DOWNTOWN COLORADO INC.
MISSING-MIDDLE HOUSING
Partnership and Financing Strategies for your Workforce
July 18, 2023
Michael Leahey
Castlewood Capital Partners
www.castlewood.co
WHO’S THE SPEAKER?
₋ 25 year career in finance and strategy
₋ 10 year career in real estate development
₋ Founded Castlewood Partners in May 2020
₋ Notable past clients include:
• General Electric & GE Capital
• CNBC & MSNBC
• US Army
• US Steel
• Liberty Mutual
• Pacific School of Religion
• The Sustainable Community Initiative
• US Department of Agriculture
• National Renewable Energy Lab
Michael Leahey • Professional Speaker including TedX
₋ Notable current clients include:
Castlewood Capital Partners
• Evergreen Land Co. (Gateway Village, Leadville)
Founder, Principal • Fading West Development
• LDG Multifamily
(303) 720-5663 • Chaffee Housing Trust
[email protected] • Old Three Hundred Capital
• Downtown Colorado Inc.
The Only Consulting Practice in Colorado Focused Exclusively on the Missing Middle
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WHAT’S THE ISSUE?
“There is an acute shortage of affordable middle-income housing in
the State, particularly in fast growing areas where jobs are being
created. Housing is increasingly not affordable for essential workers
such as nurses, teachers, firefighters, and other members of
communities who earn too much to qualify for governmental housing
subsidies, and for whom the market is not building new housing.”
-Colorado Senate Bill 22-232
MIXED INCOME COMMUNITIES FORM A HEALTHY SOCIAL ECOSYSTEM
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WHAT DO THESE AFFORDABILITY TERMS MEAN?
Traditional Low Income MISSING MIDDLE Market Rate to Luxury
30% AMI 60% AMI 80% AMI 100% AMI 120% AMI 140% AMI 160% AMI +
Served by Vouchers & Tax Credits Not Being Served Served by Traditional Finance
Defined Terms
Extremely Low Income Less than 30% AMI
Very Low Income 30% - 50% AMI
Low Income 50% - 80% AMI (averaging 60%)
Missing Middle 80% - 120% AMI (some broaden to 60% - 140%)
‘Terms of Art’
Workforce Housing Can refer to Missing Middle or Misssing Middle + Low Income
Attainable Housing Can refer to Missing Middle or Misssing Middle + Low Income
Market Rate What the market will bear – usually 120% - 160% AMI
A MASSIVE GAP AT THE HEART OF THE HOUSING MARKET
09/20/2023 4
WHO IS THE MISSING MIDDLE WORKFORCE?
Colorado communities - already un-affordable and facing massive
inventory shortages - have experienced record growth since the onset
of the pandemic in 2020, with many markets doubling in price in just
over two years, and while the pace of growth has slowed, the
absolute price remains deeply unaffordable.
We segment our future homebuyers into two main groups:
1. Work-Force: Rural workforce priced out of the market –teachers,
nurses, firefighters, public employees
2. Work-From-Home: Entrepreneurs and business owners liberated
from urban living by new technologies and customs
These homebuyers want:
• Freedom and flexibility to live and play in the same place
• Connection with nature and room to move
• Company, efficient, healthy, smart homes with decreased long-
term cost of ownership
• Ownership instead of renting – to build long term wealth
Substantial, Stable Demand Over Time – Less Risky than Traditional Market Rate?
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WHAT ARE THE BOTTLENECKS?
Workforce-
Workforce-
Specific
Specific
Capital
Developmen
(Public and
t Expertise
Private)
Public
Perception of
Construction
Need for
Innovation
Missing
Middle
FOUR MAIN BOTTLENECKS CREATE A VICIOUS CYCLE AND EXACERBATE THE MISSING MIDDLE
6
09/20/2023 6
HOW AMI’S DRIVE PRICE (DENVER)
Bedrooms 1 BR 2 BR 3 BR
# People 1.5 3 4
AMI %: 100% 100% 100%
Income $ 87,950 $ 105,500 $ 117,200
Affordable Monthly Rent $ 2,199 $ 2,638 $ 2,930
Interest Rate 6.50% 6.50% 6.50%
Max Morgtgage (P&I) $ (1,833) $ (2,275) $ (2,591)
Taxes, Insurance, HOA $ 350 $ 350 $ 350
Max Affordable Mortgage $ 290,000 $ 360,000 $ 410,000
DOH Down Payment Assistance $ 25,000 $ 25,000 $ 25,000
Max Affordable Price $ 315,000 $ 385,000 $ 435,000
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HOW AMI’S DRIVE PRICE (LEADVILLE)
Bedrooms 1 BR 2 BR 3 BR
# People 1.5 3 4
AMI %: 100% 100% 100%
Income $ 61,700 $ 74,000 $ 82,200
Affordable Monthly Rent $ 1,543 $ 1,850 $ 2,055
Interest Rate 4.00% 4.00% 4.00%
Max Morgtgage (P&I) $ (1,194) $ (1,480) $ (1,695)
Taxes, Insurance, HOA $ 350 $ 350 $ 350
Max Affordable Mortgage $ 250,000 $ 310,000 $ 355,000
DOH Down Payment Assistance $ 25,000 $ 25,000 $ 25,000
Max Affordable Price $ 275,000 $ 335,000 $ 380,000
HOW DO YOU CREATE A MISSING MIDDLE PROFORMA?
