Here's who is supporting affordable housing development in Detroit, and how they close the deal

Betty Joiner has lived at West Boston Apartments, an affordable housing complex near the border of Detroit's historic Boston-Edison Neighborhood, since 1989. Lately, her apartment building has been getting some major upgrades, and she couldn't be happier. 

"It's been satisfying for me," says Joiner. "We had radiators, now some of us have got air conditioning and heating. They've fixed the roof. I have to give that to them. They've been doing quite a bit of work."

The 81-year-old retired nurse feels the building's current management agency, Elite Property Management, has been very responsive to her concerns as a resident. And, as a retiree on a fixed income, she's thankful that the current owners, a nonprofit called Develop Detroit, have kept the rent payments affordable.

While property values have been climbing in Boston-Edison in recent years, and the area is seeing new development, she doesn't worry about being displaced by economic changes any time soon.

"We have a lot going on in the neighborhood. But everybody knows everybody, you know?" Joiner says. "So far, I'm pretty secure."

Keeping Joiner and other residents of West Boston Apartments exactly where they are has been part of the plan all along for Develop Detroit.

"We're an affordable housing developer, specifically in Detroit," says Craig Willian, Develop Detroit's Vice-President of Real Estate. "We currently have 650 units of low-income tax credit (LITC) and naturally occurring affordable multi-family housing in Detroit, both new construction as well as rehab."

These multi-family holdings include units at the Sugar Hill development in Midtown, which celebrated its grand opening earlier this year. Beyond that, the nonprofit is also responsible for the development of more than 20 single-family homes in North End.

Develop Detroit is currently in the process of renovating West Boston Apartments. Improvements at the facility include the modernization of apartments; installation of a new roof, HVAC, lighting, and landscaping; and the enhancement of common areas.  

Originally built in 1960, West Boston Apartments is located at 3220 W. Boston Ave. It houses 27 apartments, 18 of which are one-bedroom units and nine of which are two-bedroom units. Develop Detroit purchased the building in 2020, and renewed Section 8 Housing Assistance Payments (HAP) contracts for tenants at the facility last year. The tenant-based assistance provided by Section 8 is only available to very low-income families, qualifying seniors, and people with disabilities. 

After renovation, all 27 units will be occupied by tenants making 50 percent or below Area Median Income (AMI), which is currently $31,400 for a two-person household in Detroit. Rent at the complex is set to remain affordable to tenants for 25 years. 

Boston-Edison is a neighborhood in central Detroit. (Nick Hagen)'High demand' for affordable housing

At the time Develop Detroit bought the West Boston Apartments, the property was up for sale and at risk of being purchased by a different developer who could have converted the complex to market-rate housing. 

The housing-focused nonprofit ended up realizing its plans for West Boston Apartments with the help of a $1.8 million loan from a program called the Detroit Housing for the Future Fund (DHFF) and an additional $320,000 in gap financing assistance from the Federal Home Loan Bank of Indianapolis (FHLBank Indianapolis) through its Affordable Housing Program (AHP).

The DHFF is a new fund supported by private investment established to promote affordable housing development and preservation in Detroit. The fund is managed by Local Initiatives Support Corporation (LISC), a community development financial institution. The fund was established in 2020 through a collaboration between the nonprofit financial institution, the City of Detroit, and the Michigan State Housing Development Authority (MSHDA) as a part of the previously existing Affordable Housing Leverage Fund initiative (AHLF). It utilizes private grants and low-interest loan capital in conjunction with public investment through the state and city, as well as tax credits and other affordable housing financial tools, to help developers and owners address housing needs in the city. 

FHLBank Indianapolis is a government-sponsored enterprise and one of the 11 banks in the Federal Home Loan Bank system that provides low-cost funding for their member financial institutions. It's cooperatively owned by its member banks, credit unions, and community development financial institutions. FHBank Indianapolis has awarded more than $283 million since 1990 to support affordable housing projects through AHP grants.
The loan Develop Detroit received through DHFF and the FHLBank Indianapolis grant were  instrumental in making the renovation there happen and keeping the complex affordable to existing tenants. 

