Peakview Apartments

Lafayette, Colorado

Project Type: Residential

Case No: C027018

Year: 1997

SUMMARY A 160-unit, mixed-income apartment complex containing one-, two-, and three-bedroom units. The project was designed as moderately priced rental housing for a mix of families and adult households. Tax-exempt bonds and low-income housing tax credits were used to finance the project. The general partner incorporated the tax credits into a limited-partnership offering instead of using a third-party syndicator to raise equity.

FEATURES

Mixed-income rental housing Low-income tax credit and private activity bond financing Environment-friendly construction Neighborhood opposition and growth concerns Central park Crime prevention measures Peakview Apartments

Lafayette, Colorado

Project Type: Residential

Volume 27 Number 18

October-December 1997

Case Number: C027018

PROJECT TYPE

A 160-unit, mixed-income apartment complex containing one-, two-, and three-bedroom units. The project was designed as moderately priced rental housing for a mix of families and adult households. Tax-exempt bonds and low-income housing tax credits were used to finance the project. The general partner incorporated the tax credits into a limited-partnership offering instead of using a third-party syndicator to raise equity.

SPECIAL FEATURES

Mixed-income rental housing Low-income tax credit and private activity bond financing Environment-friendly construction Neighborhood opposition and growth concerns Central park Crime prevention measures

DEVELOPERS

T. Amory Host Peak Properties and Development Corporation 1877 Broadway, #701 Boulder, Colorado 80302 303-444-3020

ARCHITECTS

Jeff Shera Lantz Boggio Architects 5650 DTC Parkway, #200 Englewood, Colorado 80111 303-773-0436

SITE PLANNERS/ENGINEERS

David Williams Downing Thorpe James Architects 1881 Ninth Street, #103 Boulder, Colorado 80302 303-443-7533 GENERAL DESCRIPTION

Peakview Apartments offers income-restricted and market-rate rental units. Forty percent of the complex's 160 units are required to serve households with incomes at or below 60 percent of median area income. Tenant application requirements include a minimum of six months' employment, verification of income, and a satisfactory credit history. The existing tenant roster has a well-rounded mix of two-person working households, seniors, and families.

The property is located in Lafayette, a city of approximately 19,000 people that historically was a Boulder bedroom community. Since Boulder is reaching buildout, people have migrated into surrounding communities like Lafayette. Over the past decade, employment has become more disbursed throughout the county, and housing costs have escalated in Lafayette and other Boulder County communities.

The developer of Peakview, Peak Properties and Development Corporation, is a small, closely held corporation formed in 1988 that has developed and managed seven projects in Colorado. The company prefers to develop entry-level, multifamily projects, both for sale and for rent, ranging from 80 to 200 units. The team at Peak Properties is adept at structuring public/private partnerships to enhance financial viability and help meet a community's need for affordable housing.

THE SITE

Peakview's 11.55 acre site is optimally located in the city of Lafayette in Boulder County. An elementary school is located adjacent to the site on its northern edge, and a park and public swimming pool are located directly across a road to the south. To the west, a vacant parcel separates the site from Lafayette City Hall; plans for this parcel call for construction of a mixed-use office, retail, park, and residential development. Mobile homes lie to the east of the property. A variety of retail stores are nearby, and Lafayette's downtown area is about one-half mile away. The site is only 20 minutes from nearby Boulder, Longmont, and metro Denver and therefore is convenient for commuters. There were no physical impediments to site development. The site has views of the mountains to the west.

PLANNING, DESIGN, AND CONSTRUCTION

The development of Peakview took almost three years from the project design phase to completion of construction. The city of Lafayette had significant input in planning decisions and zoned the parcel for multifamily development with a maximum density of 14 units per acre. A 2-acre open space/park area was created by positioning the relatively large (over 20 units) buildings around the perimeter.

The complex is laid out in an oblong shape with an access road forming the perimeter. There are seven two- or three-story buildings oriented diagonally toward South Boulder Road. An interior park was created containing roughly 1.5 miles of trails and walkways.

Special design features include hip roofs, oversized windows, French doors, balconies or decks for each unit, a choice of four floor plans, units with 12-foot ceilings, washer/dryer hookups in the three-bedroom units, private exterior entrances, and carports. The appealing exterior of the buildings avoids the institutional appearance often associated with large, low-income apartment complexes.

The city police department routinely becomes involved in planning projects to mitigate crime through site design. Issues addressed ranged from lighting to the size of landscape rock, carport design, peep holes, and type of lock installed.