The project should show a net zero profit – County AMI Determine the appropriate home prices
the private party will earn a profit from a Affordability from your org’s mission, your funders’
larger than normal development fee – and AMI thresholds, and county AMI levels
have enough cash flow to pay back any debt
P&L and Cash Funder AMI
Flow The Missing Middle Thresholds
Proforma:
A triangulation of various
constraints determine a The revenues identified above must
Source of Funds = Use of Funds project’s feasibility match the relevant costs for the
Fill in the capital stack gap puzzle project – if they are higher you can
Start with traditional bank loans and reduce prices, if they are lower you
identify grants, philanthropy, etc.
Source of Use of Funds must cut cost or increase prices
Funds (Public = Costs
& Private) = Revenue
THE MISSING MIDDLE PROFORMA – A DIFFERENT EXERCISE THAN LIHTC OR MARKET
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WHAT FINANCING IS AVAILABLE IN THE “TOOLKIT”?
For Rent For Sale
1. Public-Private Partnership with Housing 1. Public-Private Partnership with
Authority Community Land Trust
2. Construction Finance – Bank, HUD, USDA 2. Metropolitan District Infrastructure
3. Gap / Mezzanine Financing (CHFA / DOH) Bonds
4. Agency / HUD Perm Financing 3. Construction Finance – Bank, Private
5. Social Impact Fund Mezzanine / Equity Lender, CHFA
6. CHFA Prop 123 Programs 4. DOLA Grants & Downpayment
7. MIHA Bond Financing Assistance
8. Qualified Opportunity Zone Equity 5. DOLA Prop 123 Programs
UNPRECEDENTED VARIETIES OF FUNDING IN COLORADO –
PARTNERSHIPS NEEDED TO TAKE FULL ADVANTAGE
09/20/2023 10 10
COLORADO SPECIAL LIMITED PARTNERSHIP STRUCTURE FOR MISSING MIDDLE
Local Housing Local Housing Local Housing
Authority Authority Authority
LCRHA
TRADING DEED RESTRICTIONS FOR TAX & OTHER INCENTIVES
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TEXAS “PFC” MODEL
99-Year Lease, Tax
Incentive, Public Funding
Local Housing Authority Private Developer
Ownership of Land, Deed
Restrictions
TRADING DEED RESTRICTIONS FOR TAX & OTHER INCENTIVES
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COLORADO MIHA (MIDDLE INCOME HOUSING AUTHORITY) MODEL
• Public ownership enables long-term public benefit
• Property tax exemption increases project cash flows, sales and use tax exemption
reduces cost
• Access to tax-exempt “Essential Housing Bond” market provides favorable
financing
• Increased reporting, compliance, and oversight maximizes public benefit
AN INNOVATIVE EXAMPLE OF POLICY ENTREPRENEURSHIP – IMPACT TBD
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WHAT ROLE DO COMMUNITY LAND TRUSTS PLAY?
2 Main Strategies for Community Land Trusts:
1) Buy Land and Build Units Financed like market rate – with a twist
2) Purchase Complete Units Public-Private-Partnership
Cost to Build Market Price DOH Grant Local Subsidy Philanthropy Subsidized
Price
$400,000 $450,000 $50,000 $50,000 $50,000 $300,000
(140% AMI) (100% AMI)
• Nonprofit ownership of land creates long-term (100-200 year +) affordability
• PPP structure allows each party to do what they do best
• Capital stack includes both private (debt) capital as well as public (grant) capital
• 30-year mortgage rates have massive impact on the “price” at a given AMI level
09/20/2023 14 14
HOW DOES PROP 123 FACTOR IN?
● Investments by Housing Type:
○ Rental Housing 51% $135M-$153M
○ Homeownership
$300M Est. Funding
21% $60M
○ Homelessness 19% $54M
○ Land Banking 9% $27M
● Investments by Funding Program
○ Affordable Housing Financing Fund (OEDIT/CHFA) $180M
■ Equity Finance 40-70% $72-$126M
■ Concessionary Debt 15-35% $27M-$63M
■ Land Banking 15-25% $27M-$45M
○ Affordable Housing Support Fund (DOH) $120M
■ Homeownership 50% $60M
■ Homelessness 45% $54M
■ Local Planning Capacity 5% $6M
This slide created by:
WHILE DISAPPOINTING FOR MISSING MIDDLE, ALL COMMUNITIES SHOULD OPT IN
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TAKEAWAYS:
1) Challenge yourself to find a partner on the other
side of the public / private divide
2) Make sure that you are bringing every source of
financing possible to the project
3) Prioritize mixed-income for healthier community
ecoystems
09/20/2023 16 16
www.castlewood.co
UPCOMING EVENTS
Tax Increment Finance (TIF) 101, Trinidad
4pm Aug 16– 2pm Aug 17
CML-DCI Metro Mobile Tour, Departs Denver
8:30 AM, Aug 31, 2023
Tax Increment Finance (TIF) 101, Frederick
4pm Oct 19– 2pm Oct 10
Tax Increment Finance Housing Summit, Pueblo
8:00 AM, Oct 27, 2023