"Every resident in there is on a HUD voucher, so it was critical to us as an organization using their dollars to directly invest to keep it potentially out of the hands of a market rate buyer," says Willian.  "It allowed us to buy it, hold it, and preserve its long-term affordability. It was mission-based, for sure, for us as well as the city."

Up to this point, the DHFF has helped finance nine affordable housing projects in Detroit. The fund was created to increase Detroiters' access to affordable, high-quality housing, something Brandon Ivory, a DHFF Program Officer with LISC, believes is greatly needed in the city. 

"Detroit always kind of lags behind national indicators around poverty and unemployment," he says. "There's still a large portfolio, if you will, of substandard housing people are living in. So if we can get more buildings renovated that are offering higher quality units and still stay affordable, there's always going to be a high demand for that." 

With 33.2% of Detroit's population living at or below the poverty rate, according to the U.S. Census, it's understandable that there would be a high demand for affordable housing in the city. Unfortunately, for a variety of reasons, including high construction costs and lower-income tenants having less money for rent or home-related payments, it's difficult for developers to create housing that's both affordable and profitable. 

While some mission-based developers are able to create what's known as naturally occurring affordable housing (NOAH) that doesn't rely on subsidies, programs like the DHFF assist developers in making these sorts of projects more cost-effective.

To this end, DHFF offers two low-interest loans, one which allows for the refinancing of up to $2 million in existing debt and another for up to $5 million. Both are intended (though not exclusively) to cover renovation costs for multifamily buildings of 75 units or less. They also require that at least 50% of units be at 80% AMI or below and the remaining units be at 120% AMI or below, though DHFF encourages the developers it works with to aim between 50% or 60% or lower, when possible. 

Beyond that, the fund also offers preferred equity of up to $2 million for new construction or renovation and acquisition of existing properties. It also awards $100,000 in matching fund grants to developers of color for predevelopment and soft expenses as well as grants for capital needs assessments.

Le Chateau Apartments is being renamed 7 Mound Apartments and being kept affordable by Minyon Properties. (Nick Hagen)Anatomy of an affordable housing deal

For a developer interested in taking advantage of these resources, the first step involves approaching LISC. Sometimes they may want financing to acquire property and build or rehab housing. At other times, the developer may already own the property and want help bridging financial gaps to make a project a reality. From there, LISC will work with them on what's known as the pre-application process. 

Brandon Ivory (LISC)"Developers complete their pre-application [form] and then we sit down and talk with them about the project," says Ivory. "We get more specific details, take a high-level look at the numbers and really just determine if the project is feasible."

If the project is not deemed feasible, LISC will give feedback to the prospective developer, who is welcome to rework the project and try again at a later time. After that, the formal application process begins. Applicants are granted full access to DHFF's online portal and are able to engage in a full application, which requires more documentation including things like an environmental study, capital needs assessment, and finalized budget.

From there, a threshold review is conducted and the project is scored to see whether it's suitable for DHFF financing. Then, LISC holds what's known as a formal intake that involves reviews by an internal committee as well as its partners with the Detroit Housing and Revitalization Department and MSHDA to determine whether the project is in alignment with the goals of the DHFF and AHLF.

If it's approved, a letter of interest is sent out, and LISC works with the applicant to get the proper documentation to close the deal and fund the loan. Once that's done, a loan closing is scheduled. After the deal is finalized, an asset management team monitors the performance of the loan and tracks payments. LISC also keeps its doors open for other affordable housing opportunities that developers may be able to send their way.

"We're still in pretty regular conversations with them," says Ivory. "We've had a couple come back to us as repeat borrowers and some that we've worked with have actually referred other developers to us, so post-approval and closing the relationships continue."

Closing the deal

Develop Detroit had a relatively easy time getting through the DHFF process with West Boston Apartments, due to a pre-existing relationship with LISC. 