Five public hearings were held over the one-year city review period. There was neighborhood opposition to the project even though mobile homes are located adjacent to this area of Lafayette and it contains concentrations of lower-income residents; opponents expressed concern about the potentially transient nature of occupants in low-income rental units. The developers presented design renderings to reassure those opposed of the quality of the project.

Citizens in Lafayette also were sensitive to the amount of growth in the area due to rapid population increases over the past five years. In the winter of 1995, a citizen's initiative was adopted by referendum that limited the number of building permits that could be issued each year. The developer was uncertain whether the apartment complex could proceed even though approval already had been granted. The complex represented 13 percent of total growth permitted over the next six years.

The presence of prairie dogs on the site and the temporary closure of the federal government presented two other barriers to development. More than 200 prairie dogs had to be relocated from the site to undeveloped open-space areas. And the commitment for HUD mortgage insurance was about to expire when all federal offices closed in November 1995 due to a budget stalemate, causing a delay of more than two months. Fortunately, both situations were resolved satisfactorily.

Peak Properties is sensitive to environmental concerns and used available "green" alternatives in developing the project. Recycled paint was used initially on both the interior and exterior of several buildings; however, problems with its consistency prevented its use for the balance of the project. Stain-resistant carpet made from recycled plastic soft-drink bottles was installed in all units.

MARKETING AND MANAGEMENT

During the public approval process the complex became known as an "affordable" property, leading to some negative perceptions about potential problems with low-income residents. However, as a result of greater market exposure throughout the region, this apprehension was short lived. Incomes for those qualifying for market-rate units were similar to those of households qualifying for tax-credit restricted units due to Boulder County's relatively high median income ($58,300 in 1996).

Strong relations with the Lafayette chamber of commerce and real estate agents aided in the promotion of the apartments. There were no other apartment complexes in Lafayette, so management established a referral network with property managers in nearby towns. Other marketing efforts included advertisements in Boulder-area publications and Denver apartment rental guides.

Absorption of units was slower than anticipated primarily due to the time of year that units reached the market. HUD's moratorium delayed completion until September, a poor time for lease activity in Boulder County, thus requiring higher lease-up reserves. The general contractor's delayed completion of the interior finish of each unit also deterred leasing efforts. Peakview reached full occupancy four months after completion of construction.

FINANCING

The project was funded primarily through low-income housing tax credits and tax-exempt bonds. The developer applied for federal tax credits from the state of Colorado's allocation. There are two types of tax credit—one is granted through a competitive process and provides a 9 percent tax credit rate on eligible project development costs and the other is granted through a noncompetitive process and provides a 4 percent rate. Projects must meet one of the following low-income requirements: 40 percent of the units must serve persons with incomes of 60 percent of area median income (AMI); or 20 percent of the units must serve those with incomes of 50 percent of AMI or less, adjusted for family size. Once applications are received, scoring criteria are applied. Rents must be restricted for ten years.

Peakview applied for the noncompetitive 4 percent tax credit program, structuring the project to serve persons with incomes of 60 percent of AMI for 40 percent of the units (64 units). The remaining 96 units are market rate.

Tax credits attract private investment for affordable apartments. The benefit to investors is that tax credits shelter both passive and nonpassive income. Typically, credits from passive activities can be used only to offset income taxes on passive income. Individuals are limited to using tax credits against income taxes on the last $25,000 in income in any one year.

Peak Properties established a limited partnership and issued its own offering to qualified investors in Boulder County. Significant cost savings on the syndication were realized by handling the issue in house, since no commissions or mark-ups were incurred. Fifty partnership interests sold in four months at a price of $45,000 per unit, raising $2,250,000 in equity. Each unit is expected to generate an annual credit of $3,500 for each of the next ten years.

Participants were enthusiastic about the investment due to the returns as well the opportunity to participate in a local affordable housing project. Investment returns are derived from three sources: tax credits (equates to 8 percent); anticipated cash flow from the market-rate units (4 percent); and asset appreciation from the sale of the property once the tax credit period expires.

The other primary source of funding was a $10,960,000 tax-exempt private activity bond issued by Boulder County at 6.4 percent interest for 40 years based on the anticipated revenue stream from the project. Mortgage insurance was provided by HUD's 221(D)4 program, which created an AAA rating on the bonds. In addition, a contingency loan was provided by the Colorado State Division of Housing in the amount of $325,000 at 6 percent for 40 years to assist with operating expenditures.

