 the rental vacancy rate in Minnesota was below 2%, the lowest in a decades which, along with rent inflation and other factors, landed Minneapolis -St. Paul in second place on the 2012 Forbes list of worst cities for renters! According to data produced by the National Low -Income Housing Coalition (NLILIC), there were only 78 affordable and available'units of rental housing for every 100 very low-income renter households in the Twin Cities 7 -County Metro in 2010. The situation is similar in many Greater Minnesota counties. For example, St. Louis County had only 68 available affordable housing units for every 100 very low-income renter households in 2010. These realities are obscured in the statewide figure of 93 available and affordable units for every 100 renter households due to the averaging -in of those markets which have surplus.' 1 Households earning 50% or less of area median income (AMI). 2 Those households paying 30-50% of their household income in gross rent are counted as "moderately rent burdened," Those paying 50% or more of income are considered "severely rent burdened! 3 Joint Center for Housing Studies(JCHS). Harvard University, Amerzme Rental Housing,Meeting Challenge Building on OpportuniRes. 2011, 4 Extremely low-income households are those earning 30% or less of AMI, and very low income are those earning 50% of less of AMI. 5 JCHS. Harvard University, AmerzmU Rental Housing,Meeting Challenges, Building on Opportunities. 2011, 6 Minnesota Housing Partnership (MHP). "2 x 4"Housing Report-Quarter3. 2012, 7 Forbes. The Beat and Worst Cities For Renters.2012. htto://www.forbes.com/sites/momanbrennan/2012/06/14/the-best-and-worst-cities-forrenters-2. 8 A unit is both affordable and available if that unit is both affordable and vacant, or if it is currently occupied by a household at the defined income threshold or below. 9 Calculations from National Low Income Housing Coalition's (NLIHC) Gap Analysis Estimates for Minnesota Counties from CHAS 2005-2009 data. THE SPACE BETWEEN M Section 1 Context for This Investigation (continued) Figure 1 Renter -Occupied Units by Building Size in Minnesota Figure 2 Renter -Occupied Units by Building Size in the Twin Cities Metro Area KEY 1-4 Units 5+ Units E Other Framing the Issue Across the state of Minnesota, rents are on the rise. Minnesota Housing Partnership (MHP) reports that median rent in Minnesota has increased by 6% between 2000 to 2011.'o In 2007, the average market rent for the Twin Cities Metro Area was approximately $970/month." By 2012 this number reached $951/month. At first glance this may seem modest, but a majority of this rent inflation has occurred injust the past year, averaging a 3.9% increase from October 2011 to October 2012. Coupled with a loss in incomes (both real and adjusted for inflation), this rent inflation is resulting in more dramatic cost burdening in Minnesota. The NLIHC projected that affording a 2 -bedroom unit at Fair Market Rent in 2011 required 1.3 full-time jobs for those earning the estimated mean renter hourly wage in Minnesota?" This affects occupations such as nursing aides, office clerks, and childcare workers who are earning less than the average annual income needed to afford a median priced apartment. Moreover, MHP found that from 2000 to 2011 the median statewide renter income dropped by 16% while the median statewide rent cost went up by 6%. Reflecting this reality, in 2011 the statewide portion of rent -burdened households was over 50%1" In the Twin Cities Metro Area specifically, the number of households at or below 50% of AMI who are rent -burdened has increased by 31% over the past decade to include approximately 117,000 households." This means that approximately 79% of Metro Area renters with incomes under 50% of AMI are now paying more than 30% of their income for housing. Subsidized Rental Housing: Losing Ground New Federal Funding Sources on the Wane The most prevalent methods for addressing the affordable housing gap have centered on pro- grams that produce or preserve subsidized units through capital subsidies. However, these programs are challenged in the current federal funding climate. For one, the U.S. Department of Housing and Urban Development (HUD) has faced significant budget cuts ($3.7 billion in fiscal year 2012), which greatly affect the vitality of some of the most critical subsidized affordable housing programs. For instance, HUD's HOME program suffered a budget reduction of 29% between 2011 and 2012, which translates to an estimated production loss of 21,000 subsidized affordable units is Allocations of HOME funds in Minnesota (Minnesota Housing and all other Participating Jurisdictions in Minnesota) were $20.2 million in FFY 2011 compared to $13.5 million in FFY 2012. Similarly, CDBG funding in Minnesota has decreased by 26% over the past 2 years from $63.7 million in 2010 to $46.8 million in 2012.16 10 MHP. Slides Por HouszngAdvoartes. January 2013. 11 GVA Marquette Advisors, Twin Cztzes Apartment Market Update, Thud Quarter 2012 12 PUlHC. Out of Reach Report. 2012, 13 MHP. Slides for HouszngAdvocates. January 2013, 14 Housing Preservation Project FSPIF calculation based on HUD's 2000 & 2009 CHAS data. This figure also includes housing deficits of overcrowding and lack of basic services, which are thought to be de minimis. 15 JCHS. Amerzme Rental Houszng: Meemg Challengeg Buzldzng on Opportunztzes.2011. 16 Minnesota Housing state appropriations. 2013. THE SPACE BETWEEN Section 1 Subsidized Rental Housing: Losing Ground (continued) In the US between 1995-2009, a total of 700,000 project - based, HUD -subsidized units were lost to physical deterioration and conversation to market rate. Framing the Issue LIHTC; Limitations of the Low -Income Housing Production Workhorse The Low -Income Housing Tax Credit (LIHTC) is the primary driver behind new production, renovation, and preservation of subsidized affordable units in the country, typically generat- ing equity to cover 60-70% of these development costs. The program has produced 1.7 million affordable units between its inception in 1986 and 2007. In Minnesota, the LIHTC has helped to finance 42,735 affordable units to date, an average of 1,644 per year. With the financial crisis in 2008, the market for the credits all but evaporated. In 2009, the federal government stepped in by creating the Tax Credit Assistance and Exchange Programs (TCAP and Exchange respectively). TCAP provided approximately $2.25 billion in gap financing" and the Exchange facilitated the buyback of about $5.7 billion in unmarketable credits.18 While the LIHTC market has now recovered and still serves as the single most valuable resource for affordable housing production and rehabilitation, the use of this program requires additional gap resources in most every case, amplifying the effect of the cuts in other federal programs (mentioned above) that are often used to fill these gaps. On their own, tax credits do not ensure the deepest levels of affordability, which can only be achieved by layering on other gap sources. Conversely, because of strict income limits that exclude households with higher incomes, this program cannot address the increasing rent burdens being experienced by many working class households earning just over 60% of AML19 Project -Based Subsidy; Effects of Expiring Contracts, Prepaid Mortgages and Sun -setting Project -based subsidies are a cornerstone of low-income housing in the U.S. Many project -based subsidy contracts and obligations are expiring in the midst of a hot rental market. Some owners see this as an opportunity to convert to market rate rent and occupancy, resulting in a loss of affordable housing nationally. Harvard's Joint Center for Housing Studies (JCHS) reports a total loss from physical deterioration and conversion to market -rate of 700,000 project -based HUD subsidized units from 1995-2009.20 While some of this loss was offset by increases in tenant vouchers, which theoretically offer greater flexibility and locational choice, these housing units are no longer designated as permanent affordable housing stock. Tenant -Based Vouchers; Stretching to Adjust in the Market Tenant -based rent subsidies are stretched as well. The Metropolitan Council" reports increasing rents and low vacancy rates in their service area. As a result, they are paying more per family for rental subsidies; limiting the number of families that they can serve through rental assistance programs. Moreover, the waiting list for vouchers administered by the Metro HRA has been closed since 200722 17 JCHS.TheDicruptionof the Low I, come Housing Ton Cred$Progrom.2009. 18 US Department of Treasury. Initiatives, Recovery Act 1602 Program. Ink, //w .treasu,.aov/initiatives/recover,/Panes/LIH-arants.asox. Accessed January 17, 2013, 19 JCHS.Americas Rental Housing: Meeting Chollengeq Building on Opportunities.2011. 20 Ibid. This number combines the loss due to either property deterioration or expiration of subsidy contracts and consequent conversion to higher marketraterents. 21 The regional planning agency and manager of the Metro HRA in the Twin Cities, 22 Personal communication. December 10, 2012, THE SPACE BETWEEN Section 1 Framing the Issue Subsidized Rental Housing: Losing Ground Additionally, those who are able to secure vouchers will not necessarily find plentiful housing (continued) options available and/or affordable to them. According to a HOME Line survey in Anoka, Dakota, and Suburban Hennepin counties, only 33% of properties are actually available to Housing Choice Voucher -holders due to landlord restrictions. The Metropolitan Council also observes that in order to find available and appropriate housing, voucher recipients are often forced to pay rents above the voucher program limits. They estimate that, as a result, approximately 40% of tenants using vouchers are paying over 20% of their income for housing, the highest rate of rent -burdened voucher -holders they have seen in ten years.23 From 2000 to 2009, the number of very low-income households in the Twin Cities Metro Area paying more than 300/o of their income in rent grew by nearly 31% to include approximately 117,000 households. Other Funding Sources and Their Prospects The National Housing Trust Fund, which was designed to preserve and construct affordable housing for the lowest -income households, remains unfunded since its inception in 2008 and the national debate over deficit reduction and federal spending suggests that federal funding for housing will face continued pressure .24 Minnesota Efforts to Keep Pace In Minnesota, subsidized housing is faring better. In 2012, Minnesota Housing bucked the national trend of decreasing housing resources by securing $30 million in a new Housing Infrastructure Bond programwhere the proceeds are used to preserve and create new affordable housing units and debt service is funded by appropriations.25 This is a great victory in the current environment of shrinking resources and should signal the commitment to affordable housing in the state. However, it should not be overestimated in its ability to offset the drop in federal resources. The commitment of the state housing financing agency and other funders to preservation is also evidenced by the active role of the Interagency Stabilization Group (ISG) and the various preferences given by most funders to preservation projects in their new funding allocation processes. As a result of these various efforts, from 2001-2009 in the Twin Cities Metro Area, there was a loss of only approximately 1,160 federally -subsidized units.26 To give this number scale, as of 2012, there were approximately 60,000 rental units receiving some form of local, state, or federal project -based rental subsidy in the Metro which constitutes 19% of all rental housing and 22% of that which is affordable to households at 50% of AMI.21 23 Personal communication. September 21, 2012, 24 NLIHC. Out cfReach Repon. 2012, 25 Minnesota Housing, Legislative Summary, 2012, 26 HLP calculations based on Minnesota Housing Partnership and HUD data. This number includes project based Section 8 contract loss upon expiration, prepayment of subsidized mortgages and closure of public housing. 27 HPP calculations based on data from Housing Link Streams, THE SPACE BETWEEN Section 1 Subsidized Rental Housing: Losing Ground (continued) Figure 3 Rental Units by Affordability & Building Size in the Twin Cities Metro Area 0 1-4 Units Affordable 1111111, 1-4 Units Not Affordable 5+ Units Affordable 5+ Units Not Affordable Figure 4 Subsidized vs. Unsubsidized Affordable Rental Units in the Twin Cities Metro Area Subsidized E Unsubsidized Framing the Issue Measuring the Ground Lost Even with the allocation of new housing production resources like tax credits, other capital subsidies and project -based assistance, and with the coordinated efforts to preserve existing affordable subsidized housing, the total stock of subsidized affordable housing in Minnesota increased by only about 8,500 units from 2000 to 2009.28 Over that same period, the number of very low-income households (those earning 50% or less of AMD grew by about 26,200. The number of very low-income households in the Metro paying more than 20% of their income in rent grew by nearly 21% to about 117,000 households." This equates to 79% of that population. The Important Role of Unsubsidized Affordable Rental Housing The frequent focus on subsidized affordable rental housing can obscure the fact that most low- income renters actually rely on the unsubsidized rental market to meet their housing needs. Harder to locate and more difficult to track because they are outside the purview of government programs, unsubsidized rental properties comprise the majority of the affordable rental stock in the U.S. In fact, JCHS reported that in 2009, unsubsidized properties accounted for more than 75% of the affordable rental housing30 stock in the country with at least one-third of this sector being comprised of privately -owned, small-scale multifamily buildings of 5-49 units 3i Limitations in data availability and consistency make precise knowledge of the unsubsidized affordable rental market difficult (See Attachment A). However, our analysis of the Twin Cities Metro Area indicates that no less than 57% of the total rental housing stock (or over 122,000 of 182,000 total rental units), is comprised of privately -owned unsubsidized housing with rents affordable at 50% of AMI.32 The number of renter households earning incomes at or below 50% of AMI for the same 7 -County Metro is approximately 150,000. In addition, there are approximately 18,500 tenant -based rent vouchers available in this market area. However, a lack of information on the extent to which these vouchers are used in otherwise subsidized units (in LIHTC developments, for example) means that we cannot determine the extent to which these vouchers are expanding the universe of available affordable housing opportunities. If we were to assume that none of these vouchers were being applied to otherwise subsidized units, this would increase the percentage of the low-income people housed in the private market to 67%. 28 Federallyassistedunits only, as no data is available on any units produced through only state and local resources. However, these are likely to be very small numbers. 29 HDP calculation based on HUD's 2000 & 2009 CHAS data. This figure also includes housing deficits of overcrowding and lack of basic services, which are thought to be de minimis. 30 Units with gross rents costing no more than 30% of 50% of HUD's adjusted AMI. 31 U.S. Department of Housing and Urban Development, Small Multifamily x,sk Shoring Roundtable Presentation, March 21, 2012, 32 HDP Calculations based on data from HUD's 20052009 CHAS and HousingLink. THE SPACE BETWEEN Section 1 Framing the Issue The Important Role of unsubsized Regardless, the long-term affordability and availability of the unsubsidized units is precarious. Affordable Rental Housing (continued) While the unsubsidized rental housing market has historically provided the vast majority of housing opportunities for low- and moderate -income families in America, the availability and quality of these units and their management is ever-changing, leaving renters vulnerable to shifting market conditions. Studies show that the rate of loss of unsubsidized affordable rental units is outpacing the loss of subsidized units on the national front. JCHS calculated that while the national loss of project -based subsidized units from 1995 to 2009 was approximately 19%, the U.S. housing market also experienced a 29% net loss of unsubsidized affordable rental units from 1999-2009.�3 Furthermore, with no income or rent restrictions, many of these units are occupied by residents who can afford to pay more, but are enjoying the benefit of paying a relatively low percentage of their income for housing. In the Metro Area, over 42% of units with rents affordable at 50% of AMI (nearly 72,000 units) are occupied by households with higher incomes. This mismatch of incomes and rents explains why even though we do not appear to have a supply gap in the Metro Area, we still see an overwhelming majority of rent -burdened, low-income renters. Geographic Dimensions Our team mapped some of the key indicators for these market dynamics, which illustrate the wide variations that may exist in these larger market areas. The statewide rent -burden map, in Attachment F shows where the counties with the highest concentrations of rent -burdened households are located. This map provides conclusive evidence that rent -burdened households tend to be located in higher density areas, such as the Twin Cities Metro and/or in high growth communities where housing resources are more scarce. We went into greater depth in the Twin Cities Metro Area. The map in Attachment G illustrates where the low- to moderate -income households are located by Census Tract, showing that the density of renters is highest in the inner cities and first -ring suburbs and that the highest concentrations of low -to moderate -income households are located in these tracts as well. The map in Attachment H further elucidates which of these tracts contain the most dramatically cost -burdened households in terms of annual rent costs, which, not surprisingly, align closely with the concentrations of low- to moderate -income households. By layering household income with rent costs, the map in Attachment I highlights potential "crisis" areas, meaning tracts where housing affordability is most dire as the lowest -income earners are most heavily -burdened by rent costs. However, this map also demonstrates that renter concentration is an important variable to consider when determining where and how intervention is advisable. For example, while tracts in the western suburbs of Minnetonka and Plymouth contain "crisis" tracts, the concentration of renters within these tracts is minimal. 33 JCHS. America's Renarl Housing: Meeting Challenges, Building on Opportunities. 2011. This includes various capital and rent subsidy sources. THE SPACE BETWEEN M Section 1 Framing the Issue The Important Role of Unsubsized Ultimately, the evolving conditions in the subsidized and unsubsidized rental markets that are Affordable Rental Housing (continued) described above indicate that a comprehensive and proactive housing policy stance should include, at minimum, a recognition of the unique and important role that unsubsidized afford- able rental housing plays in fostering a healthy housing market. Beyond that, certain situations may justify carefully designed interventions by public or philanthropic actors who are interested in preserving and improving affordable housing opportunities. From 1999 to 2009, the U.S. housing market experienced a 28% net loss of unsubsidized affordable rental units. Loss of Unsubsidized Affordable Rental Housing The unsubsidized housing market is fluid, with constant readjustments in sales prices, rents, and sometimes even in tenure. Hence the enduring affordability of rents in unsubsidized rental housing can be dubious as they operate without regulated commitment to affordability in this ever -shifting market. We visualize the unsubsidized rental housing market as having a band of affordability, where rents are conceivably affordable to households with lower incomes—even if they are occupied by more affluent households. Units within this band of affordability can be lost by moving out the top, or falling out the bottom (see Figure 5 on page 8). THE SPACE BETWEEN M Section 1 Framing the Issue The Important Role of Unsubsized Figure 5 Affordable Rental Housing (continued) The Loss of Affordable Rental Housing ■■■ Loss to ■ ■ ■■■ Up -Market • • Affordable Portion of Rental Housing Loss to Deterioration & Demolition ■ ■ ■ ■ Moving Out the Top; Up -Market Pricing and Conversions Properties that move out the top of the affordability band move up-market either in their asking rents or sometimes (notably in the early 2000s condo boom) by converting to ownership tenure vs. rental. The result is that these units become unaffordable or inaccessible to current or new low-income renters. In the subsidized rental housing market this happens when a property owner opts not to renew an expiring subsidy contract, has come to the end of an LIHTC compli- ance period, or prepays a subsidized mortgage and is, therefore, no longer bound by income and rent restrictions. Unsubsidized affordable properties that move out the top have often under- gone major rehab investments, which allow for higher rents, or have experienced a change in ownership, or both. Properties that move up-market are often located in gentrifying or rapid growth areas, such as those undergoing transit -oriented development or experiencing strong job growth opportunities. As an area experiences higher demand for housing, new or existing property owners are able to inflate rent prices to reflect stronger demand, moving properties out of the affordability band. Falling Out the Bottom; Demolition. While less common, properties may leave the affordable rental housing market by falling out the bottom, meaning they permanently disappear from the housing market. Properties that drop out the bottom are those that have suffered significant disinvestment and deterioration and are unable to meet the health and safety code requirements to receive housing subsidy dollars or rental licensure in their respective community. Once properties deteriorate to this extent they are often slated for demolition, which permanently removes them from the housing supply. Only occasionally is this loss offset by direct replacement. THE SPACE BETWEEN M Section 2 In This Section: 9 "Affordable Housing"as a Brand 10 Scarcity of Resources 10 Rising Rents: A Problem in Whose Opinion? 11 Nonprofit vs. For-profit Owners 12 Subsidized Housing Industry vs. Market Housing Industry 13 Realistic Opportunities for Nonprofits in Unsubsidized Rental 13 Defining "Affordable" in the Unsubsidized Market There are some tensions inherent in the discussion around unsubsidized affordable rental housing. These became evident in our conversations with local stakeholders and were reinforced in our exploration of the national experience. It is important that we recognize and understand them before formulating any potential systemic or project -level initiatives. "Affordable Housing" as a Brand Affordable housing advocates and owners nationwide—and particularly here in Minnesota— have been successful in establishing and demanding high expectations for the physical quality and management practices within subsidized affordable rental housing. The creation of the Low -Income Housing Tax Credit (LIHTC or Section 42) program in 1986, has enhanced expectations for LIHTC properties through the rigorous underwriting standards required by the large private institutional investors and the professional for -and nonprofit developers who are involved in this program.e' 14 Resolving or Lessening Tensions Research and education by Minnesota entities like the Family Housing Fund, Greater Minnesota Housing Fund, Minnesota Housing, and Minnesota Housing Partnership, among others, have proven that Minnesota's high quality subsidized affordable rental housing does not negatively impact adjacent property values and safety of neighborhoods. Their efforts have built a strong case that NIMBYism and fears surrounding new subsidized affordable housing development are unfounded. As a result, the term "affordable housing" has become shorthand for quality, safe housing, and attractive neighbors—not just low rents. It is for good reason that housing advocates want to protect a brand that they have worked hard to establish. Many of our interviewees expressed concern that acknowledging unsubsidized affordable rental housingwhichmight offer some affordability but is not subject to the various levels of scrutiny in development, compliance, and quality assurance in long-term management—might under- mine or endangerthe reputation of the subsidized affordable housing that is produced through LIHTC and other deep -subsidy programs. This comes into play both in terms of whether we call this kind of housing "affordable housing", and whether subsidized housing owners would want their organizations associated with housing perceived as inferior in quality. Out of sensitivity to this issue, our Project Team attempted to identify another term for unsub- sidized affordable rental housing; soliciting feedback from local and national stakeholders alike. Attachment E is a list of the ideas for alternative names that were generated in the process. While we were unable to find a clear term that would be a preferable alternative to "unsubsidized affordable rental housing,"we have taken pains to distinguish the differences in the very nature of unsubsidized and subsidized affordable rental throughout our investigation. 34 Which currently produces over 90% of all new subsidized affordable housing in the U.S. THE SPACE BETWEEN Section 2 Tensions Scarcity of Resources Even in the most prosperous times, it can be argued that there has been insufficient funding allocated to meet the growing housing needs of low-income populations through new production or preservation of existing subsidized affordable housing. Very high physical quality and management standards and the layering on of other community development agendas (social services, green building, economic development, public realm, etc.) exacerbate this shortfall by making new production costly (even if it is arguably "better" or more "holistic'). Recent and anticipated cuts to federal programs like HOME and CDEG amplify the perception and reality of resource scarcity. In this funding environment, some stakeholders react negatively to even investigating unsub- sidized affordable rental housing, for fear of a reallocation of the already limited resources that they have available to accomplish their work. Some of our interviewees expressed skepticism that completely new sources could be identified to intervene in unsubsidized affordable rental housing and a fear that any attempts to influence that market segment will mean a direct reduction in resources available to subsidized rental. In assessing potential interventions, our charge and intent was to avoid drawing upon resources normally devoted to subsidized rental housing, but this is admittedly murky. Rising Rents: A Problem in Whose Opinion? Cities with the largest unsubsidized affordable rental housing stock are not necessarily the strongest advocates for its preservation. Policy makers in some cities where substantial amounts of unsubsidized affordable rental housing exist believe that fostering the full range of housing choice and affordability should be their focus instead of adding new subsidized units or intervening in the unsubsidized market. The unsubsidized affordable rental housing stock that is regarded by some as a rich resource, can also be seen by others as a nuisance, a sign of undesirability or obsolescence—or more neutrally—simply not the business of the public sector. Upward movement in rents in a local market is often regarded as a sign of prosperity, improve- ment or advancement. A "strong" rental market (stable or increasing rents and low vacancies) is touted by locals as a sign of a healthy local economy and an advantage when attempting to attract development partners with market-driven opportunities. A "Weak" rental market (stagnant or falling rents and high vacancies) can be a sign of transitioning demographics or economic decline, and typically requires some sort incentive to attract development partners. The community at -large, and elected officials by extension, often have less concern over rent inflation than do the professional community development or planning staff in their employ. This means that even the most motivated staff of cities may be limited by political will in addition to financial and other capacity issues. THE SPACE BETWEEN 0 Section 2 Tensions Nonprofit vs. For -Profit Owners A false dichotomy and rivalry is sometimes assumed between for-profit and nonprofit developers and owners. We expected to find a clear distinction and strong preference in the minds of funders and policy makers and perhaps even some territorialism between the for-profit and nonprofit entities themselves. Instead, we found that most stakeholders agreed that both for and nonprofits can be good stewards of real estate assets and provide solid management of affordable housing. For -profits are not generally viewed as "bleeding properties to increase their profitability." In point of fact, the majority of both subsidized and unsubsidized affordable housing units are developed and owned by for -profits. More important than the tax classification of the owners were their: • intent to own and build the value of the asset over the long term; • commitment to respectful and consistent property management and tenant screening; • concern over their reputation or corporate brand with renters, neighbors, investors and cities; and • commitment to long-term affordability. The distinctions between nonprofit and for-profit owners started to reveal themselves above the project level. For- and nonprofits may differ in their: • sources of and access to capital (less so in subsidized affordable where federal programs dictate); • related ability to take a portfolio approach to property improvement and cash flow management; • ultimate use of profits that are up -streamed from the project level to the portfolio or entity level; • willingness or drive to provide housing for lowest -income households or those with special needs—often requiring services that are supported by fundraising; and • appetite for financial risk. There is a practical reason for attempting to make these distinctions, as many potential interventions would be best accomplished with an owner who will act as a prudent steward of both the property and the affordability. The definition of desirable owners or stewards is not as simple as "nonprofit," rather it is the motivation or "mission" of the company that dictates their support and capability to ensure quality affordable housing over the long term. THE SPACE BETWEEN 0 Section 2 Few organizations choose to operate in both the subsidized and unsubsidized housing markets. Tensions Subsidized Housing Industry vs. Market Housing Industry There may actually be a more important distinction between owners of subsidized affordable rental housing and those of unsubsidized rental housing (regardless of their for- or nonprofit status). While this can be related to the discussion of for- and nonprofit owners above, it is in fact a separate issue that can be conflated or confused. Those entities (for- and nonprofit alike) who routinely participate in the development and ownership of subsidized housing have learned to operate effectively within that system, which is in some regards independent from market factors. LIHTC and other federal programs tend to drive the developments in which they are used. Where they are located, how they are structured, the depth of their subsidy, expectations of quality, future opportunities for recapitalization, depth and duration of affordability, compliance, etc. are all dictated by others. Participation with these programs can bring with it costs and processes that do not exist for owners in the market housing industry. Profits are realized primarily in development, while cash flow (or access to it) is limited during the hold. Sale after the compliance period is an opportunity for conversion to market -rate and additional profit to the owner, but more often means a recapitalization with similar deep capital subsidies. Owners that excel in this line of business are willing and able to conform to program requirements, tolerate the complexity, and build the required organizational infrastructure, all while still exercising creativity and autonomy. By contrast owners of market housing are free to make their own decisions based on their assessment of what is desirable in the market, financeable with private lenders, and profitable for them in the near and long term. The opportunity for profit may be more equally distributed during the hold of the asset with cash flow being a real driver for most. Because these owners do not have development subsidies, they often engage in perpetual capital improvements to a larger extent than is necessary/possible with subsidized housing. They also bear the risks associated with operating in this manner. Many successful owners manage their portfolios rather than their projects; meaning they may use resources flexibly across properties in a way that is expressly prohibited in the subsidized housing space. As an illustration, one of our interviewees reported that in any given month 20% of properties within their portfolio were receiving a temporary cash infusion from others that they owned. Because of these two very different realities, few organizations choose to operate in both the subsidized and unsubsidized housing markets. For those that do operate in both, they tend to view these activities as two separate business lines. In addition to the practical aspects there are also significant philosophical considerations; some owners are generally averse to govern- ment participation and will avoid any more interaction than is absolutely necessary. As is the case with any established industry, the subsidized and market housing developers and owners have a set of interests to protect and may feel challenged by any discussion of change. THE SPACE BETWEEN 0 Section 2 Tensions Realistic Opportunities for Nonprofits in Unsubsidized Rental There may be new opportunities for nonprofits in this market, particularly if public or philanthropic actors decide to engage/intervene in the unsubsidized affordable rental housing market at the point of property sale. This is where the discussion of for -and nonprofits dovetails with that of the subsidized and unsubsidized markets. Where unsubsidized rental housing is at risk and a transfer of ownership is desired or imminent, or the investment of public resources is being considered, many people feel more comfortable with the idea of entrusting unsubsidized rental housing to nonprofits. They anticipate that in the absence of regulation and strict compliance requirements, nonprofits will be driven by their mission to maintain a balance between rent affordability and profitability/sustainability of the property. However, nonprofit ownership of unsubsidized affordable rental housing is not a perfect solution for many potential reasons, which include the following: • Not all nonprofits want to be in this game. For mission, risk or reputation reasons, many are hesitant to enter this line of business. However, some are starting to experiment in order to diversify in the face of shrinking subsidy programs. • Some nonprofits are not well equipped. After spending years in highly subsidized, highly regulated production programs, some organizations would need to retool to participate effectively. Examples: o Approach of making light initial capital investment coupled with long-term capital improvements from cash flow requires more intensive asset management/in-house construction expertise. o Much subsidized housing has migrated to serve lowest incomes and those with special needs. Serving mainstream tenants may require different property management approaches. • The required silo nature of subsidized housing (firewalls between projects and little cash-flow up -streaming) means that most nonprofits have limited experience in managing significant amounts of flexible capital at the enterprise level. • Limited access to equity (their own and that of others) and debt at the enterprise level means that nonprofits are not as nimble. Defining "Affordable" in the Unsubsidized Market We did not enter into this study with the intent of