"We worked together before the fund was created, so we had a working relationship already," says Victor Abla, LISC's Regional Preservation Director. "Looking at the West Boston Apartments, we thought it'd be a good fit [for DHFF financing] and really did need the lower interest rates to make the numbers work."

According to Willian, having worked with LISC on other projects in the past really helped the application and review process go smoothly.

"It was sort of a natural, because LISC had already been an investor with our organization," he says. "It was kind of a seamless transaction. They had already underwritten us, and even today we're looking at our next deal with them."

Even after the DHFF loan was finalized, Develop Detroit still needed additional gap financing to move forward with renovations, as the project is one of many that have been impacted by skyrocketing construction costs related to the COVID pandemic. The nonprofit got assistance from FHLBank Indianapolis, who awarded the nonprofit developer a $320,000 AHP grant in 2021 to help the project move forward. Develop Detroit worked with Lake Trust Credit Union, a member institution of FHLBank Indianapolis, to apply for that grant. Funds from the AHP grant went toward improvements to the HVAC systems, roof, sidewalk, parking, and landscaping of the apartment complex.

Minyon Properties is another local developer that's received financing through the DHFF. It's a Black-owned Detroit-based development firm dedicated to bringingKatonya Jones (Nick Hagen) affordable housing to a variety of special needs populations. Minyon Properties has committed to helping preserve 10,000 units and re-developing 2,000 new units of affordable housing by 2025.

"We believe that our residents deserve to live well in safe and affordable housing," says Katonya Jones, managing director of Minyon Properties. 

The developer worked with LISC to receive $1.6 million from DHFF to renovate Le Chateau Apartments, which is located at 19225 Mound Road in Detroit. Minyon is fully renovating 30 one-bedroom apartments at the complex, which it's rebranding as 7 Mound Apartments. Each of the units, which are considered "deeply affordable," are getting updated kitchens and bathrooms as well as new flooring and HVAC systems. Beyond that, the facility is getting a new roof and paint, extensive masonry repairs, energy-efficiency enhancements, and an ADA-compliant parking lot and walkways.

Slated for completion next summer, 7 Mound Apartments will feature 25 apartments at 50% AMI and five units at or below 40% AMI, which means some residents will be paying as low as $671 a month. All current tenants will be allowed to remain in their homes throughout the renovation. The affordable rates at the apartment complex are set to stay in place for at least 14 years.  

As an emerging minority developer, LISC was very interested in working with Minyon Properties when they approached them for DHFF financing.

"They had some experience doing single-family rehabs some years back, but this was their first multifamily development," says Ivory. "We sat down with them and folks on their team, including their general contractor and architect, and brought some of our technical expertise to get the project through our process."

LISC also provided additional support through DHFF's Developer of Color Matching Grant Award, which offers up to $100,000 in matching funds to cover pre-development expenses like land surveying or environmental assessments. Although it was a long process, Minyon Properties considers applying for the DHFF grant to have been a great learning experience. 

 "Minyon Properties had a wonderful experience working with the Detroit-LISC team. The LISC staff were very informative and provided valuable insight towards our affordable housing project," says Jones.   

While DHFF was put together specifically to address affordable housing in Detroit, it's not the only resource potential developers can go to for help financing these sorts of projects. 

Develop Detroit used financing from J.P. Morgan Chase as well as New Markets Tax Credits from U.S. Bancorp Community Development to get its North End homes development off the ground. It has also cultivated working relationships with Enterprise Community Partners, Cinnaire, Michigan Community Capital, and KeyBank.

For emerging developers getting into the affordable housing space, Willian believes it's a smart idea to first reach out to investors who are either based in Michigan or familiar with the local landscape. 

"A lot of the investors who are outside of Michigan haven't even been to Detroit. So when they come here, they're amazed. And you spend a lot of time educating them," he says. "Having a local investor who understands the Detroit market, both from underwriting as well as affordability needs, is key."

All photos by Nick Hagen, unless otherwise noted. 

This is part of the Block by Block series, supported by FHLBank Indianapolis, that follows minority-driven development in Detroit.
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