As affordable housing continues to be a hot buzz legal topic with recent bills like House Bill 23-1255 and Senate Bill 23-213, Law Week spoke with Democrat Rep. Andrew Boesenecker and five local firms ahead of the next legislative session.
“When we talk about ‘affordable,’ I think we’re generally talking about something that needs to be parsed out along far more nuanced lines so we understand where targeted investments can actually make the most impact,” said Boesenecker.
Boesenecker was a prime sponsor of HB23-1190, also known as the Affordable Housing Right Of First Refusal, along with Democrat Rep. Emily Sirota and Democrat Sens. Faith Winter and Sonya Lewis.
Although this bill was vetoed by Gov. Jared Polis, Boesenecker thinks there’s a path for other bills with the same types of initiatives. He plans to bring a bill next session that will grant a right of first refusal for existing affordable housing.
For example, Boesenecker believes if a property benefited from public investment, like tax dollars, it makes sense that property could be used as affordable housing rather than it being sold at market rate or converted to market-rate housing.
“I think there is a very limited scope which right of first refusal not only makes sense but also would garner support from perhaps even those who had concerns about the policy,” added Boesenecker.
Boesenecker also told Law Week that land use and zoning are currently trending in affordable housing in Fort Collins.
“But I think there’s going to be a continued effort to not only expand efforts in the affordable housing space but also the number and type of units on the housing continuum that we have here in the state,” noted Boesenecker.
Fairfield and Woods P.C.
Fairfield and Woods’ affordable housing team advises developers, nonprofit organizations and governments on formation, operation and compliance issues in connection with affordable housing programs, including low-income housing tax credits; use of complex land trusts; deed restrictions; covenants; ground lease structures and acquisition of existing affordable housing communities, explained Jack Reutzel, affordable housing specialist and attorney, via email. The firm also helps the government with writing zoning code updates that include provisions for affordable housing.
“We just finished assisting the City of Golden in providing financing for the purchase of an existing mobile home park for the existing residents,” wrote Jack Reutzel to Law Week via email. “The City partnered with other private financing to allow the existing residents to buy the park from the developer … we also are drafting revisions to zoning codes incorporating policies and regulations for affordable housing.”
According to Reutzel, every process is different depending on the program and jurisdiction the team is working in. Local governments set the process and it’s the team’s job to work within the constraints of the process to present a development that meets the client’s objectives and the requirements of the jurisdiction.
“Many times, the process requires a tremendous amount of community engagement and often we end up fighting over long-range goals for affordable housing and adjacent property owners,” continued Reutzel.
In terms of novel issues the team deals with, Reutzel named two: emerging trends in sustainable and inclusive development and changes in legislation.
As for the future, Reutzel told Law Week cities and counties within the metro area need to recognize some of the regulatory barriers that have prevented a healthy mix of affordable and sustainable housing opportunities.
“Code changes regarding land use densities and architectural requirements should be reviewed and updated to ensure opportunities exist for the full range of housing options,” noted Reutzel.
Holland & Hart LLP
“Building affordable housing isn’t easy – it takes a village! This is a mission that the Holland & Hart affordable housing team strongly believes in!” wrote Partner Melinda Pasquini and Of Counsel Erin Nave to Law Week via email.
The firm has a large team of real estate, tax, construction and finance attorneys across the firm who represent for-profit and nonprofit developers, investors and lenders in low-income housing tax credit developments, housing and urban development financing and other aspects of affordable housing in Colorado and nationally, explained Pasquini and Nave. The affordable housing team in Colorado has assisted developers in building and financing thousands of units of affordable housing in Denver, the Front Range and rural areas throughout the state.
“Every deal seems to have a novel issue,” noted Pasquini and Nave. “There is no such thing as a cookie-cutter affordable housing deal.”
Acquiring affordable land, financing projects at current interest rates and the high cost of construction all impact the ability of developers to build new projects and rehabilitate older projects, while keeping rental rates affordable, continued Pasquini and Nave. Many developers are now having to utilize several sources of gap financing, in addition to primary loans, to be able to move projects forward, which increases the complexity of affordable housing transactions.
“Prior to the pandemic, when interest rates and construction costs were lower, affordable projects often utilized up to three or four different funding sources,” added Pasquini and Nave. “Now we frequently see deals that have five, seven, even 12 or 14 different funding sources, including loans and grants, and substantial concessions from local governments on items like utility access and building permit fees.”
According to Pasquini and Nave, each of these funding sources has its requirements.