simply bringing unsubsidized units into the deep capital subsidy funding system. In fact, quite the opposite; we were charged with thinking of fresh alternatives for the unique set of opportunities and challenges that unsubsidized rental offers to those who are interested in preserving and creating housing affordability. As such, we do not need to adopt all of the methods and definitions that the subsidized housing programs employ (rent levels, compliance mechanisms, etc.). However, any attempt to either recognize the importance of, or identify strategic interventions in the unsubsidized rental market begs for some definition of "affordable." THE SPACE BETWEEN 0 Section 2 Tensions Definining "Affordable" in the Adopting a single definition is a challenge and perhaps even inadvisable in the context of Unsubsidized Market (continued) unsubsidized rental because: The level of affordability that is meaningful or desirable depends a great deal on the local market, or even micro -market. While subsidized housing, which is largely driven by federal programs, typically defines affordability on an MSA or county level, we may wish to define unsubsidized housing with a finer point. Some micro -markets might have a legiti- mate need for more units affordable over 50-60% of AMI, particularly those with strong job growth in advance of development opportunity (Eden Prairie and Thief River Falls are two such examples uncovered in our investigation). There are varying opinions about how deeply to target affordability. The level of financial incentive or other participation that can be offered in return for new affordability commitments will vary. In any case, these are unlikely to match those of traditional subsidy programs. Affordability expectations need to be commensurate with the resources available. One tension familiar to anyone in the affordable housing industry is that incentives can be structured to create a small number of deeply affordable units, or a large number of moderately affordable units. Any potential intervention in the unsubsidized market will face the same dilemma. Affordability definitions might vary by purpose. Recognizing existing affordability in the context of assessing need in the region may require a different definition than in the context of incentivizing new commitments for affordability. Because any interventions in this space would be largely locally designed and funded, this flexibility and nuance are possible. To illustrate, we recommend recognizing unsubsidized units as affordable if they have rents at 30% of 60% of AMI (a typical subsidized housing definition). It is at this level that the units arguably contribute to a healthy housing market. For the most part, we support a similar affordability goal for interventions that require a financial or other incentive. We can foresee legitimate circumstances where local policy makers may target higher levels of affordability based on their micro -market circumstances and resource availability. Resolving or Lessening Tensions We acknowledge these tensions and recognize that some maybe stubborn orpermanent. However, we suggest that the following may be helpful: • Think of unsubsidized affordable rental housing as an entirely separate species from subsidized affordable rental housing; it is different in how it is/should be funded, how quality is monitored and assured, the longevity or durability of its affordability, and the contribution that it makes to a healthy housing market. • Look for counterparties and implementation partners who understand the fundamental differences between the two and are comfortable acting in the unsubsidized space. • Be clear when the conversation is about simply recognizing the existence and importance of unsubsidized rental housing in the market vs. potential financial or other resource allocation or intervention. • Acknowledge that in large part the unsubsidized rental market functions well and is in no need of intervention. It is only in selected circumstances that intervention needs to be considered. THE SPACE BETWEEN 0 Section 2 Tensions Resolving or Lessening Tensions . Be clear when a proposed intervention is on: (continued) o A systemic level; where benefits of the proposed activity accrue to many and direct transfer of resources does not occur (i.e. training programs for tenants or owners, licens- ing and inspections programs in cities). o A project/program level; when direct incentives are given in exchange for a pledge from owners about affordability (i.e. mezzanine debt, rent subsidies). This results in a new third type of affordable rental housing; not subsidized (in the typical way, extent or requirements) and not unsubsidized (free of all requirements), but rather a "light -touch" (that is modestly subsidized or with fewer requirements and more flexibility). • Create anew term for this previously unsubsidized affordable rental housing that is the subject of modest project/program level intervention. In this report we call it "light -touch housing." Figure 6 Three Species of Affordable Rental Housing (Summary)* Unsubsidized Affordable Ir Light -Touch Affordable Subsidized Rental Housing Rental Housing Rental Housing Description of Current State Description of Current State Proposed Future State Description Already existing and naturallyoccurringPreviously unsubsidized affordable housing The creation of new affordable housing affordability in market housing which that, through light touch interventions, units that are a product of deep subsidy contributes to a healthy, diverse housing could create new opportunities or more programs usually federally defined but market and promotes choice. public benefit. may be locally administered. Cost: 0 Cost: $ Cost: $$$ Compliance: No compliance Compliance: Light Compliance Compliance: High Compliance Quality Control: Minimal ouality Control: Moderate ouality Control ouality Control: High ouality Control Affordability Duration: None Affordability Duration: Variable Affordability Duration: Longest * Please see page 101 for long form table. THE SPACE BETWEEN 0 Section 3 In This Section: 16 Roots of Affordability 18 The Shadow Market 19 Owners ofUnsubidized Affordable Rental Housing 23 Efforts on the Part of Cities Roots of Affordability Many factors influence the level of affordability found in unsubsidized housing; some are property specific, others vary by market. In this investigation we sought to better understand the roots of this affordability because they may determine the effectiveness or appropriateness of possible interventions. We found that there are four primary categories that affect natural affordability in the unsubsidized rental housing market. Location. The location of a property is the single most influential factor on the rent levels set by property owners. Some locations simply demand lower rents than others. These locations might be isolated from amenities, experiencing higher crime rates, have a loss of population, etc. Even the finest units with the most amenities and highest quality of management will reach a practical ceiling on rents for their area. Alternatively, some desirable locations allow a landlord to ask for more rent than the quality, amenities, or management of the housing would otherwise warrant. Because we often define affordability on macro -market basis (city-wide, metro -area wide, or statewide), the maximum rents that are feasible in any one market area may be considered affordable when taken in a larger context. They might not represent affordability for cur- rent residents. For instance, some parts of North Minneapolis have attractive housing stock available at low rents due to perceptions of that market area, whereas new employees in Thief River Falls are happy to pay top -dollar for any housing, regardless of condition, in the proximity of theirjobs. This reality is generally acknowledged and has entered into debates on housing policy. For instance property tax breaks for unsubsidized affordable rental were discontinued, at least in part, over this dynamic.35 Units whose rents were constrained by the limits of their market rather than owner choice were receiving public incentives; essentially wasting the public resource, without providing public benefit in return. Our research reinforces that there can be great variation on even a micro -market level, defined at the level of a neighborhood or single -block geography. Similarly, in geographies where there is less demand for rental housing, such as rural areas and/or communities with weak employment, the rent levels will be depressed, translating to more existing affordability in the rental housing market. Physical Condition. The physical condition of a property is another key determinant of rents. Physical conditions are often described by two terms: aging properties and distressed properties. As properties age they can become less attractive relative to other newer options in the market. While aging properties may provide a stock of clean and well-maintained rental units, their configuration, aesthetics, and lack of modern amenities limit the amount of rent a landlord is able to reasonably charge. However, age does not, in and of itself, ensure affordability. Some historic/older properties, can hold their own on rents due to their character or charm. Some properties are of lower original quality and/or have been poorly maintained over time. These properties are likely to be described as distressed. They may show serious signs of wear and/or neglect, including deferred maintenance, infestation, and structural deficiencies. 35 Io this case, those that were not subject to deed restrictions, which were referred to as "pledged units" THE SPACE BETWEEN 0 Section 3 Characterizing Unsubsidized Affordable Rental Housing Roots of Affordability These physical issues suppress the level of rents that can be charged for such properties, (continued) creating a supply of rental housing that is affordable for those still willing to live in the units. Management. The quality of management can greatly affect rent levels as well. Properties that are poorly managed are more vulnerable to issues of nuisance, crime, low curb appeal, and physical quality. These often negatively affect marketability, which suppresses rent levels. These sorts of management issues are more common among smaller properties (< 20 units) that are self -managed by owners, many of whom hold other full-time jobs that preclude them from investing ample time or resources in property maintenance and tenant screening/relationships. We refer to these as DIY/part-time owners and distinguish them from small-scale and large-scale professional owners who are more likely to provide profes- sional property management. Owner Decision and Optionality. Some owners may choose not to charge the maximum rents that their properties could demand in their local market. Reasons for these decisions vary by owner and situation, but sometimes include a personal relationship or loyalty to tenants. More often, owners forego rent increases in order to avoid costly turnovers. An owner may not raise rents on existing tenants, in the attempt to retain them and reduce the cost and operational inconveniences associated with bringing on new, higher -paying tenants. The costs and payback time of turnovers are demonstrated in Text Box 1 and make a com- pelling case for this strategy. Owner optionality to set rents below the maximum obtainable in the market is also deter- mined by having manageable operating cost and debt repayment obligations. Those with lower costs have the luxury or flexibility of making such decisions more often. For this reason, it is particularly those who have held properties for long periods of time who can more easily offer some level of affordability while maintaining their properties and cash flow. Figure 7 TEXT BOX 1: Cost of Turnover: An Example of Earn -Back Time Turnovers can be expensive and a hassle. Owners will often go to great lengths to avoid them and will weigh potential rent increases carefully against the possibility of triggering turns. Consequently, there is a growing gap over time between asking rents on turnover, and the rents paid by long-term renters. Tenant retention can mutually benefit tenant and owner financially—as well as contribute to community stability. Turnover Costs: Repairs, repainting & cleaning $ 900 Vacancy (1 month, Metro avg. Q3 2012 Marquette Advisors) $ 950 Marketing & leasing: Typical leasing fee (75% of monthly rent) $ 713 Other expenses (15% of monthly rent) $ 143 Total $ 2,706 Cost Recovery through Rent Increase: Monthly rent increase (10%) $ 95 Annual $ 1,141 Time to Recover Cost of Turnover = > 2 Years, 4 Months THE SPACE BETWEEN M Section 3 Characterizing Unsubsidized Affordable Rental Housing The Shadow Market Any thorough discussion of the current affordable rental market has to consider the impact of the foreclosure crisis and dramatic drop in home values on the rental of single-family homes, condos, and duplexes. Recently the Wall Street Journal reported that the shadow inventory was an estimated 3.4 million 36 A significant portion of those units have been converted from owner -to renter -occupancy. In Minnesota, HousingLink reports that for the Twin Cities Metro Area, there were over 10,000 shadow market rental liskngs.0 Of this number, 21% were single- family homes, 17% were townhomes, 11% were duplexes, and 7% were condos. Together these shadow market rentals comprised 67% of all rental market listings in the area.38 One important indicator of this phenomenon is the major investment being made by private equity players to buy foreclosed homes and rent them. Recently, the first publicly traded REIT to invest solely in single-family rental homes was created. A New York Times article quotes one industry analyst as opining that this will be a workable business model for at least three to five years 39 At that point, investors will likely shift this stock back into owner -occupancy by selling off these homes. The increasing interest by major investors in acquiring and operating large scattered site rental inventories (through bank or federal entity REO or note sales) has rung alarm bells in many communities. The fear is that large non -local investment entities, interested solely in profit, will manage this housing in ways not consistent with local community expectations and values and will dispose of these properties in a way that might destabilize markets. Scattered site rental management is challenging and can be difficult to do in a cost effective way. However, several entities have built a functioning business model and more are entering the space. But it is not just large, for-profit investment groups engaged in REO rental. Nonprofit members of the Housing Partnership Network are investigating a collective business that would acquire and manage rental of REO stock to an acceptable standard and until such time as the units can be sold (hopefully to existing renters) without negatively affecting market health. This will bear watching, particularly in high foreclosure areas of the Twin Cities. Individual owners and condominium associations also find themselves reluctant landlords in the shadow market. Faced with the prospect of having to sell at a loss, most owners will instead choose to rent their former primary residences and wait for the market to recover. Often, these new landlords have no experience or training and the responsible jurisdictions, mortgage lenders, and insurers may not be aware that the unit is now a rental unit. The condo boom in the mid 2000s resulted in the conversion of many modest apartment buildings into condominiums. Now some of these units are returning to the rental market but without the benefit of profes- sional management in the same way that single-family homes are. 36 Timis.., Nick. Wall Street Omr,al. Shodcw'cverhywd as housing threat. December 25, 2012. Accessed online March 12, 2013. httn//onllnewsi.com/article/SR10001424127887323291704578199523813607666.html 37 Quarter 3, 2012, 38 Housing Link Trends in theTwin Cities Rewal Market. CURA Presentation, October 2012. Accessed online March 12, 2013, httn://www.cura.umn.edu/sites/cure ad,ntagelabs.c.m/files/contentdocs/TWinCitiesRentTrends Oct2012.ndf 39 New York Times. Big Money Bets on o Housing Rebound. December 8, 2012, THE SPACE BETWEEN 0 Section 3 Characterizing Unsubsidized Affordable Rental Housing The Shadow market Locally, there is some evidence of the dampening impact of the "shadow market"40In October (continued) 2012, HousingLink observed that rents were actually declining in some suburbs, due to the shadow market creating more competition for traditional apartment rentals. In the fourth quarter of 2011, 65% of all rental listings with HousingLink came from the shadow market. In the fourth quarter of 2012, shadow market listings had dropped to 55%, perhaps foretelling the beginning of a shift of shadow market units from rental back to owner-occupancy.41 All this suggests that the level of rental housing stock available at the moment may be a temporary condition. Eventually many of these units will again leave the rental inventory with the timing of that shift determined by the market's preference for ownership, availability of mortgage financing, etc.—factors other than rental housing need/demand. DIY/Part-Time Ownership As characterized by a focus group contributor, these investments are "a job that you buy." Owners of Unsubsidized Affordable Rental Housing Much about the current state of unsubsidized affordable rental housing is a reflection of the entities that own the real estate. Likewise, the possibility of influencing the quality of the housing, its management, and the duration of the affordability depends on understanding the owners and their motivations. Through the course of our interviews and focus groups, there emerged three general categories of owners as well as some regional dynamics, which we discuss here. Do -It -Yourself (DIY)/Part-Time Owners These are owners with small portfolios that consist primarily of duplexes, fourplexes, and single- family homes that are self -managed and considered secondary personal sources of income or investment. They are most often employed in another industry. Often they purchase properties with the idea that they are a "passive" investment—a seemingly simple, straightforward business requiring little of them as owners on an ongoing basis. Eventually they find out that this is not the case, but this outlook and their other obligations continue to affect how they approach the management of their properties. Some of these owners retain professional management for their properties after they discover the demands that the properties place on them. However, in most cases, the economics do not allow for professional management or these services are not viewed as an essential business expense. The challenge of owning rental properties is often further complicated when the property is not close to where the owner lives. DIY/part-time owners typically purchase rental property as long-term investments, often with the idea that they will break-even during the hold and eventually pay off their mortgages. They assume that once the mortgage is paid the property will provide a steady source of cash flow. In many cases the property isviewed as a supplement to the owners' other retirement investment. In hot market periods, like the early 2000s, DIY/part-time owners became very aggressive, depending on tax losses as well as break-even operations to justify high acquisition prices. 40 Defined by Housing Link as any rental I!sting s that are properties with one or two units (single-family homes, duplexes, condos, townhomes). 41 HousingLink, Shadow Market Pressure Impacts Apartment Rents s, Twin Cities Suburbs". Twin Cities Rental Revue October 16, 2012, THE SPACE BETWEEN 0 Section 3 Characterizing Unsubsidized Affordable Rental Housing Owners of Affordable Unsubsidized However, current cash flow is also very important, and can, at times, undermine good decision - Rental Housing (continued) making. The personal finances of DIY/part-time owners often hinge closely on property occupancy and conditions. When even one month of vacancy occurs, it is a significant event for the owner and may put the rest of the owner's financial stability in peril. There is not only the immediate loss of rent, but also the time and cost of preparing the unit, marketing, showing, and leasing the unit. Vacancies are never convenient, and the time demand that turnover places on the owners can result in a strong temptation to cut corners in the process, particularly in renter selection where the negative effects of poor tenant screening may impact neighbors. Given the problems created by the turnover of their rental units, these owners have a strong incentive to minimize rent increases. If they have satisfactory renters, these owners tend to avoid rent increases in the interest of avoiding turnover. If they have problematic tenants, they are not quick to act because of the personal time and financial burden it places on them. With the time demands of rental unit ownership being a significant issue for these owners, there is a strong tendency to procrastinate in dealing with maintenance and management issues. Needed replacements or improvements to the properties are often postponed because the owners do not want to take the time to address the needs and/or the needed cash is not immediately available. In their financial planning for their rental units, these owners often include only ongoing operating and maintenance costs without an allowance for periodic rein- vestments in the properties that are needed for major replacements such as roofs and boilers. These owners can avail themselves of many resources to better learn the business that they are involved in, but the time commitment required to take advantage of the educational opportunities that exist may be a hindrance. There is also a strong tendency to try to minimize paperwork, again in the interest of limiting the time demands of their investments. The result is that some of these properties are managed in ways that are not in accordance with existing law and regulation. While very low-interest financing is currently available, often these owners are unaware of availability of such financing, are unwilling/unable to prepare the necessary paperwork, or are already over -leveraged. These DIY/part-time owners also often do not qualify for the financing as lenders are looking beyond the properties for collateral or guarantees for loans as well as looking carefully at the experience and financial capacity of the owners. Any program to work with these owners to preserve and enhance the affordability of their rental units would need to meet at least two requirements. First, the program would need to place minimal initial and ongoing demands on their time. Second, the program would need to be offered to them by or through an organization that is familiar and credible to them. The best scenario would be to select those owner who are already engaged with some sort of capacity building effort like those offered Minnesota Multi Housing Association (MHA), Lutheran Social Services (LSS) or cities. THE SPACE BETWEEN 0 Section 3 Owners of Affordable Unsubsidized Rental Housing (continued) These owners purchase their properties as long-term investments though immediate cash flow is of primary concern. Characterizing Unsubsidized Affordable Rental Housing Small -Scale Professional Owners We describe small-scale professional owners as those that typically own properties with 40-100 units. Often times, their businesses started as a part-time venture. However, over time their portfolios have grown and reached a point where these owners need to devote themselves full- time to the operation and management of their properties. Some of these owners retain professional management for their properties. However, depending on the composition of their portfolios, this may not be a financially attractive option. In the Twin Cities Metro Area, there is not a lot of true fee management; meaning units that are managed by third -party professional managers with no connection to the ownership entity. For professionally managed properties, there is most often some identity of interest between the ownership entity and the management company. Typically these small-scale owners also purchase their rental properties as long-term invest- ments. However, immediate cash flow is of primary concern while turnover is an anticipated financial, administrative, and labor burden. With a larger portfolio, there are regular needs for replacement and improvements. While these owners may be slightly less concerned about the immediate impact of turnovers, these are still a major concern for the owners with the most affordable rents. For these owners, their renters may be particularly price sensitive and may be more inclined to give notice and move when faced with a rent increase of any significance. On the other hand, with reports of significant rent increases in the last 12 months and on the prospect of still greater rent increases, these owners are now more willing to push the rental markets in which they are located and impose significant rent increases on their current renters. GVA Marquette Advisors in their September 2012 Apartment Trends report found that over the 12 months ending in September, "year -over -year effective rent growth is calculated at 2.9%" for the Twin Cities. For a unit with a $950 rent, a 2.9% rent increase is $26. While small-scale professional owners devote themselves to their properties on a full-time basis, time is still a significant issue for them. Given that their management operations are small, they must deal with various demands on their time and limited economies of scale. They tend to resist anything that represents a potentially significant additional workload. The currently available, very low-interest financing is more accessible to these owners. It is usually much easier for them to meet the experience and financial capacity requirements of lenders. On the other hand, these owners may be very cautious about currently available financing because of the short-term nature of the mortgage loans, typically seven years or less. These owners may recognize that when a loan matures, interest rates may be significantly higher and threaten the viability of their operations in the future. Any program to work with these owners to preserve and enhance the affordability of their rental units would need to meet at least two requirements. First, given other demands on their time, the program would need to place minimal initial and ongoing demands on their time. Second, the program would need to offer significant long-term benefits if these owners were to sign up for more than a few years. A major concern of these owners is that if they agree to limit their rents, they may lose out on a significant "once every ten years" opportunity to raise their rents to a significantly higher level. THE SPACE BETWEEN 0 Section 3 Owners of Affordable Unsubsidized Rental Housing (continued) These owners achieve economies of scale and any specialized program involvement is evaluated in light of the potential to increase overall income. Characterizing Unsubsidized Affordable Rental Housing Large -Scale Professional Owners The large-scale professional owner typically has larger properties (100 units or more) and over- all much larger portfolios. Their rental properties are managed by professional management companies, and, more often than not, these are affiliated with the owner. These owners also reported buying rental properties as long-term investments, and while appreciation is often important to them, cash flow is most often the priority in the short term. However, there are occasionally variations from this. For example, when the rental market turned down sharply in the early 2000p some of these owners re -invested significantly in their properties. Their strategy was that as the rental market constricted they would position themselves to secure more than their proportionate share of the remaining market. These owners had the capital to make such investment decisions. While turnover is always an issue, these owners undertake to balance turnover with income maximization. Analysis usually indicates that a building that experiences some turnover while the management works to increase rents has a higher gross income than a building where management simply attempts to minimize turnover. Some of these owners even use income maximization software programs that maximize income by varying asking rents, day by day or at least week by week, based on demand factors that are monitored on an ongoing basis. While demands on staff time are an issue for all businesses, these owners are large enough that they achieve economies of scale by having staff who specialize in certain programs. A specialized program with paperwork demands is not reflexively rejected, but is rather evaluated for its potential to increase income overall. Some of these companies have a significant involvement in subsidized affordable rental housing. Affordable financing with very competitive terms is generally not an issue for these owners. In fact, many large-scale professional owners have taken advantage of the low interest rate environment and have refinanced most of their portfolios. Any program to work with these owners to preserve and enhance the affordability of their rental units would be carefully analyzed by these owners. There would need to be a clear net benefit to them in order to gain their involvement. Greater Minnesota In Greater Minnesota this typology exists but is also greatly influenced by the size, economic growth, and demographics of the communities in which they work. Cities of More Than 25,000. These cities include the MSAs of Rochester, Duluth, St. Cloud, Mankato, Moorhead (larger than Rochester when included with Fargo), East Grand Forks (a little smaller than St. Cloud when included with Grand Forks), and regional city centers such as Winona, Owatonna and Austin. In many ways, the rental housing market in these cities functions in a manner similar to the Twin Cities. There are some variations based on the economics of each city. For example, the rental market in Mankato is currently very strong with rents increasing rapidly. Most or all of these cities have Class A, Class B and Class C rental housing. The Class C rental housing is much like that in the Twin Cities with no/few amenities, reasonable rents, and low -to moderate -income renters. THE SPACE BETWEEN 0 Section 3 Characterizing Unsubsidized Affordable Rental Housing Owners of Affordable unsubsidized Cities of 10,000 to 25,000. These cities include Faribault Northfield, Willmar, Albert Rental Housing (continued) Lea, Red Wing, St. Michael, Hibbing, Hutchinson, Marshall, Brainerd (along with Baxter), New Ulm, Bemidji, Fergus Falls, Sauk Rapids, Worthington, Alexandria, Grand Rapids, and Fairmont. The circumstances of these communities vary considerably. Some are doing very well economically and have very strong rental markets such as Worthington. Others face challenges that impact rental markets such as Brainerd, which has the highest unemployment rate in the state. Some of these communities have only Class C rental housing, which serves low- to moderate - income renters affordably. In the communities that are struggling economically, these rental properties tend to be in poor condition as the market will not support rents that provide for good property stewardship. Cities of Under 10,000. In these communities, owners can struggle to preserve the unsub- sidized rental housing that does exist, as there is little or no upward pressure on rents. This reality often contributes to poorer property conditions. Particularly in towns of less than 5,000 there is often little to no market for these rental properties if the owners want to sell them. In these communities, there is sometimes a combination of resource -constrained owners and very low-income renters. Rental housing is often operated on an informal basis with no rental applications, no screening, and no leases. The cities often have limited capacity and/or ability to enforce rental housing standards in a systematized way or to assist rental property owners in improving their properties. Efforts on the Part of Cities Through the course of focus groups, work sessions, and personal conversations, our Project Team learned about the efforts that are being made on the part of cities in the Twin Cities Metro Area and Greater Minnesota to both ensure the physical quality of unsubsidized affordable rental housing and equip property owners/managers to make good decisions regarding property maintenance and tenant relations. We discovered that many cities in Minnesota are proactively taking positive steps to maintain this housing stock as a viable option for residents within their communities. These key efforts are highlighted below. Rental Licensing. Most cities in the Twin Cities Metro Area and many in Greater Minnesota require some form of rental licensing in their communities, though the renewal periods and compliance requirements vary. In Richfield, for example, owners of rental properties must renew their rental license on an annual basis, whereas Duluth requires license renewal every three years. For property owners in the City of Hopkins, the annual rental licensing is also tagged with a requirement to attend a minimum of one meeting of Hopkins Apartment Managers' Association each year. Similarly, the City of St. Cloud requires all owners of rental properties to participate in a Rental Property Training Program as part of obtaining a rental license. Additionally, some cities utilize a reward system when determining the costs of rental license renewals and correlating number of required building inspections for a property. For example, if a property owner in Mounds View elects to attend a minimum number of property owner education meetings in a given year or earn a certificate in Crime Free training, he/she is charged a reduced fee for license renewal. THE SPACE BETWEEN 0 Section 3 Characterizing Unsubsidized Affordable Rental Housing Efforts on the Part of Cities Inspections. In concert with rental licensing, most cities actively perform housing quality (continued) inspections. From our conversations with various cities, these inspections range from minimal to robust, occurring once every one to four years, depending on the jurisdiction. There are a small number of cities that do not conduct regular inspections, but respond to community concerns on a complaint only basis. The local fire department, building inspectors housed within the local community development department, or inspection parties contracted by the city are among those responsible for conducting inspections. These inspectors confront code violations and issue citations when necessary to maintain at least a minimal physical quality standard to protect the health and safety of renters. Again, some cities employ a reward system to encourage property owner/manager compliance with building standards. In Coon Rapids, for example, the number of required inspections on a semi-annual basis is dependent on the property owner's level of involvement in Crime Free training and landlord association meetings; the more involvement, the fewer inspections. Furthermore, this participation also dictates the amount of fines charged for building code violations with lesser fees charged to those who demonstrate active involvement in "good" landlord education. The City of Brooklyn Park has a robust rental inspection system in which building inspectors advise property owners on capital improvement plans to help them consistently pass building inspections. Owners/Managers Associations. Many cities host and/or support rental property owners/ managers associations, occurring on anywhere from a monthly to quarterly basis. The local Crime Free officer and/or building officials most often run the association meetings. Within the Metro Area, there are several cities that actively convene regular meetings geared towards educating property owners on issues such as planning for property improvements, budgeting, cultural sensitivitywith tenants, tenant screening, executing rental agreements, etc. Moreover, our discussions with city staff revealed that these association meetings are viewed not only as a means to educate property owners and provide resources for confronting property -related problems, but also as an accessible sounding board for city staff to receive valuable feedback regarding local housing policy issues. The City of Mounds View, for example, has a loosely organized apartment manager's coalition, which serves as a forum through which the City can discuss potential housing policy decisions with those