EXPERIENCE GAINED

The developer proved that, despite initial financial impediments, attractive, affordable rental units could be constructed in a high-cost community. The town's zoning requirements limited density, so the developer had to invest additional funds in landscaping and open space. City fees totaled more than $1.4 million ($9,000 per unit). The low-income tax credit program and tax-exempt bonds offered by the state were essential in countering these financial difficulties. The developer believes a high-quality product can sustain itself if it has an optimal location and is properly sized to maximize benefits resulting from economies of scale. If unscheduled delays occur, it is more financially prudent to postpone construction until completion will occur when leasing activity typically is at its peak. The cost of holding undeveloped land is significantly less than the cost associated with a slow lease-up period. Community support was important to Peakview's success. Developers should beware of the stigma associated with "affordable" projects and use physical representations (models, renderings) to focus on design rather than occupancy. Developers should pursue environment-friendly alternatives in the construction of projects. "Green" products may be similar in price to traditional materials. Some will work better than others, but experimenting could prove to be cost effective. Potential residents' preferences in amenities should be considered along with the cost of those amenities. For instance, washer/dryer hook-ups were available only for three bedroom units, yet residents in the smaller, market-rate units would have paid for them. PROJECT DATA LAND USE INFORMATION Site Area: 11.55 acres Total Units: 160 Gross Density: 13.86 units per acre Gross Square Feet: 168,193

UNIT INFORMATION Average Size Unit Type Number (square feet) Market Rent Restricted Rent 1-bedroom/1-bath 42 671 $640-650 $575 2-bedroom/1-bath 42 834 $765-775 $685 2-bedroom/2-bath 32 897 $815-840 n/a 3-bedroom/2-bath 44 1,112 $975-$1,000 $830

SOURCES AND USES OF PUBLIC FUNDING Source Amount Use Private Activity Bond, Boulder County and State $10,500,000 Construction/Mortgage Federal Low-Income Tax Credits 2,250,000 Equity/Construction Interest/Operating Fee Deferrals on $1 M, City of Lafayette 50,000 Costs Total for Construction $12,800,000

Colorado State Division of Housing Loan 325,000 Operating Costs Private Activity Bond, Boulder County and State 460,000 Operating Reserve Total $13,585,000

DEVELOPMENT COST INFORMATION Site Acquisition Cost: $574,827

Site Improvement Costs Excavation/grading: $170,740 Water/sewer/drainage: $234,106 Road paving/curbs/sidewalks: $305,669 Landscaping/irrigation: $299,839 Total: $1,010,354

Housing Units Construction Costs: $7,829,328

Soft Costs Architecture/engineering: $367,205 Marketing: $40,000 Legal/accounting: $32,703 Taxes/insurance: $39,086 City fees: $1,466,792 Syndication: $72,586 Loan fees/interest: $771,312 Developer fee: $650,000 Miscellaneous: $5,207 Total: $3,444,891

Total Development Cost: $12,859,400 Average Construction Cost per Unit: $48,933 Average Construction Cost per Gross Square Foot: $46 Average Development Cost per Unit: $80,371 Average Development Cost per Gross Square Foot: $76

DEVELOPMENT SCHEDULE Project Planning Started: March 1994 City Approvals Obtained: March 1995 Site Acquisition: December 1995 Construction Started: December 1995 Marketing Started: July 1996 Leasing Started: September 1996 Construction Completed: December 1996

DIRECTIONS

From Denver: Take Interstate 25 north to Highway 36 (Boulder Turnpike). Proceed north to the Broomfield exit, Highway 287. Continue north to South Public Road and turn right at the light. Proceed north to the light at South Boulder Road. Turn right, going east for one-half mile. Peakview is located on the north side of the street. Sharon Carpio, Report Author Mary B. Schwartz, Editor, Online Project Reference File Eileen Hughes, Managing Editor

This Development Case Study is intended as a resource for subscribers in improving the quality of future projects. Data contained herein were made available by the project's development team and constitute a report on, not an endorsement of, the project by ULI-the Urban Land Institute.

Copyright © 1997 by ULI-the Urban Land Institute 1025 Thomas Jefferson Street, N.W. Suite 500 West, Washington D.C. 20007-5201 Front entrance to peakview from South Boulder Road. Clubhouse in the foreground, along with three-story buildings. Balconies are available for all units in addition to carports, as shown in the foreground. peakview with the adjacent elementary school in the background. peakview with a view of mountains to the west. Clubhouse on the left, along with back view of apartments and mountains. View of a building with exterior entrances from the central park. View of building showing hip roof, oversized windows, and balconies. Balconies facing the central park. Site plan. Floor plan for 1 Bedroom/1 Bath Unit. Floor plan for 2 Bedroom/1 Bath Unit. Floor plan for 2 Bedroom/2 Bath Unit. Floor plan for 3 Bedroom/2 Bath Unit