Hiding In Plain Site
Bay Area developer is hip to the missing middle
In early 2021, a client new to Century, HIP Housing, approached us about helping preserve 14 apartments with reasonable rents in the Bay Area city of Menlo Park. The project on Coleman Place looked like an unsuspecting site for affordable housing innovation, but within the compact 1950s buildings lay an economic conundrum being confronted around the state. With new affordable housing ever more expensive to produce, what can be done to preserve existing affordable housing stock at lower total cost?
The answer came in the form of a partnership between HIP Housing, the City of Menlo Park, and Century Housing. For whatever reason, prior owners of the property had not aggressively improved the property or aggressively increased rents and therefore had not put these 14 units far out of reach of the median family in Silicon Valley. At the epicenter of astronomical rents, propelled by high wages in the technology center, this small property represented a rare opportunity to protect moderate income rents from another paint job, another “interior refresh” or trendy xeriscaping.
HIP Housing, a longtime affordable housing operator, service provider and developer saw opportunity in adding to their portfolio of small properties, below the scale of what most tax credit developers seek out. Menlo Park was looking for more “missing middle” housing, suitable for workers unable to afford market rents but over income for tax credit properties, and contributed a substantial pool of funds to cover the gap between the income the property generates now and the debt it supports. This also addressed the gap between market expectations in terms of quality and the high purchase price another developer would be willing to pay. Century was prepared to move quickly, working with HIP Housing to interpret the physical needs of the structure and systems, anticipate leasing through the city’s waiting list and size the debt such that HIP Housing could earn a developer fee and hopefully continue to find similar opportunities.
In the end, rents remained affordable to households earning below 80% of AMI, and 14 families will live near where they work and raise their kids with the assurance of affordable, safe and secure housing. Century has seen a growing interest in the unsubsidized affordable housing space and we are actively providing traditional and novel solutions to help developers acquire and hold these vital resources.