being affected. Crime Free Multi -Housing Training. Most of the cities we talked to incentivize or require a property owner/managerto attend Crime Free training. The Crime Free Multi -Housing training program is a majorinitiative led bythe Minnesota Crime Prevention Association, a nonprofit dedicated to developing crime prevention programs. His a three-phase approach that educates landlords and tenants on maintaining a safe environment in multi -family dwellings. The first phase involves a one -day management -training workshop for property owners managers that highlights issues such as applicant screening, rental agreements, being a proactive property manager, and warning signs of criminal activity. Phase two requires physical improvements to the property that promote safety, including installing dead bolts, strike plates, doorviewers, etc. The third phase is a resident education workshop that teaches crime watch and prevention techniques. THE SPACE BETWEEN 0 Section 3 Characterizing Unsubsidized Affordable Rental Housing Efforts on the Part of Cities Cities recognize the Crime Free program as a valuable resource for maintaining better (continued) rental properties. This recognized value is evidenced by the reductions in rental licensing fees, number of required property inspections, and fines charged for code violations that are granted to property owners who participate in Crime Free training in numerous jurisdictions across the state of Minnesota. Loans. While not as common as some of the other efforts made by cities, there are some cities that have established loan programs to aid in property maintenance and improvements for property owners. For example, the City of Brooklyn Park offers loan opportunities for rental property owners, including a Rental Rehab Loan (up to $10,000) with low-interest financing (4%) for completing improvements that increase the livability of a property and a Rental Energy Loan that provides financing to owners for increasing the energy efficiency of their buildings. In Greater Minnesota, the City of Duluth offers Rental Property Rehab Loans that are administered through the local HRA. These are low interest loans (2%) for rental property owners to make improvements and/or housing updates with the intent of keeping properties safe, well maintained, and affordable. Generally these have been met with a cool response from owners for reasons that include privacy concerns, aversion to new debt, and administrative burden. THE SPACE BETWEEN 0 Section 4 In This Section: 26 Defining Affordability 26 Physical Duality/Condition 27 Management Duality 27 Duration of Affordability 27 Mechanisms to Ensure Affordability 28 Eligibility 28 Compelling Incentives 28 Income/Means Testing 29 Recognition or Counting of These Units 29 Diagnostic Framework Meaningful definitions of affordability must consider the context of micro -markets -not just MSAs. In the event that a philanthropic or public entity evaluates a given market and should decide that they wish to intervene in the unsubsidized affordable rental housing market, there are a myriad of challenges that collectively illustrate the inherent complexity of designing any programs or initiatives for this space. Defining Affordability The first challenge to intervening in this space is defining what constitutes affordability that is worth recognizing, preserving, enhancing or extending. Subsidized affordable rental housing complies with income band targets (50% or 60% of AMI, typically). While it is tempting to create similar codified and universal definitions for interventions in unsubsidized rental housing this rigidity and simplicity undermines creating meaningful affordability in the context of micro -markets. While we ourselves started with the desire to have a single definition, we have instead concluded that satisfactory affordability in any single intervention should be defined by weighing local conditions, depth of incentive, and length of commitment, among other factors. We anticipate that certain local market conditions in Minnesota could justify intervening to protect affordability of those up to 80% of AMI. As an illustration, market conditions in Florida are such that tax relief interventions are offered to nonprofit owners agreeing to rent units at affordable rates to elderly tenants of any income and to households earning up to 120% of AMI. Additionally, the standard accepted in subsidized housing, that gross housing costs should not exceed 20% of income, may warrant re-examination in some contexts. The most obvious situation where higher than 20% of income allocated to rent might be acceptable is when the location of unsubsidized affordable housing allows for a reasonable combined burden for housing and transportation costs. This is an example of how those intervening in the unsubsidized affordable rental housing market could make prudent use of the flexibility afforded to them by virtue of the fact that they are outside of traditional subsidy programs. Physical Quality/Condition Prior to any intervention, unsubsidized affordable rental housing is generally subject to only minimum life and safety standards as enforced by inspectors in their municipalities. As one interviewee said, "We can enforce full code compliance, but that doesn't necessarily get us to what I consider minimum acceptable quality." This housing represents a wide spectrum of physical condition/quality. In certain circumstances some measure of existing affordability may have been achieved by sacrificing the quality of the physical product when it was developed or its level of maintenance over time. THE SPACE BETWEEN 0 Section 4 Challenges of Intervening in the Unsubsidized Affordable Rental Housing Market Physical ouality/Condition However, much of the unsubsidized affordable rental housing stock is decent, well maintained, (continued) and fits well into the fabric of surrounding neighborhoods. Lower -level finishes, fewer amenities and age can limit asking rents without compromising basic standards. Interventions in this market could arguably provide an opportunity to incentivize improvements in sub -par housing, but due to resource limitations, lack of compliance regimes, and owner interest, resources may be better targeted toward those owners who already maintain properties at an acceptable level. Practically speaking, our expectations for unsubsidized affordable rental housing can be lower than those we have for subsidized housing, which attracts deep capital subsidies and accom- panying high lender underwriting standards. Management Quality Many general concerns about rental housing are as much a function of the management as the population housed or the physical structures. The quality of tenant screening, rule enforcement, and grounds maintenance impacts the tenant experience as well as that of the surrounding neighbors. As such, interventions that involve incentives (carrots) are best targeted to properties that are already well managed; where program administrators' reputational risk for being involved is minimal. Interventions that involve enforcement (sticks) can be applied more broadly and to compel maintenance of minimum standards. Duration of Affordability One primary difference between subsidized and unsubsidized affordable rental housing is the durability or expected duration of the affordability. Interventions in unsubsidized rental housing can be used as a way to increase the period o ftime that affordability exists. In designing interventions it is important to understand current micro -market conditions and monitor their changes over time. The length of affordability required by any incentive -based intervention needs to be weighed against the amount of the incentive, owner tolerance, and these changing market conditions. This presents a thoughtful administrator with the opportunity to be more nimble than current deep capital subsidy programs ordinarily allow. Generally, we expect that the duration of affordability in this space will be shorter than that expected in subsidized affordable rental housing. The consensus among our interviewees is that incentive -based interventions should target a minimum of five-year affordability commitments. Mechanisms to Ensure Affordability Those who wish to influence the quality and affordability of unsubsidized affordable rental housing have many mechanisms to choose from to ensure that affordability and quality commitments are honored. In subsidized housing we have come to depend on long-term use agreements and deed restrictions with a high level of compliance reporting. These mechanisms are not practical in the unsubsidized affordable rental housing space given the limited financial resources that are likely to be applied, as well as owner and tenant resistance to intrusive compliance and administrative burden. However, there are options that may be palatable to owners, renters, and program administrators alike. These include simple contractual or loan agreements with self -certifications or elective annual participation that triggers benefit to owners. Simplicity, THE SPACE BETWEEN Section 4 Challenges of Intervening in the Unsubsidized Affordable Rental Housing Market Mechanisms to Ensure Affordability use of layman's language, and sensitivity to privacy concerns are of paramount importance in (continued) designing interventions. Looking at New York's decade -old Rent Stabilization Program would be a good starting point for finding self -certification reports and a small owner support system that assists with compliance (see Attachment C6 for more detail on Cost Saving Measures). Eligibility Deciding who and what triggers eligibility will bean important step in designing any interven- tion. In addition to the affordability definitions discussed above, eligibility for incentive -based requirements should include owner willingness, commitment and previous track record in management, asset maintenance, and length of ownership. Most subsidized housing programs require that a minimum of 20% of units be affordable in order to trigger eligibility for resources. Incentive -based interventions in the unsubsidized affordable rental housing market will likely be less rich, and others may not involve any transfer of resources (like cost savings measures). In this context, adopting a minimum percentage of units requirement is less necessary/useful. Compelling Incentives Thoughtful consideration will be required in order to identify an appropriate level of invest- ment of resources (financial or otherwise) that is commensurate with the benefit expected in return. Some interventions can be defined as systemic or general where actions on the part of a public or philanthropic entity result in a benefit to many. However, in the case of project - level interventions, where financial resources might be made available in exchange for specific commitments, this cost -benefit analysis is even more critical. No doubt that a comparison with other potential investments in housing and other community development outcomes is likely. We have explored these and other tensions in Section 3 of this study. We do not advocate for the reduction of existing deep capital subsidy resources in order tc address currently unsubsidized affordable rental housing. Instead, we are hopeful that the increased flexibility and lower cost and administrative burden in the unsubsidized market can result in more and greater opportunities. Income/Means Testing Data accessed during this study highlights the frequent mismatch between the affordability of rents and the income level of the occupants in unsubsidized affordable rental housing. Whereas subsidized housing gives significant control over the matching of rent and income levels to regulators and funders, the unsubsidized affordable rental space allows for choice on the part of residents and owners. Subsidized housing will limit/select occupancy by creating a ceiling on income levels of households considered eligible. By contrast, unsubsidized affordable rental housing is usually subjected to income minimums with landlords setting income standards that reduce their risk of non-payment of rent (usually corresponding to income at two to three times rent). This is an example of where the culture and practice in unsubsidized rental housing is completely divergent from that of subsidized housing, which can make the design of interven- tions challenging. We have concluded that while income goals and verification are desirable, the strictest rigor and controls cannot be applied to unsubsidized rental housing. Income THE SPACE BETWEEN 0 Section 4 Challenges of Intervening in the Unsubsidized Affordable Rental Housing Market Income/Means Testing verification at move -in (typically in most tenant screening processes) is likely to be palatable, (continued) with self -certification on an annual basis being more problematic for owners and tenants and also adding a significant public cost to administer and monitor. Income verification without the participation of the landlord after move -in would be ideal. Onerous administrative require- ments are likely to dissuade participation altogether. Here again, income -testing requirements should be considered against the level of financial incentives and other factors in designing interventions. Recognition or Counting of These Units Recognizing potential municipal interventions in the unsubsidized affordable rental housing requires a more sophisticated and nuanced approach than the simple counting of units that is possible in subsidized housing. Cities in the Twin Cities Metropolitan Area take their Metropolitan Council regional housing goals seriously.43 However, they also want to be assured that they are being given "credit' for the contribution that their existing housing stock is making to the health of the regional housing market. Furthermore, they want to know that any additional efforts they make to preserve and extend affordability will be recognized in the context of new production goals. Many cities have limited new development opportunities/sites and meager financial resources to offer incentives when new development does occur. Any intervention that provides enhanced public benefit (longer duration of affordability, greater depth of affordability) should be recognized as creating enhanced housing opportunity, even when new units are not produced. The extent to which such efforts should be "counted" toward production goals requires a more complicated calculation than does the addition of subsidized affordable rental housing (like new LIHTC or HOME units). Diagnostic Framework It is not always necessary or advisable to intervene in the unsubsidized affordable housing market. However, in some cases it may be important to take action to ensure that the existing housing stock is preserved and remains affordable. Conceivable examples of where intervention might be important are along new transit lines or in small communities with high employment growth. Careful review of local conditions and market forces is essential to determine the need for, the prudent level, and form of intervention. The following is a framework that includes specific considerations for local government to help determine if there is a need to intervene to assure that some unsubsidized affordable rental housing units remain or become affordable. 43 The regional housing goals are part of the Lovable Communities Act grant program operated by Metropolitan Council in which cities elect to participate by agreeing to work towards providing their share of affordable housing needed, as calculated by Metropolitan Council, for the metropolitan region. Participant cities also agree to invest annually towards building or preserving affordable housing within their communities. THE SPACE BETWEEN 0 Section 4 Challenges of Intervening in the Unsubsidized Affordable Rental Housing Market Diagnositic Framework Framework of Specific Considerations for Local Goverments Figure B (continued) Topic Evaluation Questions Rationale Evaluation of Are the city's existing goals and policies supportive The existing political support for affordable rental Community Goals of affordable housing? housing will help in determining the level of fund - for Affordable If so, to what level? If not, do existing goals ing sources available to intervene in preservation Housing and policies require modification to support of unsubsidized affordable rental housing. intervention if needed? New Rental Housing Is there a strong or weak market interest in new In strong rental housing markets, it may be Market rental housing? expensive to subsidize new units to ensure that Are the proposals for market or high-end units? there is affordability. Rather, a city may wish to financially support efforts to ensure that existing Is the level of subsidy needed to include affordable units remain affordable by attributing funding to units within new rental housing cost prohibitive? unsubsidized units already built. Age and Condition What is the city's inventory of existing unsubsidized Generally, older housing stock is where the of Existing affordable rental housing? unsubsidized affordable housing is most viable. Apartment Housing Has renovation of the older housing stock occurred However, if the market is strong and renovation Stock and at what level? is occurring on its own, the city may determine Is there ample supply of existing affordable and/ that there are different reasons to intervene, e.g. unsubsidized affordable units are no longer or unsubsidized affordable rental housing to serve affordable rather than experiencing a decline in current population? the quality of the housing stock. Is there a need to diversify the housing stock with market rate or high-end housing? Rent Levels and Are the rent levels in the micromarketarea lower Different markets may require different interven- Vacancy Rates or higher than the average market rates in the MSA tions aimed variously at preservation, creation, or and why? matching of housing opportunities. Have the rents been increasing due to outside forces such as high demand, increases in employment options, and/or key infrastructure investments? Are rents declining? Is there a high or low vacancy rate and what is the expected trend? Risks of What factors are there that may risk displacement Some indicators of future market conditions Displacement of existing residents? can be observed and pre-emptive action taken. Is there new transit investment or employment For instance, new transit services and major growth that may impact the marketability of exist- employer expansions are likely to tighten rent ing housing supply? markets and result in displacement. Location of Existing Apartment Stock Are the existing rental units located next to public transportation and/or jobs? When existing rental homes are well located near jobs and/or public transportation, their preservation can help improve the quality of life of residents and the surrounding community. Families living in such locations tend to incur lower transportation costs and automobile usage than those in more remote locations; reducing transportation costs, energy usage, and commute time and may help to ease congestion and traffic for others in the community. The household's rent payment capacity might be reasonably adjusted as a result. Figure 8 continued on next page THE SPACE BETWEEN M Section 4 Challenges of Intervening in the Unsubsidized Affordable Rental Housing Market Diagnositic Framework Framework of Specific Considerations for Local Goverments (continued) Topic Evaluation Questions Housing Conditions What is the level of housing code enforcement and and Safety police violations? Are the violations ongoing or limited? Figure 8 (continued) Rationale Rental complexes with frequent or severe violations may be targeted for a different level or type of intervention. More resources may be justified in these cases than in others, but might be focused on facilitating ownership/manage- ment change rather than in the form of incentives to current team. Ownership/ What is the level of experience of the owners of The type and quality of management and the Management existing apartment units and is there professional ownership members and structure may help Structure management available? to determine the appropriate form of and receptiveness to public intervention. Availability of Are there existing affordable housing options in If existing affordability levels and stock are a Affordable Housing the community? If so, are they subsidized, at risk relatively good match for current or projected of becoming unsubsidized due to expiration of community needs, then monitoring might be funding sources or use obligations, or unsubsidized sufficient. If a deficit exists, interventions should due to its location, quality, or both? be tailored to the specific needs. How deep is the existing affordability and how does that compare with incomes in the area? Balance of Housing Are the incomes of households similar to the local Supporting a live -where -you -work policy allows Value and Local wage rates? If not, are the wages for jobs in the city residents more time to engage in the community Wage Rates below what a household could afford to pay for rent and contribute to volunteering and public service. in the area and is there a need to provide lower rent housing that matches the wages? THE SPACE BETWEEN Section 5 In This Section: 32 Private Sector Lending 35 Public Sector Lending 37 Equity Financing for DIY and small-scale owners is more dependent on relationships with lenders. Throughout our investigation, we sought to learn more about the current state of finance in the unsubsidized rental market. Property owners, cities, and financiers told us their experience anecdotally, which we then attempted to confirm by examining lending and application data collected under federal requirements. We inquired about acquisition, rehabilitation, and refinance sources. Private Sector Lending Large-scale professional owners appear to be in a very fluid, almost frenzied, capital market. Several lenders we interviewed described having to compete for loans against other banks; offering the lowest rates that they have ever seen. For the owners who are able to access this financing interest rates are very low (3 49). However, the terms are short, usually between five to seven years. Some lenders have settled in a niche of making loans with three year terms which are anticipated to be taken out by long-term, federally -insured debt after stabilization, or simply as soon as a loan can be processed through this system. The Loan to Value (LTV) tolerance with most lenders has changed dramatically since before the financial crisis. LTV requirements as low as 50% were cited in our interviews, with most falling between 60-85%. Here again, federally -insured products are very attractive for those who can get them, offering around 85-90% LTV. Access to debt continues to be more difficult for DIY/part-time owners and some small-scale professional owners. Yinancing for these owners is more dependent on relationships with lenders who place heavy emphasis on the personal credit history and guaranty capacity of the borrower; looking beyond the real estate for collateral and risk mitigation. Additionally, these borrowers may be harder -pressed to contribute the equity necessary to meet the current LTV expectations discussed above. Small transaction sizes also limit how manylenders are interested in working with even the most solid loans/borrowers at this scale. The following table summarizes our market research into debt available from various sources. THE SPACE BETWEEN 0 Section 5 Financing in Unsubsidized Affordable Rental Housing Private Sector Lending (continued) Financing Unsubsidized Rental: Scan of the Minnesota Market Financing/Lending Institution Figure 9 Community Banks CDFI/Intermediarie Other Banks ''.... Eligible/Typical Construction, acquisition, rehabilia- Construction (but there is fear of bubble Rehabiliation Uses tion, refinance on these), acquisition, rehabiliation, refinance Minimum/Maximum $100k -$7m with single lender, up to $500k -$40m, with $5-$10 million Min is $20K, maximum is lesser of Amount $15m in participation preferred $15,000 per unit or $500,000 Maximum LTV 75-80% 50-80% None, underwriter discretion. 50-80% Tenor Multifamily 5-10, single family rental 3-15 years 7-15 years. conversion 5 to 7 7 years for $50-100K 10 years for $100-300K No offerings found 15 years for $300-500K Amortization 20-25 years 20-30 years 30 years Rates 3.5-6.125% Non GSE has had a floor of about 6.15% 3% in the last year Fees Origination fee 1%, sometimes Origination.5-1%, with floor of $10k None, underwriter discretion. .5-1%. smaller for larger deals DSCR 1.15-1.2 1.15-1.25 Don't set limits, leave it to the lenders to underwrite. 1.15-1.25. MHFA RRL FHA -Insured Products RD 538 Eligible/Typical Rehabilitation Rehabilitation Construction, acquisition, rehabiliation, Construction (but not exclusively), Uses refinance acquisition, rehabiliation, refinance Minimum/Maximum $500k -$40m, with $5-$10 million Maximum $IOk/unit $3m minimum or $30,000 origination fee None Amount preferred Maximum LTV None, lender discretion None, lender discretion. 80% cash out, 83% no cash out 90% for for-profit entities, (no applications to date) 50-80%. 97% for non-profit entities Tenor Maximum 30 years. Under the pro- Maximum term 15 years 30-40 years 25-40 years gram model, minimum of 10 years under $IOOK, minimum of 15 years over $IOOk, and can be extended to 30 years or the term of senior debt. Amortization 30 years 15 years Maximum =75%of useful life 90% are 25-40 years 30 year, but some have 35-40 year max. Rates 0% deferred loan, secured by 6% 2.70%-2.85% w/o MIP, 3.30%-3.4% Lenders and borrowers negotiate, so mortgage w/MIPRates very volatile recently. typical values are dictated by type of bank. Typical are 3.5-6.15%. Fees $100 per unit, $500 minimum $31k $500 per loan processing General service fee l%plus transaction $2,500 application fee, one-time maximum, +$3k admin fee. costs, unless lots of competition. Typical guarantee fee of 1% of loan amount total fees are -1.90% due at loan closing, and annual servicing fee equal to 50 basis points on the outstanding loan balance at each year's end. DSCR None, lender discretion None, lender discretion. 1.20 minimum None, lender discretion. 1.15-1.25 (no applications to date) 1.15-1.25. THE SPACE BETWEEN 0 Section 5 Financing in Unsubsidized Affordable Rental Housing Private Sector Lending Monitoring Terms/Interest Rates. While interest rates available in the market at the (continued) moment are very attractive, our team quickly became concerned about the short terms that often accompany them. Many properties will need to find new financing in the next three to five years—in a potentially very different interest rate environment. If current LTV's have kept loan amounts modest, these properties may well be able to absorb potentially higher debt service upon refinance. However, this would likely put upward pressure on rents. If valua- tions do not at least hold constant, some owners might find themselves without refinancing options at all. If such a crisis emerges, it may provide an opportunity for intervention by public or philanthropic actors—exchanging debt for affordability commitments. Proactively, there is opportunity to work with lenders who serve (or wish to serve) small-scale owners/ properties in order to address their lack of access and term challenges. 'Phis is discussed more fully in the deep dive on Second Mortgage/Mezzanine Debt mentioned in Section 7 and in Attachment 132. Recent Data on Lending in Minnesota. While it is impossible to track the entire universe of rental housing lending, we sought to learn what we could about recent lending applications and activities in the state of Minnesota. To this end, Minnesota Housing assisted our team in accessing a 2011 dataset compiled and published by the Federal Financial Institutions Examination Council (FFIEC). It tracks all applications for loans for new purchase, improve ment, or refinancing submitted to lenders who are required to report. This includes non -owner occupied units in all configurations: 1-4 units, and multifamily (5+ units). Some lending institutions are not required to report their activities, but we analyzed the information provided by those that do report" No affordability data is collected in conjunction with this reporting. Despite these limitations, this data provided us with some insight into the current lending environment. According to the 2011 FFIEC data, a total of 21,226 loan applications were made for financing of rental properties (all non -owner -occupied) in the state.."s The vast majority of these loan applications (99% or 21,102) were for smaller properties; those with 1-4 units, which makes up approximately 236,677 rental properties or 41% of all renter -occupied housing in the state."s Of these smaller property loan applications, 61.4% were approved with an average loan size of about $155,000. Multifamily properties' only constituted 1% of this activity or 122 applications, yet according to 2011 ACS data, there are approximately 222,025 multi- family rental properties in Minnesota, which accounts for 57% of the state's rental inventory. Of these multifamily applications, 99.7% were approved with an average loan size of $1.015 million. The total volume of rental housing loans approved in 2011 was $2.12 billion. 44 Under the Home Mortgage Disclosure Act (NMDA). It requires reporting from: 1) non -depository financial institutions that have (a) home mortgage lending that accounted for either more than $25 million or more than 10% of their total lending in 2011, (b) a home branch or office in a Metropolitan Statistical Area (MSA) or originated five or more home mortgages in an MSA in 2011, or (c) assets of more than $10 million or have originated more than 100 home purchase loans (including refinances, and including parent company assets) in 2011; and 2) depository institutions that are a bank, credit union, or savings association with (a) more than $40 million of assets, (b) branch or office in a MSA or metropolitan division (RED on the preceding December 31st, (c) origination of at least one home purchase or refinance of a home purchase on a 1-4 family dwelling in 2011, and (d) EITHER federally insured or regulated, had a mortgage loan insured, guaranteed, or supplemented by a federal agency, or had a loan intended for sale by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMO. 45 The 2011 ACS reports that there are a total of approximately 571,028 renteroccupied properties in Minnesota. 46 American Community Survey (ACS). US. Census Bureau, 2011, 47 Multifamily is defined as > 5 units for FFIEC purposes. THE SPACE BETWEEN Section 5 Financing in Unsubsidized Affordable Rental Housing Private Sector Lending While making up a vastly smaller number of applications, approval rates for multifamily (continued) properties were higher than for 1-4 unit properties. This held true within the Metro Area, in Greater Minnesota, and across loans for all purposes (refinances, new purchases, and improvement loans). Interestingly, approval rates were 8-10% higher in Greater Minnesota than in the Metro Area for all loan purposes. This data reaffirms what we heard from interviewees about the difficulty that small-scale properties/owners have in obtaining financing, but indicates that Greater Minnesota borrowers are more likely to be successful applicants. Purchases and refinances accounted for more than 95% of all loan applications and approvals, both in the Metro Area and Greater Minnesota. Improvement loans do not appear to be in high demand from applicants. This evidence echoes feedback from both owners and loan administrators about their experience with rental rehab loans. Taking on additional debt to make improvements is not a preferred approach for many owners and lenders may dissuade others from applying through their underwriting requirements. The top two reasons loans were denied included the debt -to -income ratio and insufficient collateral. Here again, we see the loan application data confirming what we heard in inter- views and focus groups, particularly with regard to the burden of operating costs and the difficulty in meeting LTV requirements. Public Sector Lending There are some examples of public sector involvement in lending to the unsubsidized afford- able housing market at all three levels of government. Federal. FFIA/GNMAx loans are more attractive now than ever before for borrowers and properties that qualify. While these loans are made by the private sector, it is the public sector insurance that produces the attractive terms. Currently such debt for acquisition and refinance can be obtained for less than 2% interest and with as long as a 40 -year term and amortization. This financing can be obtained for both unsubsidized and subsidized affordable as well as market -rate housing. However, these loans are strictly underwritten, time-consuming and expensive to process. This means that only the largest and strongest deals/borrowers are real candidates for these loans. State. Minnesota Housing has undertaken two recent initiatives that touch on our investiga- tion. First, the Agency has applied to become a FHA lender. This is due, at least in part, to their recognition of the barriers that small-scale owners/projects face when trying to work with private, for-profit lenders. By entering this lending space, the Agency may be able to reach down-market in a way that other lenders cannot. While the initial intention of the Agency was to focus their lending on subsidized affordable housing projects, they could conceiv- ably expand this focus to include small-scale, "market -rate" projects (per HUD's definition) that are willing to make some affordability commitments. Secondly, Minnesota Housing has created a pilot program for Greater Minnesota called the Rental Rehab Deferred Loan program, the structure and initial experience of which is explained in Text Box 2 on page 36. 48 Th... two Insurance programs are often used in combination. FHA insures lenders against borrower default and GNMA insures investors against lender default Ey mitigating risk of loss on default, the cost of debt is reduced. THE SPACE BETWEEN 0 Section 5 Financing in Unsubsidized Affordable Rental Housing Public Sector Lending Local. Several municipalities have attempted to create local loan programs that offer prefer - (continued) ential terms (low no interest, deferred payment, etc.) to rental property owners who need to make improvements to their property. In some cases, these are tied to energy efficiency or affordability goals. Administrators report disappointing take up, and owners raise concerns over privacy issues, administrative burden, and reluctance to take on debt over their first mortgage. Figure 10 TEXT BOX 2: Rental Rehab Deferred Loan Pilot Program: A Local Experiment In February 2012, Minnesota Housing began offering the Rental Rehab Deferred Loan (RRDL) pilot program. The intent of the program was to help stabilize `naturally occurring" or otherwise unsubsidized affordable rental housing in Greater Minnesota; those serving residents earning 80% AMI or less and that would not compete in the super RFP funding allocation rounds. Agency research determined that about 60% of the rental housing located in Greater Minnesota contained fewer than 10 units. They created this product to target these smaller properties, but not at the exclusion of larger ones. RRDL loans are for rehabilitation of existing properties and can be procured through an approved administrator (nonprofits or local governments(, or by direct application to Minnesota Housing. The terms are: • deferred payment • 0%interest • not to exceed $300,000 • 10 and 30 year terms The RRDL initial program uptake has been very slow, with only one loan application received to date. This practical experience demonstrates and reinforces some of the key points that we heard from our interviewees about the challenges of lending in this market, including: Program design for products serving unsubsidized affordable rental need to be custom- ized precisely for the needs of the properties, owners, and other financial participants. Use of RRDL has been hindered by the fact that Rural Development program underwriting and requirements are not well aligned and that loan terms available on commercial debt are much shorter than what Minnesota Housing will allow. Since RRDL is not meant to be the primary funding source, this is very problematic. Applications need to be simple and straight -forward, particularly when serving DIY/ part-time, small-scale property owners. The application and other standards for RRDL are fairly exhaustive and exceed the reporting capacity of the many owners (i.e. written leases, organizational financials, complex forms and guidelines designed for experienced developers and property management agents(. Many owners in this market segment are disinterested and skeptical. Many owners are not interested in taking on debt, wary of the sharing of private information documentation, or are philosophically opposed to any sort of intervention by the public sector. Minnesota Housing's attempts to pare down their typical processes and underwriting appear to have not gone quite far enough to enlist widespread interest Figure 10 continued on next page THE SPACE BETWEEN M Section 5 Financing in Unsubsidized Affordable Rental Housing Public Sector Lending (continued) Figure 10 (continued) TEXT BOX 2: Rental Rehab Deferred Loan Pilot Program: A Local Experiment What Can be Done? Pilots are intended to be experiments and allow for iterative refinement. Some changes to the program should be considered to increase take-up: • Continue to work with administrators and borrowers to identify specific barriers and refine loan products accordingly. • Develop specially -tailored underwriting standards and application materials for DIY/part-time owners of smaller rental properties. This may require more focus on desired outcomes and less on financial due diligence, which may admittedly test Minnesota Housing's tolerance for this approach. Reduce the number of submission requirements and identify areas of flexibility for rental properties with fewer than 10 units and with DIY/part-time owners. Reassess after changes are made to determine if stand-alone loans of this sort are viable vs. other methods (recoverable grants, participations, guarantees). Equity The ability of owners of unsubsidized rental housing property to use their equity in a project (whether existing equity through leverage or by contributing new equity) is a major factor in their ability to secure other financing. It is also a major factor in maintaining owner optionality during operations; meaning their ability to make imp roveme my/rep airs when necessary, wait out periods of rent stagnation or generally feel less pressure to increase rents. Recent down- turns in valuations have eroded the existing equity that many owners had built up in their real estate, which now limits their ability to refinance and to move equity to other properties where it might be needed. With regard to institutional equity, we were unable to find much evidence that entities such as REITs are investing equity in multifamily rental housing that offers any measure of affordability. For the most part, these entities are looking for investment opportunities in new construction and Class A real estate. One notable exception is the REIT established by the Housing Partnership Network (HPN) that is aimed at helping its members (primarily large housing nonprofits) acquire general occupancy rental. However, no local partners are involved in this REIT due to other priorities or their belief in the availability of other capital to engage in such acquisition. This effort is described in Attachment C4. Finally, some see opportunity for profit or affordability in the acquisition of scattered site REO to be operated as rental (at least for a period of time). A Twin Cities group of investors is launching a new publicly traded REIT, Silver Bay Realty Trust, to do exactly that. However, their intended markets do not include the Twin Cities MSA. A handful of other investment groups are already active in this market and two or three more new public offerings are likely to follow this year. Here again, HPN is working to place their nonprofit network in a position to capture this opportunity believing that itwill benefit their members, help to stabilize ownership housing markets, and perhaps preserve modest affordability. In the next several months, HPN members will reach a decision on whether or not to pursue this new business venture. At least one local HPN member is interested. THE SPACE BETWEEN Section 6 In This Section: 38 Types of Interventions 40 Potential Outcomes 40 Intervention Capture Document 41 Intervention Deep Dives Overview During focus groups and one-on-one discussions with both local and national interviewees, we solicited the participants' ideas for potential interventions that might be considered by public, philanthropic or other entities interested in improving the quality, targeting or duration of existing affordability in currently unsubsidized affordable rental housing. Types of Interventions The nature and depth of the possible interventions conceived of in our investigation vary greatly and we find it helpful to categorize them in several different ways. These categories are not mutually exclusive or exhaustive but simply provide a framework to help develop a clear understanding of and vocabulary to describe potential interventions while considering their potential and appropriateness. Systemic Interventions. Some potential interventions can produce benefits that accrue to a large group of beneficiaries. Rental licensing and inspections regimes may benefit owners, tenants, and the community. Likewise, education programs can raise the collective capacity of owners, managers, and tenants. Direct Interventions. These interventions are aimed at a specific counterparty that is the direct target or beneficiary of the intervention, though there may be additional benefits to those downstream from the point of intervention. In fact, many of the suggestions that we received involve splitting benefit between owners and tenants. For instance, a loan program may offer below-market terms to an owner in exchange for a commitment to share a portion of the savings with tenants in the form of fixed or lower rents. Perhaps the purest example of a direct intervention is a tenant -based rental subsidy. Incentive -Based Interventions. These interventions attempt to change behavior or practice by creating an incentive (usually, but not always, financial) for the change. These are proverbially referred to as "carrots." These interventions may be prospective, where the incentive is given in advance in exchange for a commitment This is the case with most loan programs. Alternatively, incentives can be earned progressively over time, as is the case with the existing Section 4(d) property tax designation where the benefit is earned each year based on compliance in the previous year. Cost Containment Interventions. These interventions do not involve a transfer of resources from the public or philanthropic entity in order to incentivize action, but rather aim to reduce the cost of operating housing in exchange for a commitment to pass a portion of that savings on to residents in the form of fixed or lower rents. One example of this type of intervention is the establishment of bulk purchasing of insurance for rent compliant properties. The relative impact of savings in different operating cost areas is illustrated in the example in Text Box 3 on page 39. Policy/Enforcement Interventions. Some interventions do not involve the transfer of resources from one party to another, but rather involve the unilateral adoption and enforce- ment of standards and procedures under the authority of a government body. THE SPACE BETWEEN M Section 6 Potential Interventions in Unsubsidized Affordable Rental Housing Types of Interventions (continued) Figure 11 TEXT BOX 3: Possible Operating Cost Savings and Their Impact on Rents Savings on operating costs could be captured—at least in part—to lower or take pressure off of rents. Illustrated here is the potential for savings in the three cost categories cited most frequentlybyowners. Combining savings in several categories mightbe necessaryto achieve savings significant enough to motivate owners and to benefit renters. Example Operating Costs' Unit/Year % Savings $ Savings Utilities (electricity, water/sewer, gas)' $ 934 25% $ 234 Insurance' $ 230 40% $ 92 Property taxes" $ 976 40% $ 390 Management, marketing & site staff $ 2,181 Maintenance & repairs $ 1,359 Miscellaneous $ 171 $ 5,851 $ 716 Savings Unit/Month $ 60 While savings could be generated by all units, the benefit could be concentrated on a few to amplify effect on rents. 1 2011 Operating Expense Data Survey conducted by the Minnesota Multi Housing Association, includes 33,755 apartments. 2 Natural gas has historically been a primaryfocus, but substantial savings can be achieved for water/sewer and electricity. Class C properties have not typically benefitted from systematic investments to reduce utility consumption for which utility companies often offer substantial rebates.. 3 Substantial savings on premiums are available through pooling. Smaller, additional credits are available when programs like Crime Free Multi Housing and Smoke -Free Housing are utilized for all of the properties in the pool and backed bythird-party compliance monitoring. 4 Approximately 40% reduction if a property that has been classified as a market -rate rental property 4(a) is reclassified as a low-income rental property 4(d). THE SPACE BETWEEN 0 Section 6 Potential Interventions in Unsubsidized Affordable Rental Housing Potential Outcomes We suggest that there are three major categories of outcomes that could result from an inter- vention in the unsubsidized affordable rental housing market. Here again, these are neither mutually exclusive, nor can it be assumed that by achieving one we achieve another. Preservation. Some interventions could prevent the loss ofunits to deterioration, demolition, or rent increases thatwould move the unit "up-market." These may not necessarily decrease rent burdens of existing residents or new residents. Creation. Some interventions could create new affordable rental housing opportunities by lowering otherwise out -of -reach rents. For instance, cost reduction programs might help drop rents to new/greater affordability levels. Matching. Some interventions could ensure that those who need affordable rental housing get access to it; matching units with affordable rents to those households with correspond- ing incomes can lessen rent burden. Examples include providing incentives for landlords to dedicate units to lower income households (likely upon turnover), or a voucher program that might help residents gain affordable access to units for which they would not otherwise compete. Intervention Capture Document We have created a document (Attachment D) to capture nearly 50 suggested interventions, categorize them, and characterize the situations in which they may be most applicable. We did not edit this list according to perceived feasibility, replicability, or other important considerations. Rather, this capture document is intended to present the broad spectrum of ideas generated during our study. Our analysis and recommendations for action on specific ideas are presented in the narrative of this report. Our rationale in making the entire list available is that a particular idea that is not feasible or advisable in one situation and at one point in time, may indeed be valuable in another. The electronic form of this catalog of potential interventions may act as an evolving resource as more thought and program experiments are made in the unsubsidized affordable rental market. The capture document includes the following in summary form: • The idea by name. Some ideas came up many times in conversations and we attempted to group similar ideas under a single name. • The impact potential. These ideas were presented in response to a challenge or opportunity that our interviewees have experienced. We attempted to describe what challenges theywere suggested to address. • A description/discussion. Some interventions have alternatives, practical implications that are understood, likely targets, or counterparties, etc. We have tried to gather the most critical points here. • Known examples/resources from which to learn. When we are aware of an existing model or related effort, we have listed them. THE SPACE BETWEEN 0 Section 6 *Project Team Favorite Interventions 1. Local Government Rent Subsidy 2. Second Mortgage/Mezzanine Debt/Loan Participation 3. Local Section 4(d) Tax Program 4. Replacement Housing/Right of First Refusal Policies 5. Metropolitan Council Incentives for Innovative Practices 6. Regulatory/Training Measures 7. Insurance Cost Reduction Measures *Look for this symbol in Attachment D to find Project Team Favorites. Potential Interventions in Unsubsidized Affordable Rental Housing Intervention Deep Dives Overview After having cast a wide net for ideas about potential interventions, our Project Team and Strategic Partners selected five ideas to be the subject of deeper exploration by our team and community stakeholders. Topics selected for the work sessions are not necessarily the "best' ideas, but rather the ideas thatwere thought to have potential, yet required a more detailed build- out of a general concept before they could be assessed. Our taskwas to delve into the practical realities of these interesting ideas to determine if they were feasible, worth more investigation or potential action, and when possible, weigh their costs against their potential impact. The following is a list of the interventions that were selected forwork sessions, along with a brief summary of the findings of our work sessions and resulting analysis. More in-depth information can be found in the Attachments BI—B5 Local Government Rent Subsidies. Most local governments have very limited resources to devote to affordable housing, and many communities have scant development sites on which to use them. Interviewees suggested that the creation of a locally -funded rent subsidy program could be a cost-effective method and more frequent opportunity for local governments to create or retain affordable housing. A rent subsidy could be made available on a project basis to owners of existing unsubsidized affordable properties. In exchange, the owners would commit to maintain affordability for a term of at least five years, meet simple income verification compliance requirements, participate in Crime Free Multi -Housing training, and comply with property standards outlined in a local rental licensing program. Alternatively, rental subsidies could be offered directly to tenants; however, this option creates less leverage with property owners and may require additional administration on the part of cities. Local governments in the Metro Area have been assigned affordable housing production goals by the Metropolitan Council, which are traditionally met by facilitating the production of new subsidized affordable units (through new construction or acquisition/rehab) by using local zoning and land use approval policies, incentive programs, and local funding sources to help close funding gaps. This may be very costly in stronger markets where this is in the context of new construction of market and/or high-end developments. As an alternative, the same amount of subsidy could be provided to rental owners to reserve units for lower- income households or to lower-income individuals directly to ensure that they can shop for units that would then be affordable to them. This program concept might be particularly appealing to cities if the Metropolitan Council would acknowledge such a subsidy as part of the local government's affordable housing production goals for the Livable Communities Act under the rationale that they are produc- ing new affordable housing opportunities, even if they are not creating new physical units. This would require some recalibration of the formula used to set and monitor housing needs and goals. These subsidies could be especially beneficial in selected geographies to ensure that the benefit of rent stability accrues to residents who might otherwise see rising rents (job growth centers and transit proximate areas). A more complete discussion of our local government rent subsidy deep dive can be found in Attachment Bl THE SPACE BETWEEN 0 Section 6 Potential Interventions in Unsubsidized Affordable Rental Housing Intervention Deep Dives Overview Second Mortgage or Mezzanine Debt. Interviewees suggested the potential creation of a (continued) second mortgage, mezzanine debt or loan participation product that might help to increase the availability of long-term, private sector debt for acquisition, rehab, and/or refinance. This could be made available to owners of properties in select markets that are currently offering some level of de -facto affordability. In exchange, the owners would be asked for a commitment to maintain affordability over the life of the loan and meet simple self -reporting rent -only compliance requirements. In the absence of such a product, some owners find themselves unable to acquire, improve or refinance their properties, or are left paying very high rates of interest, which applies upward pressure on rents. They are excluded from taking advantage of historically low rates on debt primarily due to valuation issues or because they or their properties are not good candidates for federally -insured debt. Some are able to secure very low rates, but with extremely short terms, which leave them—and by extension their residents—vulnerable to extreme adjust- ments in three to five years. Banks are limited in how much lending they can do, even to their most loyal clients, due to dramatic drops in valuation or their own capital restrictions (particularly community banks that hold loans). An intervention could help address these challenges for owners and lenders while extracting affordability commitments in return. Our working group outlined the parameters of a pilot lending program, modeled after the SBA 504 loan program, that would put an experienced private sector lender in the lead lender position; responsible for underwriting initial loan funding and servicing. As an example, for more than 20 years Chicago's major financial institutions have supported and used a non- profit entity, the Community Investment Corporation, to carry out such lending and assure them of an adequate supply of quality Community Reinvestment Act (CRA) eligible trans- actions. As CRA pressure on conventional lenders declines in communities, and mortgage defaults, foreclosures and bank failures continue, it is anticipated that consortia lending efforts such as these will also contract in number and scale. Therefore, care will have to be taken in designing a pilot program to determine the characteristics of lender motivation and to shape a product that offers attractive incentives. In this model, a socially -motivated, subordinate lender would take between 25% and 35% of the deal, earning interest and fees, but assuming risk that would motivate the private sector lender to take longer tenor and higher total LTV. In designing a pilot, it may be useful to engage the Federal Home Loan Bank since it is their members, particularly community banks, that most often do portfolio lending and look to the FHLB for their liquidity. They may have practices and funding that could contribute to building an effective model. This program might be appealing because it is not a subsidy, but rather a risk -sharing invest- ment strategy. However, the ability to find the right CDFI or social lender that has or can raise capital for this purpose is a major assumption that would need to be tested. If such a subordinate lender can be found, prequalifying bank partners is another important step. Furthermore, using this product in selected geographies could help ensure that the benefit of rent stability accrues to residents who might otherwise see rising rents. A more complete discussion ofour second mortgage deep dive can be found in Attachment B2. THE SPACE BETWEEN 0 Section 6 Potential Interventions in Unsubsidized Affordable Rental Housing Intervention Deep Dives Overview Section 4(d) Property Tax Alternatives. In our interviews with property owners and cities, (continued) property tax items were the most frequently identified interventions. Owners expressed concern about the amount and unpredictable nature of taxes, while cities recognized this as being a major point of leverage with their owners. We were asked to evaluate the exist- ing property tax treatments for affordable rental housing to uncover if/how it could be used effectively in the unsubsidized affordable rental housing space. We concluded that there is flexibility in the existing Section 4(d) statute that might allow for a targeted application in currently unsubsidized rental, but also that select abatement might be an equally attractive alternative. Minnesota's Low Income Rental Classification Program (LIRC), also commonly known as the 4(d) program, provides a lower property tax rate for "low-income" rental properties that abide by rent and income restrictions. Typically, only properties subsidized by federal and state funds access this program. However, the 4(d) program also allows a local government to qualify properties if some minimal form of local "financial assistance" is provided and the owner agrees to income and rent restrictions. This underutilized provision creates the possibility for 4(d) to become a tool for local governments. This may be applied in areas such as new transit corridors where market pressures may lead to escalating rents and the involuntary displacement of lower income renters. Expanded use of 4(d) could help to moderate rent increases and reduce or slow displacement. Pairing of 4(d) eligibility with other, even modest, local programs of financial assistance could make it more attractive for landlords to participate in both. In locations where many affordable rental units are occupied by persons who could afford to pay more, the 4(d) program's income restrictions could be used to match such units (on turnover) with low-income occupants—in effect creating new housing opportunities for lower-income households without having to build new units. While the potential for this underutilized tool is promising, there are challenges in implemen- tation. First, a local government entity has to offer some modest form of "financial assistance," though the statute creates no minimum level. Then, they would need to determine locally - targeted rent and income restrictions, taking care to avoid critiques of the previous program where a "one -size -fits -all" rent ceiling did not result in rents lower than those feasible in the micro -market. Additionally, the administrative burden on both landlords and local governments would need to be minimized in order to attract sufficient landlord participation and to be feasible for cities. The concerns of local taxing jurisdictions over lost tax revenue would also need to be addressed. Finally, this opportunity could be affected if the legislature undertakes property tax reform. We recommend that locally -triggered Section 4(d) tax treatment be explored with cities that are thought to have markets vulnerable to displacement (like some of those on Southwest Light Rail Transit line). At the same time, the option of local property tax abatements in exchange for affordability commitments could be considered as another alternative. A more complete discussion of our Section 4(d) deep dive can be found in Attachment B3 THE SPACE BETWEEN 0 Section 6 Potential Interventions in Unsubsidized Affordable Rental Housing Intervention Deep Dives Overview Variable Rate Demand Notes or "Low -floaters." We were asked to explore the use of Variable (continued) Rate Demand Notes (VRDN) or low -floater bond financing, particularly as a potential tool forthe acquisition of existing unsubsidized affordable rental housing by a mission -oriented new owner. These types of bonds can significantly reduce the cost of financing by using the very short term, continuously remarketed bonds to obtain the lowest possible rates. Debt service is often the largest single cost for a property owner and therefore plays a signifi- cant role in determining their flexibility with regard to rents. While we heard many owners talk excitedly about the record low interest rates available in the market at this time, the short terms on many of these loans are a cause for concern. Long-term HUD -insured loans are an option for some owners/properties, but not all. The flurry of FHA/HUD financing activity indicates that those who can are taking full advantage of this current state in the debt market. The appeal of VRDN financing is the extremely low annual interest rate that it uniformly offers. Except for a matter of weeks in the early 1990s when the Federal Reserve took the prime rate to over 20%, low -floater base rates have been consistently very low (currently around 0.2%). It is important to note that in addition to the base interest rate, a low -floater borrower must pay for many additional financing costs that increase the effective cost of capital significantly. This results in an all -in rate that is still low in comparison with many other financing options, but slightly higher than current rates on FHA HUD -insured debt. However, like FHA financing this financing is likely feasible for only certain borrowers/ properties. The property should have a strong rental history and be in (or brought up to) very good condition, and the owner must have excellent credit and a significant balance sheet. Additionally, a critical role must be played by a letter of credit (LOC) provider. The LOC provider's credit is what investors underwrite (rather than the project itself) and their credit is the cause of the very low base interest rate. Bank consolidation and changes in regulation have limited the number of potential LOC providers, dampened their appetite for such participation, and changed the terms they are willing to offer. With the help of technical experts in the field we have concluded that low -floater bond financing is not likely to be a useful tool at this moment in time and that future use of low floaters may not be quite as advantageous as it may have been for projects in the past due in large part to changes in federal requirements dictating that banks view the LOCs as loans. However, we recommend that the Strategic Partners monitor the changes in capital markets as we feel that there may be opportunities to use variable rate demand note financing in the future and that the tool could lend itself well to acquisition of unsubsidized affordable rental housing. A more complete discussion ofour VRDNdeep dive can be found in Attachment B4. THE SPACE BETWEEN Section 6 Potential Interventions in Unsubsidized Affordable Rental Housing Intervention Deep Dives Overview Clearinghouse for mission -driven owners. For a variety of reasons, nonprofits and/or (continued) mission -driven buyers often have trouble competing with private for-profit buyers of unsub- sidized affordable rental housing projects. In this deep dive we were asked to assess the need for and the feasibility of creating a clearinghouse or matchmaker function that would provide these buyers with the earliest and best possible access to acquisition opportunities, particularly where ongoing affordability or physical condition is at issue. Our conclusion is that there is not a need for a clearinghouse of this type. In our deep dive and subsequent investigation we learned that brokers who actively market multifamily properties already include the major nonprofits on their short list of potential buyers when these properties come up for sale. The nonprofits we talked to agree, stressing that their challenge in acquiring unsubsidized rental projects is not in gaining access to the listing, but instead in other areas. There are very real hurdles for nonprofit and mission -driven buyers to overcome in acquir- ing properties, although addressing them is not simply a matter of creating a marketing advantage. Nonprofit and mission -driven purchasers often focus on subsidized housing funding sources, so that when they negotiate price they must inevitably compensate for the lengthened transaction timelines that are required to obtain such funding. This will almost always exceed those required by a for-profit market buyer. The lengthier closing time typically results in higher purchase prices, which might be attractive to patient sellers, but is counterproductive to the efficient use of subsidies. The Twin Cities Community Land Bank (TCCLB) can be utilized as a temporary purchaser to address this performance time disadvantage. However, while this can certainly help buyers be more nimble in acquisition while they wait for subsidies, holding costs and interest carry may erode any savings on purchase price. Nevertheless, if the goal is to help mission -driven entities acquire currently unsubsidized housing and maintain some level of affordability, they need permanent financing options (perhaps at the enterprise level) and a fresh approach to making capital improvements over time. Some nonprofits said that the biggest problem with existing sources of unsubsidized rental financing was the uncertainty about being able to refinance the short-term debt currently available in the market (seven years, for example). Others noted that nonprofits could take on greater risk associated with acquiring these properties if they had the ability, like larger for -profits, to finance and manage their properties on a portfolio basis, where stronger projects could cross -subsidize weaker projects. This management scheme is hindered by both a lack of access to enterprise level capital and by the established systems and philosophy within their organizations. This relates to another barrier, which is found in the reluctance of some nonprofits to be associated with older, shopworn properties after having worked hard to equate affordable housing with high physical quality. Overcoming this reluctance would be part of a larger shift to a different business philosophy and recognition that this unsubsidized market operates differently than the subsidized housing industry. It also represents reputational risk in the minds of many. THE SPACE BETWEEN 0 Section 6 Potential Interventions in Unsubsidized Affordable Rental Housing Intervention Deep Dives Overview Nonprofits are often viewed by cities as the most desirable purchasers of problem properties. (continued) Our participants thought that in some cases better strategic coordination between cities and nonprofits around code enforcement could make this less costly and more feasible by applying pressure to current owners, making them more amenable to sale. An implicit assumption in much of this discussion is that, over time, a nonprofit or mission - driven owner can keep a property more affordable than the typical for-profit owner. While many people we talked to share that assumption, little concrete evidence seems to exist to establish this as reality. Research addressing this important question would be useful, and has been discussed by at least one national network organization. However, comparing apples -to -apples would be difficult, as the vast majority of nonprofit experience is in the operation of subsidized rental housing where compliance and reporting inflate costs and rents are capped. In conclusion, it seems definitive that the disadvantages or challenges to nonprofit or mission - driven acquisition of unsubsidized affordable rental housing (with the goal of preserving or increasing affordability) are deeper and more complex than exposure to acquisition opportu- nities. As such, we do not recommend pursuing any next steps on the clearinghouse function. A more complete discussion ofour clearinghouse deep dive can be found in AttachmentB5. THE SPACE BETWEEN 0 Section 7 We suggest that the following principles guide any action that the Strategic Partners consider taking in the unsubsidized affordable rental housing space. • Recognize that this is different than subsidized affordable rental. Most action in the unsubsidized rental market will require a different set of tools and rules than that which we are accustomed to in the subsidized affordable housing industry. While light -touch public or philanthropic intervention may have the effect of moving a select portion of the unsubsidized rental housing stock closer to those characteristics that we associate with subsidized housing, these actions will not achieve the exact same results. Frankly put, we cannot expect the longest affordability terms, most onerous compliance, and finest physical product, amenities, and services in response to light interventions. • Capitalize on the lack of rules/dictates. For manywho are accustomed to the rigid regulation present in subsidized housing, the lack of well-defined federal, state, and local programs can be disconcerting. The ambiguity puts decision power and hence responsibility on the actor. However, this lends us the flexibility to address areas of need where our current subsidy toolbox is limiting. For instance, some communities struggle to provide affordable housing options to those households just above 60% of AMI. This arbitrary and bright -line cut off of LIHTC and other programs could become instead a gradation. • Use local touch/knowledge. Because existing needs and changing market dynamics vary so widely, it is important to rely on local knowledge to decide when to intervene, what form that intervention should take, and to monitor the effectiveness of that intervention. This elevates the role of the local entity beyond that which it typically plays in subsidized housing programs. • Pay attention to regional context. While local market dynamics can be very different, the ever-increasing interconnectedness of our region(s) is undeniable. Regional investment in public transportation amplifies the importance of looking at the market at this level as well. • Choose partners/targets wisely. Interventions in the unsubsidized rental space will not be one -size -fits -all. Direct, incentive -based interventions are likely best targeted to those owners who have a track record of conscientious management and reinvestment. Problem property owners should be the targets of increased compliance efforts. Implementation partners should be those familiar with the space and willing to adopt a pro -affordability stance. This is particularly important when speaking of municipal partners. • Monitor, evaluate, and actively manage. The flexibility that acting outside of existing programs might afford would also require a different level of ongoing and active management. In order to use any resources (financial or otherwise) to prudently innovate, the Strategic Partners would have to invest energy and expertise in oversight, evaluation, and mid -stream adjustments. THE SPACE BETWEEN Section 8 In This Section: 48 Summary of Recommendations 48 First Order Recommendations 51 Direct Intervention Recommendations 52 System -wide Intervention Recommendations 54 Long -Term Recommendations Summary of Recommendations There are four types of recommendations identified by the Project Team. Some of these are recommendations for direct action by the Strategic Partners and others are recommendations that would require the action of other entities. The recommendations are meant to provide multiple levels of policy, educational, and financial interventions with the collective under- standing that there is no single fix to successfully address the preservation or enhancement of unsubsidized affordable housing needs across the region. • First Order Recommendations. These are recommendations that the Project Team advises pursuing, even if no other actions are taken. • Direct Intervention Recommendations. Project or program level interventions that are designed to impact a subset of properties, and/or provide a direct incentive to a property owner in exchange for an affordability pledge. • System -Wide Intervention Recommendations. Provides benefit on many levels to all property owners and property types. • Long -Term Recommendations. Ideas to monitor as the market changes. Actions beyond the first order recommendations could be implemented through the demonstra- tion project strategy described in Text Box 4, on page 53. First Order Recommendations The Project Team identified general recommendations that should be considered by the Strategic Partners. Some of these are recommendations for direct action by the Strategic Partners and others are recommendations that would require the action of other entities. In the case of the latter, the Strategic Partners should advocate for these actions with the appropriate parties. 1. Communication The Strategic Partners should communicate the findings of this report to potential implementation partners and communities of influence and actively solicit their feedback and participation in any future efforts. This might include, but not be limited to, the following housing and community organizations/dialogues: • American Planning Association (APA) annual conference presentation • Enterprise Community Partners • Federal Home Loan Bank • Greater Minnesota Housing Fund regional dialogues • Housing Partnership Network • Interagency Stabilization Group • Joint Center for Housing Studies • Living Cities • Local Initiatives Support Corporation • Metropolitan Council staff and committee • Minnesota Housing regional community outreach sessions • Minnesota Housing Partnership Board and membership meetings and publications • Minnesota Multi Housing Association membership meetings and publications • Minnesota NAHRO conference presentation • Minnesota Preservation Plus Initiative website (when developed) • Strength Matters • ULI MN and Regional Council of Mayors presentation THE SPACE BETWEEN Section 8 Recommendations First Order Recommendations p, Data (continued) Tracking and inventorying unsubsidized affordable rental housing, in terms of location, own- ership, and rent levels is a difficult and time-consuming task that is not formally done at most state or local levels. A lack of consistent and available data means that the increasing rent levels and ensuing decreases in affordability can easily go unrecognized. The opportunity for proactive preservation can be missed. The City of Richfield and the City of Eden Prairie have both undertaken rental housing inventories that help these cities keep their fingers on the pulse of their rental markets. Richfield's study was a one-time, more comprehensive and critical assessment, which helped them identify gaps in their local market. Eden Prairie's study is an annual information -gathering exercise that allows them to monitor affordability. Both are potential models for others. We see the value in information of this sort and recommend that the Strategic Partners do the following: • Establish a data gathering and monitoring protocol for better tracking of unsubsidized properties, rent levels, etc. This could start by relying on existing data sources to the extent possible. HousingLink may be an excellent partner in this with Minnesota Housing as a lead strategic partner. • Highlight successful city inventories and encourage other cities to do similar studies. 3. Metropolitan Council Regional Housing Policy Planning The potential importance and unique role of the Metropolitan Council in the unsubsidized affordable rental housing space became clear during the course of ourwork. Unlike the Strategic Partners, who derive the majority of their current influence from their involvement in subsidized affordable rental housing, the Metropolitan Council has a broader base of funding and levers of influence. For this reason, we are making several recommendations that include actions on their part. Within the 7 -county region, the Metropolitan Council assigns affordable housing production goals to cities as part of the Livable Communities Act. These goals are currently required to be met by facilitating the production of new subsidized affordable units through new construction or acquisition/rehab. Cities can do this by using local zoning and land use approval policies, incentive programs, and local funding sources to help close funding gaps. Through our focus groups and interviews with municipal community development and HRA staff, we learned that many cities have limited local dollars to apply to these goals. In some cases, they have limited city -controlled development sites available in their jurisdictions. Providing gap funds to new market rate developments to insert affordable units is very costly, particularly in stronger markets. Thus, assigning the limited local funds that are available toward the creation or retention of affordable housing within existing unsubsidized affordable rental housing properties may be a more cost-effective approach. In addition, there was uncertainty among the cities involved in our study regarding how the housing affordability goals were calculated and how they included existing unsubsidized affordable housing. To that end, the Project Team recommends that the Strategic Partners do the following: THE SPACE BETWEEN 0 Section 8 Recommendations First Order Recommendations Ask the Metropolitan Council to hold information sessions and provide simple materials that (continued) explain the method and process for determining regional affordable housing goals. This will help cities understand how their existing unsubsidized affordable housing stock is being accounted for when setting new production goals. Metropolitan Council staff presence in some of our meetings has already been helpful in this regard. • Encourage Metropolitan Council to consider a new formula for calculating affordable hous- ing goals. This could include a more nuanced or weighted set of definitions for what counts as credit towards the goals, recognizing those units that are retained as well but not at the expense of newly created affordable units. This would mean moving from a simple binary approach (where units are counted or not) to a more complex, but objective assessment of the value of degrees and duration of affordability. • Encourage the Metropolitan Council to create incentives for local governments to test identi- fied interventions. These incentives could include a commitment to giving cities credit for these activities toward progress on meeting their affordable housing goals and in assessing their affordable housing performance scores, favorable scoring in funding decisions, and the provision of technical assistance where needed in operating these demonstration programs. • Ask that the Metropolitan Council build this work into the Metropolitan Council Regional Housing Policy Plan, which is expected to be drafted in 2014 as part of the "Thrive MSP" regional planning process. 4. Support mission -driven actors entry into the unsubsidized space The Strategic Partners should continue to develop their understanding of the barriers and hesitations of mission -driven actors who might enter this market. Where possible they should assist those who are interested in doing so to become involved. Particularly where unsubsidized rental housing is at risk and/or a transfer of ownership is desired or imminent, there may be benefit to entrusting unsubsidized rental housing to properly -equipped nonprofits or mission - driven owners. We have outlined some of the reasonswhy nonprofit ownership of unsubsidized affordable rental housing is challenging in Section 3 of this report; we recommend that the Strategic Partners further evaluate the opportunities with nonprofits to diversify their portfolios by entering this market. This might begin by holding a session with mission -driven owners who are interested in acquisition in this market to identify their top issues and determine if any of the Strategic Partners are able to help overcome them (through interventions outlined in this work or other ways). THE SPACE BETWEEN M Section 8 Recommendations Direct Intervention Recommendations Direct interventions are project or program level interventions that are designed to impact a subset of properties, and/or provide a direct incentive to a property owner in exchange for an affordability pledge. Examples of the project or program interventions include rent subsidies, mezzanine financing/second mortgage debt, and property tax incentives. These types of inter- ventions focus on providing a light -touch incentive to create or retain affordability at an agreed upon level. This light -touch affordability is seen as an in-between approach, providing a lower level of financial incentive than the existing deep subsidy sources, with fewer requirements and more flexibility. 1. Local Government Rent Subsidy This is a potentially cost-efficient method for creating or retaining affordable housing units through locally -funded and administered rent subsidy program(s). Local governments could dedicate financial resources to reducing the rents on units already available in the market within unsubsidized affordable rental properties. This could be done either in the form of an ongoing "project -based" subsidy (attached to the unit) or as a Section 8 -like voucher, which a tenant could take with them when they move as long as they stay within the community and are in good standing with the requirements of the financing resource. The intervention is appeal- ing because it: a) could assure that unsubsidized units remain affordable as market conditions improve and vacancy rates are tightened; b) can be more cost-effective than providing larger subsidy to write down the cost of new market rate units; and c) helps match affordable units to those who need them most. The Project Team recommends that the Strategic Partners take the following next steps: • Solicit interest from cities and property owners and include them in a demonstration program administered by the Strategic Partners. • Provide matching funds to cities to encourage their local commitment. • Lncourage Metropolitan Council to consider accepting a rent subsidy program as an eligible use toward the local Livable Communities affordable housing goals (related to recommenda- tion above). 2. Second Mortgage/Mezzanine Debt or Loan A second mortgage, mezzanine debt or loan participation product was explored to potentially increase the availability of long-term, private sector debt for acquisition, rehabilitation, and/or refinance of priority projects, which are currently offering some level of de -facto affordability. The intervention is appealing because it leverages and extends use of private sector debt, is not a subsidy, but rather a return -producing investment, and requires property owner investment. The Project Team recommends that the Strategic Partners take the following next steps: • Solicit interest on the part of existing CDFIs to implement such a lending program to determine the parameters under which they would consider participation. • Provide resources (existing or through new program related investment sources) to use alongside commercial debt. THE SPACE BETWEEN 0 Section 8 Recommendations Direct Intervention Recommendations 3. Property Tax Incentives (continued) Minnesota's Low Income Rental Classification Program (LIRC), also commonly known as the Section 4(d) program, provides a lower property tax rate for "low-income" rental properties that abide by rent and income restrictions. Through our research, it was revealed that the Section 4(d) program allows a local government to qualify properties if some form of local "financial assistance" is provided and the owner agrees to income and rent restrictions. This underutilized provision creates the possibility for a new tool for local governments to address certain housing goals through incentives rather than regulation. The Project Team recommends that the Strategic Partners take the following next steps: • Track any modifications to the Section 4(d) legislative authority through the upcoming legislative session and understand how a rewrite of the property tax laws would alter or eliminate Section 4(d). • Convene broader conversations with a wide range of local governments (specifically targeting cities along emerging transit corridors), including counties, and perhaps the Metropolitan Council to discuss this tool and attempt to garner support for its prudent use. System -Wide Intervention Recommendations System -wide interventions provide benefit on many levels to all property owners and property types. A systemic approach does not provide a direct transfer of resources to a particular property. For instance, there is inherent value in supporting organized education and technical resources to existing owners of rental housing. This includes training programs for tenants and owners and well as mentorship among industry representatives. Local regulatory measures, such as licensing and inspection of rental property, are applied systematically and provide a standard or expectation of quality and safety that may be at risk if the measure was not enforced. We recommend that the Strategic Partners do the following: • Encourage cities to: o Use rental licensing programs as a way to communicate with owners regarding interventions for maintaining quality and value in their investment and for the residents. Partner with the Minnesota Multi Housing Association to educate cities and property owners. o Link educational and regulatory approaches. Follow examples of cities that promote training by lower licensing fees. Enforcing regulations without training or educational options does not enhance property owners' ability to conform. o Enact rental licensing regulations that include the stick and carrot approach. Incentivize and reward good behavior, enforce and penalize poor performance. In some cases, creating incentives for owners to transfer their properties to better owners would help. • Reward cities that adopt rental licensing programs by: o Providing added points within funding applications. o Favoring cities that require licenses in new weighted formula for determining contribution to regional affordable housing goals by Metropolitan Council as described in more detail in Attachment Bl. THE SPACE BETWEEN 0 Section 8 System -Wide Intervention Recommendations (continued) Recommendations Figure 12 TEXT BOX 4: A Suggested Strategy to Test Key Interventions The Project Team recommends that the Strategic Partners engage in a demonstration program(s) with select cities to more fully understand if the identified interventions, and in what combinations, would achieve the goals of preserving or creating affordable housing within the unsubsidized rental market. The demonstration(s) would test the political, financial, and administrative viability of such interventions. It would also allow for the Strategic Partners to tailor interventions based on local dynamics in a demonstration context where financial and reputational risk can be minimized. These should be phased and managed by the Strategic Partners, or their designee, as follows: Phase 1 • Solicit city interest—through self -nomination • Solicit property owner interest—target small to mid-sized owners • Target a mix of markets—near transit (built or planned), urban/suburban/ Greater Minnesota mix • Identify funding sources to conduct the demonstration(s) • Determine universal data collection needs • Create an implementation plan • Produce evaluation frameworks Phase 2 • Design interventions to test—property tax incentive, rent subsidy, second mortgage, mezzanine debt, other • Engage private financial institutions, property owners, and developers • Assess circumstances where lowest income, highest burdened targeting is achievable • Test the value of technical assistance and identify providers Phase 3 • Evaluate demonstration(s) of the interventions • Disseminate learnings • Determine opportunity desirability to move from demonstration to funded program THE SPACE BETWEEN Section 8 Recommendations • Maximize the usefulness of the MN Housing Policy Toolbox to support unsubsidized rental housing efforts. • Promote use of the Toolbox through Metropolitan Council, Minnesota Housing Partnership, Minnesota Multi Housing Association, ULI MNDRCM, etc. • incorporate strategies and recommendations from this report into the Toolbox where appropriate. • Develop a navigational tool within the Toolbox that can make accessing information on unsubsidized rental resources easier to find. • Identify an ombudsman to help connect educational resources with technical and financial expertise depending upon the issue. This strategy is similar to the core of Chicago's successful Preservation Compact, which is the collaborative effort to stem the loss of affordable rental housing in Cook County. • Create a section specifically for rental property owners "Help Rental Owners Succeed." • Promote existing landlord/owner educational efforts through the Minnesota Multi Housing Association, Lutheran Social Services, local city property owners associations, and Crime Free Multi -Housing program. Identify a lead organization thatworks to connect the training on the quality, management, and regulatory front. Long -Term Recommendations The Project Team identified specific ideas that should be monitored in the future by the Strategic Partners as the market changes. The market conditions could impact the opportunity to intervene. 1. Short-term Debt Refinance Many properties taking advantage of the very low rates currently being offered in the market will need to find new financing in the next three to five years. They could potentially find themselves looking for new financing in a very different interest rate environment. If valuations do not at least hold constant, some owners might find themselves without refinancing options at all. If such a crisis emerges, it may provide an opportunity for intervention by public or philanthropic entities—exchanging debt for affordability commitments. 2. Use of Variable Rate Demand Notes (VRDN) or "Low -Floaters" While this financing option has been permanently altered by changes in bank regulation and is currently not competitive with federally -insured debt mechanisms, we recommend that the Strategic Partners monitor the changes in capital markets. There may be opportunities to use VDRN (low -floater) financing in the future. This tool could lend itself well to acquisition of unsubsidized affordable rental housing. THE SPACE BETWEEN Section 9 In This Section: Attachment A: Methodology 55 Attachment A: Methodology Attachment B: Deep Dive General Interventions The methodology for this research operated on two levels, a national front and a local front. 58 Bl: Local Government Rent Initially, the Project Team conducted a literature review of academic and tradejournals to uncover Subsidy Program any precedential initiatives, programs, and policies that have already been effective in this 62 B2: Second Mortgage/Mezzanine sphere. This review provided direction as to which organizations, agencies, and/or individuals Debt Product were contacted for one-on-one discussion and deeper exploration of successful strategies and 67 B3: Section 4(d) Property Tax encountered challenges for the preservation of unsubsidized affordable rental housing. Program 71 B4: Varible Rate Demand Note Subsequently, we initiated numerous phone interviews with key experts in the affordable housing (Low -Floater Bond) Financing industry across the United States and within the state of Minnesota. Notes compiled from these 74 B5: Clearinghouse for Mission- conversations were used to inform this project by outlining the issues raised, including owner Driven Owners demographics, market trends and other factors affecting affordability and the definition of affordability, and intervention techniques and tools for preservation. To gain a comprehensive Attachment C: National Examples perspective on rental housing market(s) in Minnesota, one-on-one discussions also included 76 Cl: Rent Control brokers, lenders, property owners/managers, developers, tax accountants, and lawyers. 78 C2: Mezzanine Financing Additionally, we held several focus groups with property owners/managers to better understand 81 C3: Rent Assistance Programs owner demographics and motivations. This time was also used to garner perspectives on the 83 C4: Housing Partnership challenges to maintaining particular levels of affordability and what opportunities exist for Equity Trust 84 C5: Property Tax Relief incentivizing a commitment to either implementation or prolonged provision of affordability 86 C6: Cost Saving Measures and/or improvement in the quality of stock or management of currently unsubsidized affordable rental housing. We had over 150 conversations in the course of this research 88 Attachment D: Interventions Matrix Throughout all the discussions, the Project Team asked interviewees and participants to share any ideas they had regarding potential interventions. We catalogued all of these ideas without edit 96 Attachment E: Alternatives "Unsubsidized (Attachment D). This working list of interventions provided the platform for the Strategic Partners to the Term, Affordable Rental Housing" along with the Project Team to select particular interventions for deep dive work sessions. Topics selected for the work sessions were not necessarily the "best' ideas, but rather the ideas that 97 Attachment F: Minnesota Cost- were thought to have potential, yet required more detailed build -out. Each chosen intervention Burden Map was believed to have the capacity to strengthen the physical quality of unsubsidized affordable 98 Attachment G: Twin Cities Metro rental housing or its management and/or prolong the duration of existing affordability. By Area Renter Income Map means of several intensive half-day work sessions, the Project Team along with industry experts 99 Attachment H: Twin Cities Metro delved into the practical realities of the general ideas to determine if they merited further Area Cost -Burden Map investigation and to weigh costs against potential impact. The information gleaned from these deep dive work sessions provides the programming basis and analysis and recommendations 100 Attachment I: Twin Cities Metro for the selected interventions highlighted in the body of this report. Area Crisis Map 101 Attachment J: Species Definition THE SPACE BETWEEN 0 Section 9 Methodology Attachment A Data Specific To support the rationale for this research and to explore the value of potential light -touch interventions, we gathered and analyzed quantitative data from the U.S. Census, the American Community Survey, and a variety of local data sources, including Minnesota Housing, HousingLink, Minnesota Housing Partnership, GVA Marquette Advisors, Stantec, and various City agencies. This was a complicated process and is further outlined below. In 2011, Harvard's Joint Center for Housing Studies (JCHS) published "America's Rental Housing," a report that highlighted the importance of the unsubsidized rental housing supply in the U.S. and the threat to that resource. The report noted that as important as the subsidized housing stock is, the majority of the nation's low cost rental housing stock is unsubsidized. Moreover, the report concluded the very lowest cost unsubsidized stock was rapidly disappearing due both to removal of units and upward filtering to higher rent ranges.so This report prompted the question ofwhether these same trends for this housing stock held true in Minnesota and the Metro Area. Unfortunately, we could not rely on the same data that was used by JCHS, because their findings were based on survey data, which provides too small of a sample for the Metro Area to be reliable. Instead, we started with HUD's Community Housing Affordability Strategies (CHAS) data." CHAS data for the period 2005-2009 indicates that there are about 182,000 affordable rental units in the 7 -County Metro (defined as affordable to a household at 50% of AMD.Sz We then used HousingLink Streams data to subtract the number of subsidized units from this total. Roughly 60,000, or one third, of the 182,000 affordable units have federal, state, and/or local project -based subsidies. The region's 18,500 Housing Choice Section 8 vouchers also have to be considered, though. Vouchers obscure the analysis somewhat, in that they can be used both in subsidized (e.g. tax credit) and unsubsidized properties, as well as in properties with rents we define both as affordable and unaffordable. Nevertheless, vouchers impose income limits, which is an important feature that distinguishes units with vouchers from the unsubsidized stock, so we subtracted vouchers as well. This leaves the unsubsidized affordable rental inventory at about 103,500 units, amounting to 57% of all affordable rental units. We wanted to determine the change in this supply between 2000 and 2009, but could not do so by subtracting out the subsidized supply in 2000 because HousingLink Streams data did not exist at that time. However, it was still possible to get a rough sense of the magnitude of the change in the unsubsidized supply by calculating the change in total affordable units from 2000 to 2009, and then determining how much of that change could be attributed to changes in the subsidized housing supply. There are a number of complicating factors and incomplete data points that prevent the estimate of the change in the subsidized supply from becoming very precise. With those qualifications, we concluded that the number of affordable units without federal subsidies probably did not change much over the decade, but that there was likely a reduction in the affordable rental units with no subsidies, offset by increases in 50 Joint Center for Housing Studies (JCHS). Harvard University, America's Rental Housing: Meeting Challenges, Building on Opportunities. 2011, 51 The CHAS data is based on sample data from the annual American Community Survey, 52 AMI is the median family (not household) income for the 13 county Metropolitan Area, calculated annually by HUD. THE SPACE BETWEEN M Section 9 Methodology Attachment A units with non-federal subsidies. While this suggests the possibility of a diminishing supply of such units, it does not appear to be on the order of the national findings provided by JCI -IS. Perhaps the most significant fact about the unsubsidized rental supply, affordable at 50% of AMI, is that about half of it is occupied by higher -income households. This suggests a possible strategy of making more of these units available to the lower-income households most in need of them, which, in turn, points out that income limits may be at least as important as rent levels in devising strategies to preserve and enhance affordability. While the total supply of affordable units increased by about 8,500 units over the last decade (due almost entirely to an increase in subsidized units), at the same time the number of lower- income renter households inadequately housed increased by about 31%. This striking gap is due in part to the recession, in part by the inability of the current subsidy programs to serve the lowest -income households, and to the occupancy of half of the unsubsidized affordable supply by higher -income households. THE SPACE BETWEEN Section 9 Summary Description Deep Dive Interventions Attachment 61: Local Government Rent Subsidy Program Our Strategic Partners selected several interventions to be the subject of deep -dive work sessions with local industry experts. These interventions were selected because they were suggested frequently in our interviews and focus groups, but required more thorough investigation before we could fully assess their potential. Absence of a work session on a suggested intervention does not indicate a lack of merit but rather an existing clarity around how it might work. Local governments could create affordable housing opportunities in their communities through rent (demand-side) subsidy rather than production (supply-side). Problem to Address Local governments have limited resources, both financial and administrative, to dedicate to the production of affordable housing. Some cities have limited opportunities to support new afford- able housing because few sites exist for new construction. Furthermore, new construction is more expensive than preserving existing affordable units. However, many of the existing unsubsidized affordable units do not always go to those with the most need. Likewise, the existing unsubsidized affordable units do not always get recognized as contributing to the local stock of affordable housing. Intervention Targets Our participants agreed that a locally determined program would be targeted to existing owners properties that are willing to accept rent subsidy funds with specific conditions. • Existing rental properties that are currently unsubsidized and include units that are serving households with incomes at or below 80% of the median incomes for that particular market area. • Work with property owners who are willing to accept rent subsidy with the condition that they will reserve a number of units to meet 30 to 60% of the median income households and apply the subsidy to reduce rents so that they are affordable to lower income household. • Rental properties must be compliant with existing city codes and rental license requirements. • Locally determine if the rent subsidy would be provided to individuals rather than property owners. Although administrative costs may be less, the ability to ensure housing qualitywould be greater with a project -based approach. • Individuals must meet income guidelines and be an existing resident or be employed within the City. Local Government Rent Subsidy Intervention Targets Owner Profile I Property Profile • Experienced and willing owners (not new entrants) Licensed rental property with no as determined by local governments outstanding violations • Participant in and/or certified Crime Free No limit on the size of property Multifamily Housing Non -luxury market -rate rental • No citations or violations in their portfolio • Gentrifying or strong market • Proven management capacity or professional contract manager • No federally -insured loan/project portfolio THE SPACE BETWEEN Section 9 Deep Dive Interventions: Local Government Rent Subsidy Program Attachment 61 Discussion This potential intervention was suggested in work sessions by local government housing and community development staff as a method to provide more effective use of limited local dollars dedicated to the creation or retention of affordable housing within existing unsubsidized affordable rental housing properties. Local governments in the Metro Area have been assigned affordable housing production goals by the Metropolitan Council as part of the Livable Communities Act. These goals are currently required to be met by facilitating the production of new subsidized affordable units (through new construction or acquisition/rehab) by using local zoning and land use approval policies, incentive programs, and local funding sources to help close funding gaps. Providing gap funds to projects is very costly in stronger markets as part of new construction of market and/or above market rate developments. As an alternative, the same amount of subsidy could be provided to existing rental owners or to lower income individuals to ensure that existing units either remain affordable or are written down to create new or deeper affordability. Having another option to support affordable housing within existing unsubsidized and/or market units may be beneficial in meeting goals and achieving increase in availability of affordable housing. Operational Details The local unit of government would create and administer the rent subsidy program internally or by contract with a nonprofit housing organization or existing rent subsidy administrator who has the expertise to income qualify and distribute eligible funds. As an incentive for existing owners to participate, assist in submitting the rent subsidy program as eligible criteria to enable participation in the Secion 4(d) program that provides a discount on property taxes. Terms. Ultimate terms would be determined by the local government based upon available funding resources and political will. The following terms were discussed: • Maximum rent subsidy amount = $200—$400 per month based upon local market rents and tenant incomes. • Minimum Term = 5 years. If funding is available and the program is a success, expand to a maximum of 10 years. Compliance. Annual compliance should include verification of income to assure that the rent subsidy is being applied to households with income at or below the determined area median income for that subsidy. Determine a process that is acceptable by the local unit of government but less prescriptive that existing Section 8 income certification requirements. Implementation Partners' Roles Public Sector. Local units of government, Housing and Redevelopment Authority or Economic Development Authority as determined by city organizational structure should identify oppor- tunities, select owners, properties, etc. Metropolitan Council should facilitate recognition as contributing to affordable housing goals. Nonprofit and/or Mission -Driven Private Sector. Could administer the program on behalf of the local unit of government per an annual contract and/or private or nonprofit owner willing to contribute to a rent subsidy program. THE SPACE BETWEEN 0 Section 9 Deep Dive Interventions: Local Government Rent Subsidy Program Attachment 61 Affordability & Duration Locally determined level of affordability. Options include: • Targeting the program to local employees, existing residents and/or seniors moving from existing single-family homes, or other target markets. • Increasing the lowest -income households' access to already unsubsidized affordable units by reducing 60% affordable units to 30% affordability. • Increasing the number of affordable units generally to buy down 80% units to 60%. Consider allowing modest annual rent increases based upon market trends. Financial Considerations Locally -sourced or allocated funds. The program should be funded with sources that are at the discretion of local goverment. These include: Tax Increment Financing proceeds, percentage of Housing Revenue Bond Fees, HRA\EDA Levy, CDBG funds, and Housing Trust Funds. The following examples show the comparitive magnitude of expenditure that may be required to write down rents for a two bedroom unit for a family of four. The three examples outline the following: Example 1. New Market Apartment Rent subsidy for household with an income at 60% of AMI Example 2. Existing Market Apartment Rent subsidy for household with an income at 60% of AMI Example 3. Existing Unsubsidized Apartment Rent subsidy for household with an income at 30% of AMI Apartment Type Example 1: 60% AMI Example 2: 60% AMI Example 3: 30% AMI New Market Apartment Existing Market Apartment Existing Unsubsidized Affordable Apartment Location Hoigaard Village Avana on 7 Royal Park Apartments 5600 Camerata Way 7450 Highway 3100 Virginia Avenue St. Louis Park St. Louis Park St. Louis Park Four Person Household $ 49,380 $ 49,380 $ 24,700 Annual Income 30^/o Income for Rent $ 1,235 $ 1,235 $ 618 (monthly) Rent 2 Bedroom $ 1,775 $ 1,400 $ 815 (monthly) Monthly Subsidy Needed $ 541 $ 166 $ 198 Annual Subsidy Needed $ 6,486 $ 1,986 $ 2,370 Five years 2% inflation $ 33,753 $ 10,335 $ 12,334 Ten years 2% inflation $ 71,020 $ 21,746 $ 35,363 Number of Units 14 46 28 $1 million in Investment THE SPACE BETWEEN 0 Section 9 Deep Dive Interventions: Local Government Rent Subsidy Program Attachment Bl Conclusions & This suggested intervention is appealing because it: Recommendations • Assures that unsubsidized units remain affordable as market conditions improve and vacancy rates are tightened. • Can be more cost effective than providing larger subsidy to write down the cost of new market rate units. • Provides an additional incentive for new investments in affordable housing. We recommend the following next steps: • Solicit interest from cities and property owners and include them in a demonstration program administered by the Strategic Partners. • Provide matching funds to cities to encourage their local commitment. • Encourage Metropolitan Council to consider accepting the rent subsidy program as an eligible use toward the local Livable Communities affordable housing goals. THE SPACE BETWEEN Section 9 Deep Dive Interventions AffaCovo ent be: Second Mortgage/Mezzanine Debt Our Strategic Partners selected several interventions to be the subject of deep -dive work sessions with local industry experts. These interventions were selected because they were suggested frequently in our interviews and focus groups, but required more thorough investigation before we could fully assess their potential. Absence of a work session on a suggested intervention does not indicate a lack of merit but rather an existing clarity around how it might work. Summary Description A second mortgage, mezzanine debt, or loan participation product intended to increase the availability of long-term, private sector debt for acquisition, rehab, and/or refinance of priority projects that are currently offering some level of de -facto affordability. Problem to Address This potential intervention was suggested as an unsubsidized way to make more private debt resources available to property owners who might otherwise not have access to capital at terms that can support affordability, property maintenance or profitability. Intervention Targets Our participants agreed that a pilot program could be targeted to a select group of owners/ properties and expanded later to include a broader base. Second Mortgage/ Mezzanine Debt Product Intervention Targets Owner Profile Property Profile Experienced owners (not new entrants) No citations or violations in their portfolio Proven management capacity or professional contract manager No federally -insured loan/project portfolio Self -managed Licensed rental property 5-100 units Non -luxury market -rate rental Gentrifying or strong market All rents currently affordable at 60-115a/a of AMI, with at least 20% of units at affordable at 60% AMI Middle to weak market areas (potentially with lower overall LTV) 1-4 units or 100+ units Discussion Our interviews revealed that while large-scale professional owners seem to have many attractive financing options (particularly when financing larger developments with loan capacity over $3 million where federally -insured debt is flooding the market), small-scale professional owners, some non -profits or DIY/part-time owners may have difficulty finding the resources they need due to these challenges: • Short tenors. Most commonly available in the unsubsidized market at the moment are five to seven year loans. Some property owners reported receiving loans with terms as short as two or three-years.In some cases, these short-term loans are attractive to property owners who intend to stabilize or reposition a property so that it can be refinanced through FHA or other insurance THE SPACE BETWEEN 0 Section 9 Deep Dive I nterventi ns: Second Mortgage/Mezzanine Debt Attachment 62 Discussion programs. Many commercial lenders and community banks report that this is understood by (continued) lenders and matches their desire to place funds without committing to longer terms at the low rates that are competitive currently. However, many property owners are taking advantage of the very low interest rates on short-term debt without a clear strategy for refinance upon maturity. This leaves many owners/properties vulnerable to a dramatic increase in interest rates in the future. In turn, this will place upward pressure on rents (where market conditions allow), or will limit property maintenance and upkeep. • Loan -to -value (LTV) ceilings. LTV maximums have dropped in the last five years to a typical 50-75%. This is particularly problematic for property owners who acquired at the peak of the market and have seen the value drop significantly. Being "underwater" or "upside-down" means that these owners cannot refinance to gain access to the low rates that are currently available. It also means that owners may not be able to sell without taking a loss, which has the result of keeping ill-prepared or reluctant owners in place. Brokers that we interviewed commented that the inability to trade -up is stifling the development of new actors in the unsubsidized space and making it difficult to motivate sellers who are no longer attentive to their assets. Even in strong micro -markets where rents are increasing rapidly, there is a lag in the recognition by appraisers of this increase, exacerbating this challenge. • Lack of cash equity. Many owners do not have the option to contribute cash equity in order to meet LTV requirements and secure debt. Nonprofits have an even greater difficulty due to the fact that their resources are often locked into special purpose entities. Operational Details Our discussion migrated to amodelwhere aprivate lender could actin aleadlenderrole assuming primary responsibility for marketing, credit and real estate underwriting, closing, initial funding, and servicing of a loan. A public or philanthropic entity or mission -oriented lender would commit to making second position loan based largely on the lead lender underwriting which would be co -developed with the subordinate lenders. This takes advantage ofprivate lender infrastructure, relationships and expertise, is easy for the borrower, and overcomes any hesitation to have private information made public. This is similar to how the SBA 504 program works. Eligible Uses • Acquisition. In geographies designated by public sector partners as priorities due to vulnerability to gentrification or lagging market values, and to owners that have a history of good management and reinvestment in their properties. • Rehabilitation. Up to $6,500 per unit and one major system (adopting HUD/FHA definition). Lead lender must have draw and construction administration capacity. • Refinance. Targeted to owners that have a proven track record of good management and reinvestment in the property. Terms. The following terms were discusses as being attractive to potential borrowers while limiting risk on the part of the subordinate lender. • Minimum and maximum subordinate loan amount = $300 thousand to $3 million. This is a reflection of feedback that larger projects are likely to be candidates for federally -insured loans, but also of the fact that smaller transactions are cost ineffective. THE SPACE BETWEEN M Section 9 Deep Dive I nterventi ns: Second Mortgage/Mezzanine Debt Attachment 62 Operational Details • Minimum Tenor= lo years. The goal is to extend the I ending horizon beyond what is currently (continued) prevalent in the market. Lenders have indicated that 10 years may be acceptable under the right circumstances. • Maximum overall LTV = l00% (11o% for rehab). This is to increase access to borrowers where properties have lost value, but are starting to come back and to allow for rehab scopes of work that benefit tenants and communities. • Lead lender LTV lead lender = 6o-65%. This is to increase private lender investment in prop- erties and to borrowers that they might otherwise reject, while keeping their risk share high enough to avoid moral hazard. • Minimumborrower equity =10%. This would be new cash in the event of 110% LTV, and could be existing equity for other loans. • Rate = Fixed at "market rate" and adjusted for risk (with a cap). Our intent is to open the flow of private debt to borrowers that are willing to provide some modest affordability to residents, not to subsidize the cost of debt, which is currently at all time lows. • Fees= Maximum 1.5%. Fees to administer this loan product should be no higher than those used by the lender for other real estate lending and may be higher for construction loans. Prequalified lenders. Lenders would be required to prequalify for the program by demonstrating that they have expertise in underwriting real estate and specifically multifamily rental housing. Compliance. Compliance will be self-reported to the lender annually consisting of submission of the project rent roll and tax returns supporting the rents shown. Implementation Partners' Roles Banks. Act as lead lender to market, underwrite, originate, and service loans on a pre qualification basis. Responsible for funding all but borrower equity at closing. Borrowers. Selfreportingregime envisions compliance on the part of borrowers. CDFIs/Intermediaries. Act as lead lender to market, underwrite, originate, and service loans on a prequalification basis. Could also act as subordinate lender, particularly with support from/on behalf of public of philanthropic entities. Should not act as both. Philanthropic sector. Could provide start up capital for the program, first loss capital to subordinate lenders or PRI for subordinate lenders to participate. Employers maywish to participate by donations, particularly in Greater Minnesota to support housing for workforce. Public sector. Identify target geographies for the program and help market the program. Could also act as subordinate lender, particularly with support from/on behalf of public of philanthropic entities. Affordability & Duration Rents affordable at 60-115% of AMI, with 20% of units affordable at 60% of AMI as long as the loan is outstanding (10 years minimum). THE SPACE BETWEEN Section 9 Deep Dive I nterventi ns: Second Mortgage/Mezzanine Debt Attachment B2 Financial Considerations The following cost estimates are intended to show the magnitude of expenditure that we think might be necessary for this intervention, but could be highly variable. They are offered in order to help aid in the discussion of all interventions being considered. For instance, if an existing CDFI with flexible source capital wished to engage in this lending activity, then the costs to launch would be quite low. If this activity were completely new for the subordinate lending organization, then it would be much more time consuming and costly. Likewise, many different variables would affect the amount of capital that would be required to engage in this lending. We have attempted to model estimates on example transactions for illustration purposes only. 2nd Mortgage Pilot Programs Example PILOT A pilot pool of $20 million could fund between 7-67 loans (depending on size and leverage), with somewhere between 533-1,600 units. Between 107-320 of these would be affordable at 60% of AMI. Note: This would not be subsidy, but rather return -producing investment. Example transaction: Jane owns a109 -unit property with one and two bedrooms that rent between $650 and $795/mo. She owes $3.9 million on an existing first mortgage, which is coming to its maturity date soon. The current lender does not want to keep the loan and so they will charge her a 0.250/0 fee and 1.25% more in annual interest in order to extend her current loan for the next year. She cannot find a new lender easily because the current market value is only $4.8 million, so her exist- ing debt is about 81% of the value, which exceeds most lenders' LTV requirements. She is limited in her ability to come up with cash, plus she would rather use the money that she does have to make some improvements that make the property more desirable. A new financing scenario under the program that we have described above would allow Jane to take out the current lender, do improvements and keep rents affordable. USES SOURCES Loan payoff ........... $ 3,900,000 Jane ............................ $ 480,000 (10% Uses) Rehab ....................$ 490,500 Lead Lender ................ $ 3,120,000 (65% LTV) Soft ....................... $ 131,715 Sub Lender .................. $ 922,215 (20% LTV) Total .................... $ 4,522,215 Total .......................... $ 4,522,215 Under the new scenario, Jane is paying only $2,300 more each year in debt service, she has money to do some repairs and she has 10 years before she has to refinance again. Staff time to establish program and capital raise .............................................$ 75,000-$150,000 Legal fees loan document and inter -lender agreements ...............$ 50,000-$75,000 Marketing......................................................................................$ 15,000-$25,000 Loan origination and servicing costs ............................................ $ 0 (From transaction fees) Lending capital per loan...............................................................$ 300,000-$3,000,000 THE SPACE BETWEEN Section 9 Deep Dive Intertentims: Second Mortgage/Mezzanine Debt Attachment B, Conclusions & This suggested intervention is appealing because it: Recommendations . Leverages and extends use of private sector debt. • Is not a subsidy, but rather a return -producing investment. • Requires property owner investment. It could be problematic because it: • Requires subordinate lenders willing to take second -position risk. • Requires significant capital. • Includes self -reporting, rent -only compliance. We recommend the following next steps: • Solicit interest on the part of existing CDFIs to implement such a lending program to determine the parameters under which they would consider participation. • Provide resources (existing or through new program related investment sources) to use along- side commercial debt. THE SPACE BETWEEN Section 9 Section 4(d) Property Tax Program Our Strategic Partners selected several interventions to be the subject of deep -dive work sessions with local industry experts. These interventions were selected because they were suggested frequently in our interviews and focus groups, but required more thorough investigation before we could fully assess their potential. Absence of a work session on a suggested intervention does not indicate a lack of merit but rather an existing clarity around how it might work. Summary Description This intervention could reduce the property tax burden on housing where some affordability commitment is made, even if not through deed restriction. Problem to Address This intervention could address a widely -voiced complaint by landlords by easing the burden of property taxes—a significant and often unpredictable operating cost. Another challenge this could address is the reluctance of landlords to take advantage of local programs that encourage investment in their buildings. Pairing Section 4(d) eligibility with local programs of financial assistance could make them more attractive forlandlords to participate. In buildings orlocations where many affordable rental units are occupied by persons who could afford to pay more, Section 4(d) could also be used to target such units (on turnover) for lower-income occupancy through the income restrictions in a local Section 4(d) program—in effect creating new housing opportunities for lower-income households without having to build them. Finally, in areas such as transit corridors that face gentrification pressures, the concern is that escalating rents will result in the involuntary displacement of lower-income renters. Currently there are few tools to protect tenants facing these conditions, but an expanded use of Section 4(d) could moderate rent increases and reduce the level of displacement. Intervention Targets A local Section 4(d) program could be targeted to the local issue to be addressed. A city facing gentrification threats along a new transit corridor, for example, could structure the program to attract owners with properties directly along the transit corridor. In another city, the issue may be getting owners of problem properties to participate in rehabilitation programs, so the local Section 4(d) program could be structured to appeal to them. Since bringing more properties into the Section 4(d) program results in a redistribution of levy within local taxing jurisdictions, carefully targeting the local program to reach a limited number of properties might be important. 4(d) Program Intervention Targets Owner Profile Property Profile • Any owner of unit willing to meet minimal • Any rental property (even single-family unit) in rent and income restrictions on an which a unit of government has even small level annual basis of financial participation THE SPACE BETWEEN Section 9 Deep Dive Interventions: Section 4(d) Property Tax Program Attachment 63 Discussion The Low Inco me Rental Classification Program (LIRC), also commonly referred to as the Section 4(d) program, provides a lower prope rty tax rate for "low-income" rental properties (Minn. Stat. § 273.128). This law originally covered both "deemed" properties (publicly subsidized) and "pledged" properties (unsubsidized, but where landlords voluntarily agree to rent and income restrictions). The program was discontinued in 2003, and then partially restored by the legislature in 2005, to include only deemed (subsidized) properties. The program currently provides a tax break of 40% off the rate for residential rental properties, which for a Minneapolis rental property with rents at the level of HUD's fair market rent would produce a savings of approximately $25-35/unit/ month. In return, owners commit to rent and income restrictions at 60% of ANN. We originally envisioned going back to the legislature to try to restore some form of this program for pledged properties in order to address the challenges described below. Any such effort would have required addressing criticism of the former pledged program. In 2001, the Legislative Auditor found no evidence that the rent ceiling of 60% of AMI was having any significant and practical impact since most market rents were not approaching that ceiling. In effect, landlords were getting a tax break without offering anything in return. The rent cap really presented two problems—not only was it too high to be meaningful, but a one -size -fits -all standard did not account for greatly varying local rent markets. We then realized that a more promising strategy to expand Section 4(d) actually already existed under the language of the current law. Properties can meet the definition of a qualifying "low- income rental property" if they are subject to rent and income restrictions under the terms of financial assistance provided notjust by federal or state government, but by local units of govern- ment as well (Minn. Stat. § 273.128 Subd. 1 (4)). This means that if a local government provides some form of "financial assistance" to such properties, and the owner agrees to locally -determined rent and income restrictions, unsubsidized affordable properties can be treated as "low-income rental properties." Note there is no definition of financial assistance, nor any minimum level, so local governments could either create minimal forms of financial assistance or tie Section 4(d) to existing programs of financial assistance. In addition, since the program would be local, rent and income restrictions could be locally -determined, rather than applied on a statewide one -size - fits -all standard. Operational Details A threshold question is whether a local government currently offers any programs that can be considered "financial assistance" to residential rental properties, or if it can feasibly could do so. Some cities have such programs, though many do not. There is no required minimum level of assistance, so the financial assistance could be quite modest. Some cities provide significant financial assistance to rental owners, such as tax credits or housing trust fund resources, which already carry rent and income restrictions, so Section 4(d) would not add to these restrictions. It may be more feasible to envision a local Section 4(d) program at the county level, or perhaps at the level of the Metropolitan Council, if funds provided by those entities could satisfy the financial assistance requirement. Another option might be to structure a local Section 4(d) program based upon a transit corridor. THE SPACE BETWEEN 0 Section 9 Deep Dive Interventions: Section 4(d) Property Tax Program Attachment 63 Operational Details A second issue includes addressing potential concerns of various taxing jurisdictions that face (continued) some shift in the tax burden as a result of an expanded Section4(d) could be one strategy. Limiting the eligibility for local Section 4(d) by narrowly targeting eligible properties or by capping the number of properties. Persuading the taxing jurisdiction that the outcomes of this approach would be consistent with their own jurisdiction's housing goals would be another way to address this concern. A third issue to address is minimizing the administrative burden, both for participating landlords and administering agencies. Owners would have to submit applications, along with certifying incomes of tenants, and thenwould likely have to file annual certifications of compliance. The local government could establish locally -tailored rules (income and rent limits) and provide owners with the certifications they would record and file with Minnesota Housing as is done currently. We recommend that rent limits be based upon current rents with an annual rent increase being permitted based upon a reasonable objective standard, such as the consumer price index or HUD annual adjustments. The local government would need to identify that annual increase and notify participating landlords. There would be costs to the local government for administering this program, which could hopefully be covered by landlord application fees. The program should be designed to piggyback on similar certifications from other programs, where possible, to keep administrative costs as low as possible. Implementation Partners' Roles A local government unit, either a city or county, Metropolitan Council, or a consortium of cities along a transit corridor, would have to choose to initiate this local Section 4(d) program. Minnesota Housing collects owner Section 4(d) certifications, and has been responsible for monitoring compliance. Conversations with Minnesota Housing staff suggest that locally -created Section 4(d) programs would not appreciably impact Minnesota Housing. Property owners could also be viewed as "implementing partners" in the sense that the program will not work unless they sign up. We did hear strong interest among landlords in the idea of qualifying for the Section 4(d) benefit. Local jurisdictions considering such programs would likely want to consult with the type of landlords they seek to target for their program to ensure the program design takes into account the views of the target group. Local taxing jurisdictions could also be viewed as partners by way of being consulted regarding the impact of potentially lost tax revenues. Affordability & Duration The state Section 4(d) law sets an affordability ceiling of 60% of AMI, but there is no reason local jurisdictions creating local programs could not target lower affordability levels based on local markets and local goals. In places where escalating rents are less of a concern but making more of the affordable units available to lower income households is the goal, income limits may be more important than rent limits. The duration of the affordability commitment would also need to be determined. When the Section 4(d) law covered pledged properties, owners committed to restrictions for a five-year period, which could be the logical place to start in considering the durational requirement. THE SPACE BETWEEN 0 Section 9 Deep Dive Interventions: Section 4(d) Property Tax Program Attachment 63 Financial Considerations The principal costs involved are the work to design a local program, ongoing administrative costs to run the program. The benefit is the ability to achieve a key goal of the local government, whether it is limiting displacement by capping rents, inducing landlords to fix up problem properties, or making already affordable units more available to the lowest income households. In each case, the local government will have to weigh the costs versus the likely benefits. It may be best to view these local programs as pilot programs, or time limited programs, in order to evaluate how well they achieve their intended goals. Alternatives There may be an alternative avenue to providing property tax reductions in exchange for use restrictions. Minnesota law currently allows for abatement of taxes on particular properties, under certain circumstances, at the initiation of the local taxing jurisdiction (Minn. Stat. § 469.1813). This law would appear to allow the city to set up the same kind of program as described above, without having to provide "financial assistance" as required by the Section 4(d) program. The abatement authority, however, has its own set of issues, including meeting a "public interest" test, and requiring the consent of all taxing jurisdictions as to their portion of taxes to be abated. Conclusions & It should be noted that property tax reform appears to be on the agenda for the 2013 legislature. Recommendations Some reform ideas include major simplification of the property tax, which could mean the altering or elimination altogether of specialized tax treatment such as Section 4(d). This obviously bears close watching. Assuming Section 4(d) remains largely intact, this proposal would benefit from conversations with a wider range of local governments, including counties, the Metropolitan Council, and even groups of cities along emerging transit corridors. THE SPACE BETWEEN M Section 9 Deep Dive Interventions t uuac onium 6/4. Variable Rate Demand Note (Low -Floater Bond) Financing Our Strategic Partners selected several interventions to be the subject of deep -dive work sessions with local industry experts. These interventions were selected because they were suggested frequently in our interviews and focus groups, but required more thorough investigation before we could fully assess their potential. Absence of a work session on a suggested intervention does not indicate a lack of merit but rather an existing clarity around how it might work. Summary Description Low -floater bonds can significantly reduce the cost of financing by using very short term continuously remarketed bonds to obtain the lowest possible rates. Low -floater bonds can thus allow the property owner to have lower rents than might otherwise be possible with other forms of mortgage financing. Problem to Address The cost of financing is always a challenge for rental properties. Higher cost capital puts significant upward pressure on rents. Low -floater bond financing provides low-cost financing for qualified owners and properties. Intervention Targets Low -floater bond financing could potentially be used in a variety of situations where the owner and the property or properties qualify, subject to important capital market and regulatory constraints. Low -Floater Bonds Financing Intervention Targets Owner Profile Property Profile • A record of well managed properties Large projects • Good credit Demonstrated history of low vacancies • Significant financial resources and steady or increasing rents • Located in strong rental market • Good condition Discussion This financing can be used to finance a single property or even conceivably a portfolio of properties where the ownership entities for all the properties have an identity of interest. The financing would be most competitive for a nonprofit owner in a municipality willing to issue tax-exempt bonds within the context of low -floater bond financing. However, critical to this financing is the issuance of a letter of credit (LOC) by an investment-grade bank. The LOC is for the full amount of the low -floater bond issue. The LOC allows the bond investors to purchase the bonds based on the credit of the bank, not on an underwriting of the property. Depending on the credit of the bank, rather than the real estate, allows for a very low interest rate. Operational Details Low -floater bonds are re -marketed on a weekly basis. Investors often use them as a short-term investment. Evidence suggests that the interest rate on low -floater bonds is a reflection on how the equity markets are performing (which drives demand for "parking" money in short term instru- ments) and the credit of the LOC bank (which represents minimal risk to the investor), rather than just the general interest -rate environment. As a result, and somewhat counter -intuitively, when other interest rates are moving upwards, low -floater bond interest rates may stay low or stable. THE SPACE BETWEEN M Section 9 Deep Dive Interventions: Varible Rate Demand Note (Low -Floater Bond) Financing Attachment B4 Operational Details As noted above, low -floater bonds are effectively secured by an LOC issued by an investment - (continued) grade bank, not by the property. The bank that issues the LOC underwrites the property. The investors who purchase the low -floater bonds do not look to the property, but rather underwrite the bank and purchase the bonds based on the credit worthiness of the bank. The LOC is in the amount of the outstanding bonds. If ever the bonds cannot be re -sold at the end of a week, the current holder of the bonds can call on the LOC and demand their repayment. The rate on the LOC basically reflects the rate at which an investment-grade bank can borrow funds. As a result, the property owner is able to borrow funds at close to the rate at which an investment-grade bank can borrow funds (with some important additional costs described below. In substance, the LOC is a loan by the issuing bank. In fact, regulators now require the banks to treat these LOCs in the same manner as they do loans on their balance sheet which has eroded bank interest in participating in this way. Implementation Partners' Roles Public Sector. If tax-exempt bonds are to be used—local units of government, Housing and Redevelopment Authorities, or Economic Development Authorities. We explored the theoretical potential for Minnesota Housing to play some role as a secondary guarantor or act as the LOC issuer. However, this would be limited so as not to impact their credit rating, would require their full underwriting of each transaction, and affect their balance sheet similarly to how it would the banks. Therefore we determined that this was not a viable role for them to play. Investment-grade Banks. (Such as Wells Fargo or US Bank, who have participated in these deals in the Twin Cities market previously). However, the following limitations should be noted as they dampened the appetite of banks for such participation, and changed the terms they are willing to offer. • Consolidation of large banks has reduced the number of potential LOC providers. • Changes in bank regulations have caused LOC providers to regard these like loans, not just contingent liabilities. • Calling of LOCs by investors during the credit crisis resulted in banks being forced to pay out large sums. Affordability & Duration If tax-exempt bonds are used, local units of government are involved, and these requirements are built into the deal. For these tax-exempt bond issues, the minimum affordability requirements are 20% of the units with rents affordable by households at or below 50% of AMI, or 40% of the units affordable at or below 60% of AMI. THE SPACE BETWEEN 0 Section 9 Deep Dive Interventions: Varible Rate Demand Note (Low -Floater Bond) Financing Attachment B4 Financial Considerations Low -floater bonds are issued onlywith the backing of LOCs of investment-grade banks. This LOC provision is a critical, and under the current capital market environment dubious, activity for banks. Since the financial crisis of 2008, the number of investment-grade banks that are able to issue these LOCs has shrunk considerably and their appetite and terms have changed. Fortunately, two of the remaining banks are located in the Twin Cities; Wells Fargo and US Bank. Assuming that these banks reenter this market, there are costs associated with their participation and with VRDN transaction that should be understood. The all -in cost of one low -floater bond deal is summarized as follows as an example: Current Effective Annual Interest Rate (November 2012) AnnualInterest Rate...............................................................................................................................0.200% AnnualCost of LOC..................................................................................................................................0.250% Annual Cost of Interest Rate Cap Insurance.....................................................................................0.250% AnnualMarketing Fee.............................................................................................................................0.125% AnnualBond Trust Fee...........................................................................................................................0.200% TOTAL ANNUAL COST.............................................................................................2.825% Conclusions& This suggested intervention is appealing because of the historically low cost of low -floater bonds Recommendations and the relative ease of gaining LOC participation by banks. While this financing strategy is not currently a palatable activity for banks and not competitive with FHA insured mortgage financing, low -floater bond financing may be an attractive alternative for project financing in the future. However, with the significantly changed financing environment since 2008, there are at least the following issues: • Limited number of banks that still have the capacity to underwrite deals • Significantly changed terms and conditions for deals • Required treatment of LOCs as loans by the banks that issue them We recommend the Strategic Partners monitor the changes in capital markets as there may be opportunities to use low -floater financing in the future. THE SPACE BETWEEN M Section 9 Deep Dive Interventions 0.). Clearinghouse for Mission -Driven Owners Our Strategic Partners selected several interventions to be the subject of deep -dive work sessions with local industry experts. These interventions were selected because they were suggested frequently in our interviews and focus groups, but required more thorough investigation before we could fully assess their potential. Absence of a work session on a suggested intervention does not indicate a lack of merit but rather an existing clarity around how it might work. Summary Description Our intent was to consider the feasibility of a clearinghouse or matchmaker entity to position mission -driven buyers to have maximum and early access to high priority projects for potential acquisition. Through a work session with for-profit and nonprofit owners and brokers, we learned was that there is not a need for such an entity. The brokers and nonprofits we talked to agreed that getting access to purchase opportunities is not the problem; thus, ensuing discussion focused on other hurdles to increasing mission -driven acquisition of these properties. Problem to Address Nonprofit and other mission -driven buyers often have trouble competing with for-profit buyers for high priority affordable projects, due in large part to the fact that mission -driven buyers nearly always have to obtain funding from public entities. This means they have to negotiate lengthy terms that for-profit buyers do not, resulting in either lost opportunities or higher purchase prices. Other challenges with mission -driven entities acquiring these properties include uncertainty about the ability to do short term refinancing, the inability to manage risk by cross subsidization within portfolios of properties (stronger projects subsidizing weaker projects), and the challenges of being asked by local governments to acquire the most troubled properties. Finally, nonprofits are often concerned about the reputational risk of being associatedwith projects that do not have a "high quality" appearance. Intervention Targets The kinds of properties to be targeted for acquisition are generally those that are currently afford- able without subsidies but are important to the community, and are at risk either because of the likelihood of becoming unaffordable, or because they are threatened by physical deterioration. A subset of this group would be projects identified by local governments as problem properties where the local government would love to see a property transfer to a mission -driven owner. Clearinghouse Intervention Targets Owner Profile I Property Profile Incoming: Mission -driven Outgoing: Profit -driven Currently affordable without subsidies. Light to modest rehab THE SPACE BETWEEN Section 9 Deep Dive Interventions: Clearinghouse for Mission -Driven Owners Attachment 65 Discussion For some potential purchasers who are accustomed to operating only in subsidized housing, moving into this market may require a shift in business philosophy. Part of the shift involves a willingness to be associated with older, more shopworn buildings. This may be contrary to the work that has been done to upgrade the public image of"affordable housing." Perhaps one solution for nonprofits concerned with protecting their brand would be to spin off a separate entity for owning and managing such properties. There are other challenges as well. Owners would have to recognize that using public subsidies to upgrade these properties might not be an option. We know that many large and small for-profit entities have successfully acquired and operated many of these properties, focusing instead on longer-term capital improvement. An ability to acquire and operate these projects without reliance on public subsidies, either for acquisition or rehabilitation, removes a barrier to competing for these properties, namely the need to negotiate lengthy terms before closing in order to access public funding processes. This, however, means obtaining market rate financing for acquisition and any rehabilitation is necessary, which may be a major challenge, due to a lack of enterprise -level equity. Twin Cities Community Land Bank (TCCLB) can make the purchase on a short time frame and temporarily hold the property until the nonprofit is ready to purchase. The feasibility of this strategy needs to be explored with TCCLB on a deal -by -deal basis. We know, through their preliminary experience, that holding costs and interest are barriers. There are additional barriers that hamper nonprofit activity in this market. Many large for -profits can afford greater risk because their inventory is managed on a portfolio basis; allowing finan- cially stronger projects to cross subsidize weaker performing properties. Nonprofits typically are unable to do this because their deals do not generate enough cash flow to the corporate parent cushion. Some of Minnesota's larger nonprofits are beginning to amass such resources or borrow at the corporate level. Acquiring enterprise level capital would help, however, that is also a challenge for nonprofits. Moreover, nonprofits have voiced a reluctance to further acquire such projects without any comfort about their ability to refinance or upgrade projects in a seven to ten year time frame. It appears that in general, nonprofits are more risk averse than many for-profit operators, though this notion would benefit from more discussion with some of Minnesota's larger nonprofit housing providers. Finally, there should be some acknowledgment that cities often turn to nonprofits, urging them to acquire "problem properties" which can provide the toughest kinds of challenges. From what we heard, there are instances where better coordination between the city and a would-be mission -driven buyer would facilitate this goal. A mission -driven suitor will likely encounter a more receptive seller, for example, where the city has applied active code enforcement pressures, as opposed to passive tolerance of substandard conditions. Conclusions & Implicit in this discussion is the notion that the community will be better off if these high priority Recommendations projects areplaced into thehands ofanonprofit or mission -driven housing provider. The assumption is that over time, a given project will remain more affordable or in better condition in the hands of an entity where maximizing profits is not the first priority. That said, there appears to be a lack of hard evidence to establish this supposition, despite its intuitive acceptance by many in the industry. Further research on the effect of the type of owner on affordability over the long term would be useful. Lastly, further discussion among nonprofit and mission -driven owners on how to compete more successfully in this market would be useful as well. THE SPACE BETWEEN M Section 9 National Examples Auuacntio eni u l: Rent Control Rent control is the process by which a municipality or state regulates the residential rents that landlords may charge tenants. It is usually launched at points of broadly -perceived shortages or crises in the marketplace and is often put in place as a mechanism to protect longer-term tenants in a sharply appreciating market The purpose of these rules is to retain lower-cost privately -owned units by establishing a mechanism that controls the amount of increased rent that may be charged annually, at turnover, or upon a major rehabilitation. Modern rent controls were originally adopted in cities in the 1940s in response to housing shortages resulting from World War II, and then another surge appeared in 1971 as part of the Nixon -era wage and price controls. While some states, like New York and California have enabling legislation, and over 100 municipalities across the country have some type of rent control, the most comprehensive programs are seen in communities with large tenant popula tions, such as New York City, San Francisco and Washington, D.C. During periods of strong growth and construction, opponents to the program have been able to successfully argue that there was no further need for the controls because supply was increasing and costs would, therefore, not escalate. Over the last 10 years in Cambridge, MA, the program has been fully eliminated while in New York City and San Francisco there was a relaxing of the rules that allow for decontrolling of units or resetting of rent levels at the time of tenant turnover The rules and practices vary widely among communities, with the larger city programs like New York being very complicated for both landlords and tenants to navigate. Since the rules are usually structured to protect residents who have lived in their apartments for long periods of time, it is the elderly population that must struggle to understand and carefully comply with these rules intended to protect them. The rules are usually applied to older properties built, for instance, in San Francisco before 1979. Often, as in Washington, D.C., the rules exempt smaller (four or fewer units) property owners. Programs are being started or tightened in some commu nities, like Hoboken, NJ, and Seattle, WA, where gentrification is occurring, and where transit oriented development (TOD) projects are putting new pressures on housing markets and rents are again rapidly climbing in places such as Washington, D.C. and the San Francisco area. PolicyLink, a national research and action institute advancing economic and social equity by Lifting Up What Works®, has developed a comprehensive guide on the uses and establishment of local rent control programs. This online toolkitwalks one through the steps that can be taken to assess the type of program appropriate for a locality, as well as how to organize and pay for the operations. To balance the loss of potential income to the property owner when units are designated as rent controlled, some communities such as Washington, D.C. offer a concession of reduced real estate taxes. Owners resist imposition of rent controls because the cap on rental income is a cap on the value of the real property. By placing limits/controls on rent levels, cash flow is limited and, therefore, the capitalized value of the property is limited. Most communities adopt some method to recognize the capital improvements that owners make in properties, allowing them to increase the rents by a somewhat higher amount over a number years in order to recapture the expenditures. This practice of limiting the amount of return for capital improvements is a further irritant to landlords. THE SPACE BETWEEN M Section 9 National Examples: Rent Control Attachment Cl The mechanics and structure of the rent control programs vary widely by community; we found no dominant approach or best practice to single out. We also found that the public cost to administer the program varies and can be substantial, even if all efforts focus on the supply side tasks of registration, monitoring, and setting of rent levels. This is all work that must be done for the full year and requires several professional staff to execute, even if supplemented by occasional consultant assistance. In our research and interviews we found no examples of eligibility tests for tenants to either access or remain in rent control units. The setting of rents is based on the age and size (number of units) of properties—not tenant means. The controls are intended to keep the inventory available and affordable to the current residents, whoever they are. Therefore, the population that benefits from the regulated rents may not be the most needy residents in the community, but simply the households that found the unit and satisfied the landlord's standards to rent the unit. How it informs our work: • Exceptional economic and political conditions are required to secure passage of rent control ordinances. These conditions do not appear to be present in Minnesota at this time. • In sharply rising cost neighborhoods, such as TOD areas, a modified rent control could be introduced as a means to protect longer-term and elderly residents from displacement. • Good data is needed to determine the size, location, and characteristics of the target units to be covered by rent controls in a community. Annual analysis of market trends is needed to determine percentages for permissible annual rent increases. • Administering even a modest program with minimum rules will require staff with skills in evaluating operating budgets for properties when requests are made for exceptions due to capital improvements or other circumstances. All of the tasks speak to the need for new and dedicated personnel to administer any program, local, regional or statewide. This would be a new cost item for a community and can be expected to be higher if the program includes unit inspections or code enforcement features. THE SPACE BETWEEN Section 9 National Examples ALL6Luiu�itu4 �,L. Mezzanine Financing At both the local and national levels, there are efforts to find vehicles that can be coupled with conventional debt financing to meet the actual cash needs of projects for acquisitions and or capital improvements. This is the capital between a banks 65% LTV limit and the owner/ developer's need for cash (30% or more) to complete the purchase or secure the funding for needed repairs and improvements. Customarily, transactions are done with experienced owner/ operators whose performance projections for the completed project demonstrate adequate cash flow to service either the additional debt or provide strong cash flow returns for equity investments. Each project must be rigorously analyzed since the lender/investor is looking equally at the real estate and the credibility of the borrower to measure the risk of the transaction. Several examples can point out the variety approaches that are being used and the types of situations where blending debt and equity products can create new opportunities for presery ing the affordable housing inventory. LTVs above 65% can be found in communities that have established funds with multiple lender participation, where the risks are shared among the major conventional lenders doing business there in order to offer what is widely recognized as critically needed financing for affordable housing in that particular community. Sometimes motivated by Community Reinvestment Act (CRA) requirements or community pressures, banks will make a commitment to do some volume of transactions in a particular neighborhood or type of property. Patient capital may be contributed to the fund from Community Development Financial Institution (CDFI) investments from the Department of Treasury, or from foundation grants or Program -Related Investment (PRI) loans. In Chicago, the Community Investment Corporation (CIC) has been able to offer borrowers loans that can exceed 100% of current value plus improvement costs by starting with the After Rehab Value (ARV) for the property, based on the increased rental income from achievement of full occupancy or increased rents. The borrower may get a loan that looks like it has LTV of 130%. Once the repairs are completed, the debt will be able to be serviced with the project's higher rental income. CIC prides itself on being a "hands on" operation that works very closely with its borrowers through every stage of renovations and property operations. These efforts mitigate risk. By lending from a fund capitalized by the City's major banks, CIC then spreads the risk associated with any one loan among a pool of interested lending institutions. In New York, the Community Preservation Corporation (CPC) has been a major force in creating affordable housing in New York City and across the state. Since its founding in 1974, it has financed the preservation and development of nearly 147,000 affordable housing units involving public and private investments of approximately $8 billion. Their major strategy was to make first mortgage loans at low interest rates and at 80% or higher LTV by having the loans guaranteed by Fannie Mae, Freddie Mac, or similar city or state programs. The underwriting standards of these guarantors then guided the parameters of the lending done by CPC. Therefore, second mortgages have not been used on CPC -financed projects because the guarantorswould not permit additional liens on the properties they had insured or on which they had bought notes. CPC's knowledge of the local markets and their relationships with lenders and local redevelopment officials allowed them to be nimble in setting targets and terms for loan products that could match with other available resources, such as neighborhood infrastructure projects, CDBG- funded commercial district revitalization projects, or code enforcement and receivership initiatives in distressed areas. THE SPACE BETWEEN a Section 9 National Examples: Mezzanine Financing Attachment C2 Also in New York, a group of foundations came together to offer capital in the New York City market. The Furman Center for Real Estate and Public Policy describes the initiative: The New York City Acquisition Loan Fund (AF) provides affordable housing developers, both nonprofit and for profit, with early financial resources to acquire property and to provide pre -development funds. The City of New York, major foundations, and members of the banking industry established the fund in 2006 using Battery Park City revenues and foundation loans and grants to create a guarantee fund to provide security for the banks that were providing the loan capital. Activities funded by AF include: conducting appraisals and environmental assessments, securing title and zoning approvals, and hiring consultants to assist in the acquisition and pre - development of low-income housing. Below-market rate loans are made for up to three year terms. Forprofatdevelopers can receive loans with a loan -to -value ratio of up to 95% and nonprofit developers can receive loans with a loan -to -value ratio of up to130% Lending and subsequentproduction must meet affordability requirements established by originating lenders in the program, which vary based on each lender. This $200 million fund targets creating or preserving up to 200,000 rental, homeownership and supportive housing units over a ten year period. Loans are originated by city agencies (NYC HDC), national intermediaries (LISC, Enterprise) or human service agencies (Corporation for Supportive Housing. Currently, on the national front, a national loan fund is being launched by Enterprise Community Partners. The Enterprise Multifamily Opportunity Fund (the "Fund") is a real estate private equity fund that invests in existing multifamily housing properties nationwide. Targeted properties (the "Properties") include affordable or unrestricted, B and C Class multifamily properties with 50 or more units where there is opportunity for improvement and/or good value. The acquisition and rehabilitation of each Property is financed primarily by low interest permanent financing up to 25% LTV by permanent debt programs such as FHA, Fannie and Freddie Mac. The balance of the financing is provided as an equity investment by the Fund and a local non- profit or for profit real estate owner/operator (the "Sponsor") who must have a demonstrated track record of successfully owning and operating multifamily properties, asset management capabilities, and financial strength. Together, the Sponsor and the Fund will seek to earn an economic return by maximizing cash flow through professional property management, strategic physical improvements, and green retrofits. The Fund is not a solution for troubled projects or smaller properties. It will look for investments among LIHTC projects reaching the 15 year mark where affordability can be continued without having to go through a major renovation process as would be required to utilize a new 4% credit allocation. Enterprise sees that risk is mitigated in this program by investing in properties that have 20% or higher occupancy, and partnering with seasoned owner/managers. Enterprise anticipates that their fund will share in what is already demonstrated reliable cash flow from the project. THE SPACE BETWEEN M Section 9 National Examples: Mezzanine Financing Attachment C2 How it informs our work: • Higher LTV lending is achieved most often by a shared risk mechanism such as pooled lender loan funds or through credit enhancements achieved with guarantees from foundations and other patient investors like CDFIs. • Raising the capital for loan pools is becoming increasingly difficult as banks reduce their participation because of other financial pressures and/or reduced CRA pressures to lend in target markets. Foundations and high net worth individuals are among the potential investors being sought. • Effective lending in this arena requires staff to have strong underwriting and coaching skills. The work is a combination of hard analysis and cultivation of borrower capacity to be alert to market conditions, and the ability to signal and adapt to changes efficiently. • Second mortgage products appear to be rare, with first mortgage lenders generally not permitting additional debt on properties to which they lend or service loans. The challenge is to define the terms that first lenders will find acceptable to bring into transactions. THE SPACE BETWEEN 0 Section 9 National Examples Auuacnvmeni u,�: Rent Assistance Programs As we looked across the country we found many examples of rental assistance initiatives where a subsidy payment is made on behalf of a low-income household to bridge the gap between the rent that they can afford (customarily at 30-40% of income) and the rent that the property owner is charging. These programs are administered by state and regional agencies, nonprofits and housing authorities. The administrative agencies are responsible for eligibility determination for participants, negotiation and payment of rent, and unit inspections. The programs are often funded through an annual appropriation of the state's budget. Section 8 is the federally funded rental assistance program, with many states locally funding similar initiatives through annual appropriations of the state's legislature. The subsidy is provided as either assistance for a specific tenant and, therefore, is a subsidy that moves with the tenant, or as a subsidy that reduces the rent on a specific housing unit, making the unit affordable to any eligible low-income person who lives in the unit. In many states, these programs pre -date Section 8 with the tenant -based subsidies initially functioning as an income transfer program that allows low-income residents to either stay in their current apartments as rents increase, or to have greater mobility and choice when determining where they can afford to live. Connecticut and Massachusetts are examples where Section 8 tenant -based subsidy or voucher programs also operate on a statewide basis, allowing households to move where they find jobs, have a family support network or secure an otherwise attractive unit for their family. Unfortunately, efforts to expand or even sustain prior year commitments for tenant vouchers have in some cases met resistance from local communities when voucher holders are seen as people different from the rest of the community; a sign of the community's decline rather than of its success and increasing value. As an example, in Massachusetts efforts by state legislators to secure state funding for tenant -based vouchers as a tool to provide affordable rental housing in high demand markets have been unsuccessful. As part of their housing appropriations, some states make rental assistance funds available to municipalities to use in their local affordability strategies. These project -based funds are then allocated to specific housing units and used to either retain affordability in raising markets or to stimulate development of new projects containing affordable units. As the need for affordable housing has grown and the value of stable, decent housing to help address a wide range of social problems has become better understood, the rental assistance programs have been refined and embraced by awide range of advocates. The matching of rental assistance initiatives with human service needs has flourished across the country in recent years. This has resulted in subsidies being made available to help bolster mental health, employment, homelessness and youth programs, to name a few. The funding may be state -appropriated hous- ing dollars or social service agency funds dedicated to rental subsidy payments of program participants. Some programs are tenant -based while others have been used as an on-going subsidy in a property operated by the human service agency. The examples below are just a sample of the rich variety of housing needs that are addressed with rental subsidies today. By leading with a specific community issue, these programs are able to demonstrate multiple impacts for the dollars invested, and thereby secure a broader range of advocates and supporters for the programs. Particularly with the decline of affordable housing resources and the continuously growing demand, the targeted use of rental subsidies as part of service package for clients in human services programs can be expected to dominate the use of affordable housing tools. THE SPACE BETWEEN 0 Section 9 National Examples: Rent Assistance Programs Attachment C3 Transition Housing in New York City. In an effort to help homeless New Yorkers living in the shelter system who are employed full-time but still unable to afford housing the Coalition for the Homeless created its Rental Assistance Program. The program provides monthly rent subsidies as well as budgeting and counseling support for up to two years to help participants successfully transition into and maintain permanent affordable housing. This model program has saved New York City millions of dollars, since the cost of rental assistance (roughly $7,700 per year) is considerably lower than the cost to shelter a family ($38,000 per year). Last year, the Rental Assistance Program housed 34 single adults and 35 families. The program boasts an impressive success rate, with 97 percent of program participants maintaining permanent housing and financial independence after graduation. Foster Care Youth in Iowa. This state offers rental assistance to youth aging out of the foster care system, as part of a multi-year transition plan to help build the independent living skills of the young person. The Iowa Department of Human Services coordinates state and federal funds from multiple agencies for youth moving into the private marketplace as renters, workers and students. Supportive Housing. The Corporation for Supportive Housing on a national basis, and the Wilder Foundation's ROOF Project on a county basis, combine rental subsidy assistance along with comprehensive services to households in their efforts to knit together the supports the clients need to live independently long term. The rental subsidy addresses an immediate threat of homelessness while the bundle of other services are put in place to increase the likelihood of permanent success as on-going tenants. How it informs our work: • Rental subsidy that is tied to the tenant can be effective for improving the quality of lower rent properties, diversifying their location and preserving their availability in the marketplace. We see this in a couple of ways: knowledgeable tenants can seek and demand quality conditions; and tenants can shop broad geographic areas, decreasing the concentration of poverty in one area. The units remain affordable either to current tenants who are now able to remain in their units while landlords secure market rents, or individual selective units become part of the affordable housing inventory as the tenant leases a unit on the open market. • Some communities discourage the use of rental vouchers because they fear these will bring undesirable people to their neighborhood or overload their community with more than what they see as their fair share of lower-income households. • Successful expansion of rental subsidy vouchers may rely upon pairing them with a human service initiative, such as programming for the homeless, veterans or the mentally ill. This strategy may produce enough allies and supporters for new funding but may also further stigmatize vouchers for the general population. • It is usually impractical or cost prohibitive to have means tests in rent controlled, tax reduced or other incentives/waivers-granted properties where lower rent levels are trying to be maintained. However, the rental assistance initiative provides a mechanism to ensure that the beneficiaries are those most in need because the tenants would have to be determined as eligible participants at the inception and renewal of their lease. THE SPACE BETWEEN Section 9 National Examples Attachment C4: Housing Partnership Equity Trust The Housing Partnership Equity Trust (HPET) will provide a nimble and low-cost equity source for the purchase of unsubsidized rental properties by nonprofit organizations. The primary goal is to make nonprofit organizations more competitive in the open market acquisition of P and C Class properties that currently offer some level of affordability. The mission of these organizations—and the public interestwillbe served by their conscientious property and asset management and modest long-term affordability for residents. A secondary goal is to provide an opportunity for income diversification among nonprofit members, whose sources for subsidized housing are drying up. HPET is a joint effort of the Housing Partnership Network (HPN) and 12 of its members, and will be organized as a REIT. The first round of capitalization is almost complete at $100 million. Properties acquired through the Trust will be owned in partnership between HPET (as Limited) and the HPN member organization (as General). HPN members may participate by making an equity contribution to HPET of at least $250,000, and by financing at least 5% of the acquisition cost through their own resources. HPET plans to hold these properties for ten years, at which point the GP member may acquire the full interest, or the properties may be sold. How it informs our work: • Provides a new model and funding source for nimble acquisition by nonprofits. • The anticipated scale of projects is 150 units average, larger than many acquisition opportunities in our region. • HPN members in the Twin Cities are not currently involved due to competing demands on their time and capital but, • Could partner with other participating HPN members immediately; and • Could invest in subsequent rounds of HPET. • Provides guidance and precedent for affordability definition; 120% of AMI was the original affordability goal; current target of portfolio -side average of 90% was arrived at to satisfy charitable purpose requirements of funding sources. • There is no means testing for tenants required by HPET, but may be applied by partners. • An upcoming study of data on operating cost differentials between subsidized and unsubsidized rental housing may help expose where the cost centers are. THE SPACE BETWEEN 0 Section 9 National Examples Attachment C5: Property Tax Relief States and municipalities commonly use property tax relief mechanisms in conjunction with other subsidy or rent restrictions as part of a comprehensive affordable housing strategy. Developers using LI -ITC or Section 8 contracts will negotiate terms that provide lower base assessment and/or establish a predictable rate of increase for property taxes in exchange for the long-term (15 or more years) affordability commitment. As a preservation tool in the unsubsidized stock, property tax relief is used most commonly to encourage repairs and improvements. To encourage owners to invest in renovations that sustain the quality of the existing inventory, communities offer several approaches including the following in which the owner is extended relief, but must also enter an agreement to rent to families with incomes below a specified level for the period of the abatement. Property Tax Increase Exemptions (Freeze). These are exemptions from the increases that would have resulted from the value of the improvements. They are used in targeted areas in Seattle, WA (Multifamily Property Tax Exemption Program) for a maximum of 12 years, and in New York City, NY for up to 34 years, with the J51 program, in Portland, OR for a ten-year period. Nonprofit Tax Exemption. In the example of Florida, properties owned by nonprofits and rented to eligible tenants (elderly, or up to 120% of AMD constitute a "charitable use" and are exempt from property tax payments. The nonprofit must be the sole buyer/owner. Partial exemptions are possible if only some of the units are occupied by eligible tenants. See definitions at www.housingissues.org/forms/advalor-occupied-rental-statute.html. There is a thorough discussion of these techniques accompanied by suggestions on the most appropriate tool for the specific local conditions that can be found at www.housing]2olicy.or toolbox/strateg�vpolicies/tax abatementhtml. This site is part of the online guide for state and municipal governments, offering best practices as well as analysis techniques. The Preservation Compact in Chicago (www.preservationcompact.org) is probably the most comprehensive program in the country for existing property owners of unsubsidized afford- able housing. It brings together information on the full range of resources for owners renting in low -to moderate -income neighborhoods in the city. Since the CIC is foundation -supported, there is no cost to owners to learn about loan programs, utility abatement initiatives orproperty tax assessment processes. The property tax reliefs available to owners in Chicago all require individual applications to the Cook County Assessor's Affordable Housing Initiative program. Owners submit income and expense information for each property and an analysis of the costs. A comparison of comparables is then completed by the Assessor. This is done through an appeals process with the objective of setting the tax obligation for the property at a "fair" level. To assure maximum success to owners operating affordable housing, the Preservation Compact created a guide on the filing process and listings of consultants and attorneys who are able to walk owners through the process. THE SPACE BETWEEN Section 9 National Examples: Property Tax Relief Attachment C5 Another tool formerly used in the Chicago market was the Class 9 benefit. This program took advantage of the tax assessment structure's variables that had determined rates by category of property and often put properties into classifications and rate levels inappropriate for the actual use. This, however, created opportunities for adjustments that could bring properties into alignment with other community objectives. Therefore, the Class 9 incentive program offered a reduced assessment (as much as 50%) to owners who made improvements to their properties and agreed to offer affordable rents. Cook County's recently revised assessment structure eliminated the categories and has all residential properties assessed at 10%ofthe market value, and thereby eliminated the benefit of Class 9 treatment. How it informs our work: • Property tax reliefs require a careful balance between local concerns about the quality and availability of affordable housing and the needed annual tax revenue. The program responses must be structured within and sensitive to market conditions.lax relief mechanisms cut two ways: they cut property tax costs to owners, but the savings in operating costs are also a cut in local tax revenues. A careful cost -benefit analysis is needed in any community that is considering these initiatives and advocates will need to be prepared with documentation of the long-term community impact. • 'technical support to owners and skilled reviewing staff are necessary to successfully manage these programs. • Property tax reform that evens categories or otherwise attempts to make the system simpler or consistent across the community may result in elimination of relief initia- tives that operate on a case-by-case correction basis. • If the nonprofit sectorwants to expand its presence in affordable housing preservation, pursuing the strategy used in Florida that fully exempts property taxes for elderly and low -to moderate -income occupied units could give them added confidence that their operation of the property would help keep costs and rents at lower levels than would otherwise occur. A step-by-step application of Florida's strategy can be found at www.housingissues.org/forms/advalor.]2h]2. THE SPACE BETWEEN 0 Section 9 National Examples Attachment C6: Cost Saving Measures In 2007 housing advocates in Cook County, IL were increasingly concerned by the loss of afford able units to condo conversions and sales. Maintaining ownership and management of rental units was challenging and as property aged, the frustration and costs of keeping a property in good working order were getting increasingly expensive. In turn, the region's public, private, and nonprofit leaders came together and formed the Preservation Compact (www.preservationcompact.org) to preserve affordable multifamily rental housing in Cook County. Their strategy was to coordinate resources and share information in a way that allowed owners to realize greater efficiency in property operations. As they describe themselves, within the Preservation Compact, leaders from avariety of disciplines and expertise come together to identify their most pressing affordable rental housing problems, devise solutions, and then implement the on -the -ground strategies that can assist developers, owners, tenants, government officials and nonprofit organizations in ensuring safe, affordable housing far into the future. The Preservation Compact is a partnership among utilities, local governments, technical assistance providers, lenders and an array of other organizations that are engaged in some aspect of rental housing. With a small staff that works at introducing and coordinating, rather than direct provision of services, the Compact facilitates a process of information sharing that they are confident is keeping property operating costs controlled and lowered for area land- lords. Funding for the Compact comes primarily from the MacArthur Foundation. There are not membership dues or public agency contributions used to maintain the network or its work. Among the efforts being pursued by the Compact, energy and property taxes were seen as two cost categories that could offer opportunity for real savings to rental property owners and/or tenants. Growing out of their relationship in the Compact, two members, CNT Energy and Community Investment Corporation (CIC), launched the Energy Savers Program, which offers free energy assessments for multifamily buildings and low cost financing for energy saving improvements.'I hey report that to date, the Energy Savers Program has completed assessments on more than 20,000 units, retrofitted over 8,000 units, created over 400 jobs, and saved almost 2 million gas therms. The Preservation Compact further notes that a typical 24 -unit building retrofitted by Energy Savers saves $10,000 annually. To address another cost area, taxation, the Preservation Compact is where owners can turn for technical information on rules, get help to prepare appeals, learn about new procedures and join others to advocate for changes in rules. Again, the belief is that the broad availability of this information has helped more owners to contain their tax liabilities and better control their costs Similarly, in New York City, smaller property owners can avail themselves of a wide -range of technical information and advisors by joining the Rent Stabilization Association (RSA). This membership organization describes itself as the largest real estate industry trade association in New York representing 25,000 property owners/agents responsible for approximately one million units of housing. RSA's members range from owners of one small building to large multi -family complexes, cooperatives and condominiums. Its broad representation has allowed it to develop a powerful base for its lobbying programs and to generate the funds necessary to provide a wide assortment of products and services to its members. THE SPACE BETWEEN M Section 9 National Examples: Cost Saving Measures Attachment C6 RSA provides services for members to do annual filings and compliance reporting, as well as offering a full array of group purchasing programs that can significantly save members cost in the operation of their properties. RSA operations are supported by annual dues ($5 per unit or $75 per building minimum) and fees for services that members select and use on an a Is carte basis. Also located in New York, the work of Urban Homestead Assistance Board (UHAB) targets cost saving efforts to a very specific type of property by helping existing building residents create limited equity cooperatives to take over ownership when properties are being sold or foreclosed. UHAB works with the cooperators to set up appropriate property management operations in addition to offering training and technical assistance to the residents, most of who are usually low-income. UHAB has several bulk buying programs and online bookkeeping services to help resident cooperatives control and minimize operating costs in their buildings. UHAB is a nonprofit organization that provides services on a fee basis to the City of New York to facilitate transfer of properties to residents groups. It also looks to foundations, businesses and individuals for charitable contributions to support their organizing and technical assistance work with low-income residents groups. How it informs our work: • Long running and well -utilized cost saving initiatives offer a range of tools and services that include energy, property tax and bulk purchase assistance to property owners. Owners select or utilize these resources on an as -needed, voluntary basis. • Funding for one-stop initiatives for rental property owners is most influenced by the scale of the potential user pool with the staff size and services offered directly reflecting the size and, therefore, capacity to pay for work that is done. In NYC fees to owners are so small that virtually any owner can afford to join and use individual services. The resulting large number of members makes possible a self-supporting service platform in that city. Foundation and government funding for these initiatives is a challenge to sustain since it is difficult to document consistent and/or significant impact for each contact made or service provided. THE SPACE BETWEEN M Section 9 Attachment DInterventions Matrix Financing Unsubsidized Rental: Scan of the Minnesota Market I o,Deep Dive *Team Favorites Program Examples, Source and/or Resources 0% DEEP DIVE: Pledged Units Address burden of property taxes, the Requires legislation to restore this category of Discontinued Minnesota 4d for most -frequently mentioned operating eligible properties. Open to criticism that pledged units. For Deep Dive, see page 67. cost, while capturing part of the relief concession was wasted; some unit rents were delivered by lowering taxes to maintain limited by local market, rather than by owner affordable rents, or achieve other goals. choice. lower rates. Could be particularly effective for properties in gentrifying areas 0% DEEP DIVE: 4d Property Tax Address burden of property taxes, the Cities or counties could trigger eligibility by pro - most -frequently mentioned operating viding minimal financial assistance while requiring For Deep Dive, see page 67. cost, while capturing part of the relief locally -determined rent and income restrictions. delivered by lowering taxes to maintain No legislative change required. Potential to be affordable rents, or achieve other goals. more flexible and targeted. MHFA would have to certify properties, which is minimal burden. °.DEEP DIVE: Alternative The Project Team likes this intervention because currently very few tools exist for moderating rents in gentrifying areas. Qualification Method This can be used flexibly to achieve either preservation, additional affordability, or better matching. For Deep Dive, see page 67. 'Dual Market"property tax Alleviate costs of rising property taxes for Advocates for a two tiered property tax assessment WestTownUnited Coalition - long -time property owners in areas that methodology that recognizes legacy property Chicago are undergoing gentrification. Look for owners and preserves their ability to retain affordability in return. ownership while keeping rents low. Limits taxable value and assists these legacy owners in applying for the lower rates. Could be particularly effective for properties in gentrifying areas Property tax increment holiday/ Reduce upward pressure on rents through Property tax break or freeze in priority areas in Minn. Stat. 469.1813; Granite Falls, abatement property tax reductions/caps. Look for exchange for specific affordability commitments, NYJ51 Tax Abatement program, affordability commitment in return. or change of owners. Each taxing entity has to agree Seattle Multi Family Tax Exemp- to abatement. Purpose must qualify under public tions Program interest test. Possible alternative to local 4d. Could be particularly effective for deteriorating properties or under problem ownership, or those adjacent to transit or in gentrifying areas Grant income tax offset Capital gains or transfer tax relief Maximize value of grants received by minimizing associated tax liability, so that the value goes to affordability or other stated purpose of grant Encourage transfer of ownership to nonprofit entities. If real estate is owned by C corps grants can be structured as contributions and avoid tax. Not a very common scenario to try to address Relief, reimbursement or credit for taxes typically incurred upon sale. Could be focused on properties with aging owners and/or problem owners. Renter's tax credit Increase participation in Minnesota Collect data regarding participation rates in renters renter's credit, which effectively lowers credit. if participation is low, determine whether rents paid on annual basis. creating a direct subsidy to renters by the property owner is worthwhile. If participation is moderate to high, do nothing. Potential exists to gather data on renters through rent credit filings, which could have broader applications. Attachment D continued on next page THE SPACE BETWEEN a Section 9 a Interventions Matrix Financing Unsubsidized Rental: Scan of the Minnesota Market Intervention Impact Potential Discussion O,Deep Dive *Team Favorites Program Examples, Source and/or Resources Property tax exemption (5016 Facilitate transfer to entities that can 501(c)3 nonprofitsthat also qualify as institutions Minn. Stat 272.02 Subd. 7 and private subsidy) reduce operating expenses (and rents) of public charities or HRAs could acquire properties 39; Minn. Stat. 272.026; State because of tax-exempt status. and keep affordable because tax exempt status of Florida reduces operating costs. TOD REIT Acquire parcels along transit without Overcome exit taxation issues and self - requiring entirely new capital by using management fatigue by allowing property existing equity of current property owners to exchange property into a REIT. owners. May aid in public acquisition Include measure of affordability. without heating up market. Housing Partnership Equity Trust Assist nonprofit organizations in acquiring This effort has been launched but no local members (HPET) unsubsidized rental housing, or other are participating due to competing priorities for properties that require equity by creating financial and staff resources. Encourage a local jointly managed equity pool. HEN member to become HPET contributor/eligible for acquisition. O,DEEP DIVE: Clearinghouse for Ensure that mission -driven owners have Facilitate sale from willing profit -motivated Community Investment Mission -Oriented Acquisition best opportunity to acquire unsubsidized owners to mission -oriented owners through a Corporation (CIC) in Chicago For Deep Dive, see 74. rental housing being disposed of by broker or a posting board for advanced notices. maintains a posting board. page profit -motivated owners. Increase in Encourage proactive monitoring of opportunities mission -oriented owners is thought to while potentially saving tra-nsaction costs by Aggregating small REOs be protection against rent increases, eliminating real estate agents. Big non -profits HEN RETURN effort, Silver Bay/ with or without formal restrictions. may already have this access. Determined Two Harbors and other entities minded entities to purchase for the unnecessary in Minnesota. nationally. Dedicate tax forfeiture properties Capture appropriate tax forfeited As the county obtains tax forfeited properties, Hennepin County transfers to the to affordable purposes properties for uses as unsubsidized dedicate them for affordable housing. Last City of Minneapolis affordable for rental, rather than return estimates are that 255 properties were forfeited to ownership. in 2012, though many of these may be vacant, substandard or commercial. Aggregating small REOs Provide a portfolio of scatteredsiteConcerns about scale, where portfolios exist, HEN RETURN effort, Silver Bay/ properties for non-profit or mission- management of scattered site rental, but also Two Harbors and other entities minded entities to purchase for the reintroduction into ownership and market implica- nationally. maintenance of affordable housing units. tions. Effective for small- scale properties (<20 units) Land trust Preserve affordability for a longer period Land trust could acquire and retain the land with Twin Cities Community Land Bank, by placing in trust. restrictions and convey the building, in order to Albuquerque Sawmill Community extend the restrictions that would normally be Land Trust, others, but usually for limited to 20- 30 years in perpetuity. Resources to owneroccupants acquire likely to be prohibitive. Recapitalizing Manufactured Capture currently unoccupied homes According to Metropolitan Council there are NCF limited rental of FEMA homes Homes and pads for manufactured homes which 542 vacant homes and 1,423 vacant pads in MN. in cooperativelyownedparks. represent a very affordable housing A missionmotivatedowner could purchase opportunity. manufactured homes (perhaps using special fund), and rent at very affordable rates. Attachment D continued on next page THE SPACE BETWEEN 0 Section 9 Interventions Matrix Financing Unsubsidized Rental: Scan of the Minnesota Market O,Deep Dive *Team Favorites Attachment D continued on next page THE SPACE BETWEEN 1. Financial/Ownership Interventions Intervention Impact Potential Discussion Program Examples, Source and/or Resources Emergency response fund Aid landlords in bearing the cost burdens Help owners address plumbing, HVAC and other CIC offers training and has loan for addressing emergency maintenance basic emergency needs in exchange for income funds, complemented by the repairs required to keep properties in good and/or rent restrictions. Could be made available Preservation Compact that living condition which would improve living to owners participating in owner education connects owner in Cook County conditions for tenants and neighbors. classes, city programs, etc. Best targeted towards with programs, services and TA small-scale properties (<20 units), deteriorating that can assist smaller owners. properties, or those in gentrifying areas. Nonemergencyrental rehab Alleviate cost burdens for landlords to Make low cost loans available to owners who are City of Brooklyn Park; T.C. loans perform necessary preventative rehabilita- willing to make some commitment to affordability. Interagency Stabilization Group tion and maintenance to keep properties (ISG) in good condition and avoid emergency capital expenditures. Weatherization/energy efficiency Enable property owners to save money on Low-cost forgivable loans/recoverable grants to Deutsche Bank Foundation, loans/grants utility costs by retrofitting properties with owners interested in making energyefficiencyCity of Oakdale energy efficient windows, appliances, etc. upgrades that might also improve marketability. Use metering to help determining savings, split savings back between owners and renters. Primarily focused on deteriorating properties. Utility payee is key factor. Fagade and good neighbor loans Encourage property investments that Provide a deferred loan for exterior improvements promote curb appeal and increase Uagade or landscaping) to stabilize neighborhoods 22 neighborhood stabilization and property and increase curb appeal to reduce the negative o values. impact of worn, out of date properties. Targeted towards small scale, selfmanagedproperties that are deteriorating and/or aging. Property Assessed Clean Energy Increase financing availability/options. Use tax assessment to repay public finance of Similar to the single family PACE J (PACE) program Create (Utilize) a new funding source for energy improvements. City bonds for the program legislation. GMHF may consider energy efficiency improvements. could be issued by development or area. lending in this space in the future. Small building pilot for FHA Increase financingavailability/options. Monitor HUD creation of small building pilot and National HUD/FHApilotpro- insurance Make low-cost debt available to encourage lenders) to adopt this lending space. posed, but not yet launched. properties that are typically too small Targeted to small scale properties (<49 units). to qualify for FHA insurance. Rent guaranty program Alleviate property owners' concerns Guaranty the owner timely payment in the event of HUD's Section 8 program used about their ability to collect rent from low non-payment by "certified tenant". This payment with supportive housing services. income tenants by providing a guarantee should flow directly to property owner in the event of rental payments for owners willing to of non-payment. Long term repayment from the designate affordable units. This would tenant when possible. help match low income people to existing affordable units. o�*DEEP DIVE: 2nd MortgageThe Project Team likes this intervention because it leverages and extends use of private sector debt, is not a subsidy, but rather a or Participation Loan Product return -producing investment, and requires property owners to participate financially. For Deep Dive, see page 62. of private sector Create a program where approved lenders can Former City of St. Paul ion, rehab, refinance of originate and underwrite loans with public or commercial loan program and Eeasse,ilability and in exchange for rent philanthropic resources acting as first loss. This the SBA Certified Development could help address credit access, LTV and tenor Company/504 Loan Program. issues. Attachment D continued on next page THE SPACE BETWEEN Section 9 Interventions Matrix Financing Unsubsidized Rental: Scan of the Minnesota Market Intervention Impact Potential Discussion Note purchase mechanism Increase the stock of affordable rental Particularly for single units in previous condo housing by capturing nonowneroccupied conversions where owners are underwater or units or non -re -performing notes for use otherwise unable to sell. Would require a scattered as rental. site management scheme to support the effort. IF fund Create new source of flexible, light subsidy. Create special TIF program provision to gather increment on new high-end rental units, proceeds used to fund affordability in other units. Would require legislative change. Attachment D O,Deep Dive *Team Favorites Program Examples, Source and/or Resources Mortgage Resolution Fund (MRF) in Illinois; Boston Community Capital -SUN Initiative; NJ Community Capital in HUD's Distressed Asset Stabilization Program -rental is new. Richfield, HPP recommendation to City of Minneapolis 0, DEEP DIVE: Low Floater Bonds Increase the use of this non-competitive Funding source for sophisticated existing owners Numerous in Minneapolis and For Deep Dive, see page 71. financing resource that can be a low cost and new non-profit owners, properties with St. Paul source of capital. Ensure that savings is long-term operating histories. Targeted towards accrued to the benefit of tenant (in lower large-scale properties with professional owners. rents) or property (in improvements). Not viable in market currently, but could come Regulatory changes have limited its back as market changes. effectiveness/attractiveness Light Rail Transit rent voucher Soften the blow of displacement caused by Voucher for residents that get displaced by LRT transit development development. Fund new voucher program that pays a portion of market rent on behalf of qualifying tenant that has been priced out of location by LRT. Would have to be carefully formulated to limit use or prove cause. Attachment D continued on next page THE SPACE BETWEEN Section 9 Interventions Matrix Attachment D Financing Unsubsidized Rental: Scan of the Minnesota Market Intervention Impact Potential Discussion Light Rail Transit rent voucher Soften the blow of displacement caused by Voucher for residents that get displaced by LRT transit development development. Fund new voucher program that pays a portion of market rent on behalf of qualifying tenant that has been priced out of location by LRT. Would have to be carefully formulated to limit use or prove cause. * Voucher or Rent Subsidy Program Special population vouchers Increase the affordability of units in high -rent, high -demand micro -markets in order to ensure access by select income groups. Ensure that difficult to house populations continue to have access in the market, If not served by permanent supportive housing. Workforce housing voucher pilot Close the gap between workforce income and rents available injob rich locations. Voucher (traveling with tenants) or project -based (for selected properties) could augment tenant payments to create affordable options in markets where employment is strong, but housing options limited. Potential incentive for cities to provide subsidies in order to meet Met Council affordable housing goals, leading to new housing invest- ments and additional affordability. Would help to ensure matching of rent to income. Fund voucher program that pays a portion of market rent on behalf of a qualifying tenant that is otherwise difficult to house/remain in housing. Create new pilot to supplement household ability to pay in areas of high employment growth, transit, affluent communities. Target households between 60-100% of area median income. Could be focused on identified niches small scale properties (<20 units), those adjacent to transit or in gentrifying areas. O,Deep Dive *Team Favorites Program Examples, Source and/or Resources Eden Prairie is considering creating a program in existing housing and St. Louis Park approved a limited program which has not been used. Wilder's ROOF program, Hennepin County Social Services pilot with SAMA and others; MHFA's Bridges and Housing Trust Fund Rental Assistance programs; Arlington County, VA; Corporation for Supportive Housing. Subsidies to dedicate existing units Address affordability mismatch(affordable Upon turnover, reserve units for lower income Florida non- profit property tax to lower income households units occupied by higher income tenants) people to keep units from migrating up market exemption program by incentivizing landlords to dedicate and serving bargain shoppers. Landlords could affordable units to lower-income tenants be incented to do this through local 4d eligibility rather than higher income applicants. for example. Attachment D continued on next page THE SPACE BETWEEN 0 Section 9 Interventions Matrix Financing Unsubsidized Rental: Scan of the Minnesota Market O,Deep Dive *Team Favorites Attachment D continued on next page THE SPACE BETWEEN 1. Financial/Ownership Interventions Intervention Impact Potential Discussion Program Examples, Source and/or Resources dPermanent loan guarantees Increase access to financing for Provide select property owners guarantees that 312 loan program, FHA programs v d responsible property owners who provide allow access to financing at low cost in exchange affordable housing in the market. for split of savings to rent. U �p L C W Property management a la carte Alleviate management and administrative Create or identify (and subsidize?)access to Tenant Access, Task Management program costs and burden for property owners who property management services to complement self- Services selfmanagesmall portfolios. performed tasks like tenant screening, marketing / 0 .J leasing and capital needs. v a Insurance Cost Reduction The Project Team likes this intervention because many cities already require crime free certifications along with rental licensing. 0 U Connecting these could decrease operating costs and increase property safety, livability. Pursue cost -savings on property insur- Work with insurance companies to determine UHAB in NYC, Condo associa- d ance (one of the largest operating costs) if they might provide a rebate on insurance tions in Colorado with American p for landlords who participate in programs premiums to complexes that complete a certain Family Insurance that ensure high quality maintenance and level of Crime Free MF Certification, smoke-free management and reduce risk. environments (might require monitoring). Attachment D continued on next page THE SPACE BETWEEN Section 9 Interventions Matrix Attac hment P Financing Unsubsidized Rental: Scan of the Minnesota Market Attachment D continued on next page THE SPACE BETWEEN a 2. Ed ucation/Capacity Building Interventions Intervention Impact Potential Discussion Program Examples, Source and/or Resources Customer service/satisfaction Encourage better landlord/tenant relation- Aid landlords in renter retention by offering training UK Housing Associations orientation training for ships to prolong tenancy, encourage lease in a customer service model/approach. management. renewal and reduce turnovers; thereby, abating the amount of turnover costs for a landlord, costly moves for renters. Renter certification Increase low-income renters' access to Target renters, with intent of making them more Lutheran Social Services affordable units that might otherwise be conscientious, and provide owners/managers with rented to a higher income household by an indication that they have been educated. Could increasing landlord confidence. be coupled with rent guaranty, licensing rebates, etc. Inspections services Streamline, standardize and possibly Coordinate the provision of consistent inspections Met Council and cities share the inspection process between cities (one-stop)for cities, HRAs and other agencies that inspections information, cities and other inspecting agencies to reduce might conduct inspections. Would have to agree on contracting for inspection the costs incurred by landlords having standards, which is problematic. services from private providers to respond to multiple inspections in a given year. Save public resources by not duplicating inspections. Property management mentorships Encourage knowledge sharing between Match property managers and owners for one Occurs informally through MHA experienced property owners and new ononadvice. Best targeted towards small scale, and LSS property owners to ensure better business selfmanagedproperties. practices among new owners. General management training Ensure quality property management Give self- managed property owners a thorough MHA LSS, Richfield, HOME Line; and upkeep by providing basic training base of knowledge in property management. Focus Chicago Investment Corp. (CIC) on good business practices for property on items that effect stability of occupancy and managers/owners. Reduce costly turn over capital needs projections and budgeting. Rental housing inventory Allow public actors to know the affordable Create inventory/database tracking rent levels Central Corridor, Richfield, housing in their communities and better by city/neighborhood in order to track change, Downtown Minneapolis (pending) position them to preserve a sufficient identify acquisition opportunities, identify gaps, number of affordable housing units. and assess strategies. Acting on preservation opportunities would require additional resources. Attachment D continued on next page THE SPACE BETWEEN a Section 9 Interventions Matrix Financing Unsubsidized Rental: Scan of the Minnesota Market Attat.Mment P OsDeep Dive *Team Favorites 3. Policy/Regulatory Interventions City or residents would have first option to Intervention Impact Potential Discussion Program Examples, Source and/or Resources Rent Control Secure affordable rents for low- Limit rent levels (and perhaps income levels) NYC, LA and Washington D.C. mobile home parks; Montgomery income renters who live in gentrifying charged by private property owners. This has County Condo Program. neighborhoods. proven highly problematic in practical experience. because they address the loss of currently unsubsidized rental housing, which results in *Licensing/Registration Enforce maintenance of rental properties Make sure that all cities are requiring licensing Most cities in Metro area Require new subsidized, scattered site and increase landlord accountability to or registration for rental property. Could include include crime prevention or mixed income developments to Would require a procedure whereby the potential their communities. crime prevention elements. Fine tune city elements. loss of affordable housing due to a city or county- San Francisco enforcement procedures to avoid innocent tenant assisted development project would be reviewed = displacement. m housing, and, where appropriate, the develop- a ment of a replacement plan. T V .o *Metropolitan Council housing The Project Team likes this intervention because currently cities are reticent to spend money/staff *Inspections Prevent loss of affordable housing due 9 Make sure that all cities are requiring inspection q 9 P Most Metro area cities `o practices to poor maintenance and property every 2years. according to local context/needs. m Incentivize cities to expand housing deterioration. Cambridge, MA Affordable rn *Compliance Incentives Reduce fees for property owners who Offer incentives for licensing, fee reductions and Mounds View production, by giving credit towards Metropolitan Council could recognize and give follow property rental regulations, codes others to landlords who participate. affordable housing goals. cities credit toward affordable housing goals and licensing; thereby encouraging better when they create new affordability through property management. The Project Team likes these interventions, and staff capacity for them. Educational landlords in these capacity -building programs, particularly when bundled together, efforts and regulatory measures already exist which seek to raise the quality of properties and believes that demonstrating the value of such programs could increase political will and could be easily linked together to encourage more participation on the part of and management. Right of First Refusal Policy Capture unsubsidized affordable housing City or residents would have first option to Washington D.C. Ordinance; Minn. units upon sale from existing owner, so purchase units to be removed. Stat -right of purchase, ROC USA - that they can be transferred to residents. mobile home parks; Montgomery County Condo Program. *Affordable ApartmentThe Project Team likes this intervention because they address the loss of currently unsubsidized rental housing, which results in Replacement Policy fewer options for low- and moderate -income people and increased rents. Could potentially be combined with a right of first refusal. Require new subsidized, scattered site Could also include payment in lieu of replacement. Brooklyn Park replacement or mixed income developments to Would require a procedure whereby the potential policy, City of Minneapolis, replace any resulting loss of currently loss of affordable housing due to a city or county- San Francisco unsubsidized affordable rental housing. assisted development project would be reviewed in relation to the overall supply of affordable housing, and, where appropriate, the develop- ment of a replacement plan. T V .o *Metropolitan Council housing The Project Team likes this intervention because currently cities are reticent to spend money/staff time on efforts that will not be a goals to recognize innovative counted toward Metropolitan Council affordable housing goals. Allowing more flexibility would free cities to pursue/tailor a number of practices interventions that specifically address preserving and/or creating affordable housing opportunities according to local context/needs. Incentivize cities to expand housing In the context of a more nuanced system of Cambridge, MA Affordable opportunities, not just new unit counting and assessing housing goals, the Housing Trust production, by giving credit towards Metropolitan Council could recognize and give affordable housing goals. cities credit toward affordable housing goals when they create new affordability through practices like subsidizing existing units, creating local 4d programs, or providing incentives for landlords to dedicate existing units to lower- income households. Would necessitate revisions to the current housing goals system. THE SPACE BETWEEN Section Attachment E: Alternatives to the Term,"Unsubsidized Affordable Rental Housing" Our team searched for the best, clearest term for the subject of this work. The following is a summary of the terms suggested by interviewees, as well as some discussion of each. Alternative Names Matrix Potential Names Comments from Team and Stakeholders Unassisted affordable rental Affordable threatens the "brand" that has been built over time that equates quality and housing consistency in management and physical product. Unregulated affordable housing Emphasizes government regulation and is politically charged. Affordable threatens the 'brand' that has been built over time that equates quality and consistency in management and physical product. Moderate rent is a term that was used before deep capital subsidy programs became Unsubsidized moderate rent housing prevalent. Naturally -occurring rental housing Naturally implies that no effort is needed, that it takes care of itself. Affordable threatens (that is) affordable—NORHA the brand" that has been built over time that equates quality and consistency in manage- ment and physical product. Naturally -occurring affordable Affordable threatens the brand" that has been built over time that equates quality and rental consistency in management and physical product. De facto affordable rental Too many people do not know what the term "de facto" means. Affordable threatens the 'brand' that has been built over time that equates quality and consistency in management and physical product. De facto low-cost rental housing Too many people do not know what the term "de facto" means. Low-cost rental housing This does not address quality at all, exclusive emphasis on price. This emphasizes price, not the appropriate distinction for the project; tends to imply low Low cost/low rent housing quality. "Low rent' is slang for lacking class. Market affordable rental housing Too contradictory by traditional housing/ real estate definitions. Affordable threatens the 'brand' that has been built over time that equates quality and consistency in management and physical product. Private low-cost stock Much of the subsidized affordable housing stock is also privately owned / managed; different from public housing. Sub -market rental housing This could be thought to mean sub par Term used in banking, financial services and particularly in developing world context for Down-market rental housing private sector foray into providing for low-income people, accessing those markets. THE SPACE BETWEEN a Section &"" Minnesota Cost -Burden Map THE SPACE BETWEEN m Section 9 Attachment G: Twin Cities Metro Area Renter Income Map M tl Brwhly Par Spring Laki .Wl�x S IV9 ` ' Fri",/ I"SPI I. CM.nib Hw,hts ■� ..w. {r,•t r•Broohlyn Cente;,Ojm, New Br jI.t Robbl leI�T40 North Mp oltlen Valley awntown��.„ I Y apolis 1Milnnetonkat EtleWPrarI lmiles Renler Hatinehold ImamS22MO I. S37,000 so, Sea t. SSRSW YT*%Yin Cities Metini A�nm Q $SB,SW and up IN Renter HoadvAl, — Major Rpatls InlerYatesaM M,m,, Section 9 Attachment N:. Twin Cities Metro Area Cost -Burden Map Twin Cities Metro Area Rent as Percentage of HouseMid Income s.Iy cosh luMenee(5o%and up) CostBudlmed(A to 50%1 n Hae Coat Burdened(undel W%) • = 100 Renter Hoesenolds Near Roods --lntsnataf and Hlgnaays Cl neume Hemnmwmmnaa,a emmemmmrdme data lrom Amep[dn Commmity Survry l0U7-1011. ' HOU51H 5 LINK 12"11333 Attachment 1: Twin Cities Metro Area Crisis Map x 4 Eel Y rL 77 Z Twin Cities Metro Area Income Under $22.500 UN.r Sn,500 with Severe Ont O.rde, Mm, N costs =too PlIte, Hc.Wd, Seu(ce, RxO* WlatMn Qla and median karne Mr., R.6 H. Amx,un C....1, 5o1,, 207 D11 R003INGUNK1281013 -77�7 Section 9 Species Definitions THE SPACE BETWEEN Three Species of Affordable Rental Housing Unsubsidized Affordable Rental Housing Light -Touch Affordable Rental Housing Subsidized Rental Housing Description of Current State Proposed Future State Description of Current State Description Already existing and naturallyoccurringPreviously unsubsidized affordable housing The creation of new affordable housing units affordability in privatelyownedhousing which that, through light touch interventions, could that are a product of deep subsidy programs contributes to a healthy, diverse housing create new opportunities or more public usually federally defined but may be locally market and promotes choice. benefit. administered. Rent levels generally <30%of HH income for purposes of counting <30%of HH income <30%of HH income considered affordable stock, up to 50% by landlords Possible alternative rent - 45% of HH income when combined with - 45% of HH income when combined with No flexibility in federal programs affordability standards transportation transportation Income levels Not officially defined, but most often< 60% of <80%of AMI (with strong recommendation to Dictated by funding program, at most <60%of AMI when counting stock. <60% when possible) AMI, often 50% Minimum% of units in project None Could be at local authority discretion 20% of total units for HH income levels 050% to trigger funding of AMI; or 40% of total units for HH income levels 0 60% of AMI Compliance regime None Simple, selfreportingor certification compli- Initial and annual income and rent certification ance; consider income compliance for initial (next available unit rules) induction and perhaps on an annual basis, but commensurate with incentive level Minimum compliance period None Recommend 5-7 years, commensurate with 30 year minimum depth of incentive and compliance mechanism Physical Quality Control Minimum quality control of life, health, and Deep capital subsidy with deed restriction safety standards as enforced by local jurisdiction through code compliance regimes. Subsidy/incentive approach None Flexible interventions with minimal subsidies Rigid and established programs that are could be selected according to the local universally applied needs/situation Various options: cost savings, financial Deep capital subsidy with deed restriction products, or demand side programs without deed restrictions Intervention aimed at achieving new Intervention aimed at "new" unit production opportunities for a defined public benefit of (construction or preservation) affordability Relationship to market Rents primarily a function of local market Could be selected relative to micromarketGenerally defined a metroareabasis, micro - dynamics. needs/situation market affordability rarely used Entre None Units are already in place, so no additional New production requires local community community consents necessary. consent, sometimes means projects add enhancements to win community approval, thereby inflating costs Owner/decision making Real estate investors (forornonprofit) make Real estate investors who make decisions For or nonprofitswith specialized business decisions based on real estate economics and based on real estate economics could be lines formed around subsidy programs, cash work towards increasing property cash flow or influenced by the public/philanthropic sector flow and appreciate share limited appreciation. incentives Authority None Defined by funding organization willing to State, local credit and funding allocators intervene THE SPACE BETWEEN Section 10 Minnesota 000000 Preservation Plus Initiative We would like to acknowledge the major contributors to this investigation. Strategic Partners Family Housing Fund, Angie Skildum Greater Minnesota Housing Fund, Robyn Pipes and Amy McCulloch Minnesota Housing Finance Agency, Marcia Kolb, Julie LaSota, and Jane Loechler Project Team One Roof Global Consulting, Deidre Schmidt and Sara Joy Proppe Research assistance from Will von Geldern. Reese Fayde (Reese Fayde and Associates) and Doug Strandness (Dunbar-Strandness) also contributed to this report. Housing Preservation Project, Tim Thompson ULI MN, Cathy Bennett Others Several people gave significant time and essential data analysis expertise to inform this work. Instrumental contributors in this regard include Jack Cann, Jessica Deegan, Dan Hylton, John Patterson, and Leigh Rosenberg. We greatly appreciate the guidance provided by the staff at Harvard's Joint Center for Housing Studies. Special thanks to those who shared valuable opinions, time and creativity in our deep dive work groups and related follow-up. Key participants include Connie Anderson, Tara Beard, Wes Butler, Al Carlson, Cindy Carlson, Gina Ciganik, William Cullen, Rochelle Dotzenrod, Margo Geffen, Rick Goodemann, Shannon Guernsey, David Hoffman Dachelet, Molly Koivumaki, Richard McNamara, Diane Nordquist, Tonja Orr, Beth Reetz, Mary Rippe, Michele Schnitker, Terri Smith, Paul Sween, Harold Teasdale, Mark Ulfers, James Wenker, Chris Wilson, and Don Wyszynski. We also want to acknowledge all local and national industry experts who contributed to our work through generous communication with us by email, phone, and in-person. Too numerous to mention by name, over 150 people helped further our work on this important subject. Thank you. Finally, thank you to Kristen LaFavor of Design Ahead who provided the graphic design for our final report. Strategic Partners MlnnesoM ouslnq Project Team �PP Urban Land Institute F se.eq neesrm'm A^M Minnesota THE SPACE BETWEEN Minnesota Preservation Plus Initiative One Roof Global Consulting c/o Family Housing Fund 528 Hennepin Avenue, Suite 418 801 Nicollet Mall, Suite 1825 Minneapolis, MN 55403 Minneapolis, MN 55402-2500 w .lroofglobal.com w .fbfund.org June 2013