“Reconciling the various regulatory requirements at all levels becomes exponentially challenging as construction and financing becomes more expensive and the sources of debt and equity increase,” noted Pasquini and Nave.
Pasquini and Nave told Law Week they enjoy collaborating and partnering with state and local governments and pride themselves in fostering those relationships.
“Managing expectations of all parties to ensure everyone stays focused on common and achievable goals is the key to a successful affordable housing project,” added Pasquini and Nave. “A successful affordable housing project requires teamwork and continued relationship building from all stakeholders.”
As far as the future, Pasquini and Nave want to see creativity and inventory growth continue through smart and effective policies with extensive stakeholder input rather than become “mired in layers of conflicting intergovernmental regulations.”
Ballard Spahr LLP
“Determining how a development achieves ‘affordability’ is one of the biggest challenges that I face,” wrote Alejandro Monarez to Law Week via email.
Monarez is a member of Ballard Spahr’s affordable housing and community development practice group, comprised of over a dozen attorneys nationwide.
“Our group focuses on structuring some of the most complex affordable housing developments in the nation,” added Monarez.
The group is currently working on a large number of transactions across the nation and has seen many state and local jurisdictions prioritizing affordable housing and committing additional resources, explained Monarez. In Colorado, the group is helping developers secure financing and close on affordable housing developments, some of which include civic-minded commercial components such as food markets.
The group regularly interacts with or represents public entities that have acquired land for the purposes of developing affordable housing, either through their own efforts or by partnering with trusted developers in the industry, explained Monarez.
“Some members of our team have also represented developers in other jurisdictions with acquiring what is commonly known as naturally occurring affordable housing to ensure that they are rehabilitated and remain affordable for the foreseeable future,” continued Monarez.
The latest novel issue, noted Monarez, comes from the Biden administration’s Inflation Reduction Act, which incentivizes the inclusion of certain qualifying renewable energy infrastructure improvements in projects. The act extended the availability of tax credits for solar and other energy improvements and for projects that meet certain energy standards.
According to Monarez, as economic pressures continue to strain the existing housing stock and prospective purchasers and renters of homes in Denver and nationwide struggle to find reasonably priced housing, the team is seeing additional resources, as well as improved administrative infrastructure, to deploy the funds as efficiently and effectively as possible.
“I consider the affordable housing industry, and its bar, to be one of the most collegial,” added Monarez. “Everyone recognizes that this work has a real impact for the lives of people we see every day that goes beyond a return on investment … I am hopeful that this ‘mission-alignment’ continues to thrive as more developers consider adding affordable housing to their real estate portfolios.”
Lewis Roca Rothgerber Christie
“We have a team of lending lawyers that focus on all types of affordable housing loans, including acquisition, construction, and long-term financing loans,” wrote Lewis Roca partners Lindsay McKae and Emily Charlesworth to Law Week via email. “We work on projects that include low-income housing tax-credits financed with tax-exempt bonds and without.”
Some of these projects include multiple types of financing tools in one building or multiple buildings, including construction projects with new market tax credits and low-income housing tax credits within the same project, explained McKae and Charlesworth. The team also focuses on other financings for affordable housing, including tax-exempt and bank-qualified loans as well as taxable loans.
“Colorado needs affordable housing,” noted McKae and Charlesworth. “Because of market demands, developers have gotten more creative about how to produce housing quickly.”
For example, some developers are moving to modular construction to shorten the time to build, added McKae and Charlesworth. This creates complex legal issues for owners, lenders and investors because the parties need to work through who owns the modular assets, how the modular assets are insured as they are transported to the land and how contracts for modular assets are paid. Additionally, there is significant market demand for for-sale units so that owners can share in equity built over time.
“The most current novel issue in the State of Colorado for affordable housing providers is how to get access to Proposition 123 funds,” explained McKae and Charlesworth. “In 2022, the voters in the State of Colorado approved Proposition 123, which authorized the State to retain money from existing state revenue to support affordable housing development in the State.”
Another novel issue, added McKae and Charlesworth, is using multiple sources of tax-credit tools for one project. The team recently worked on one building that was financed with New Market Tax Credits, 4% Low-income Housing Tax Credits and 9% Low-Income Housing Tax Credits.
“Because of the legal structure needed to obtain the various tax credits, the project had to be subjected to Small Planned Community under the Colorado Common Ownership Act and separated into ‘Units’ within the project, so that each ‘Unit’ could be owned by a separate entity created for the tax-credits allocated to and eligible for those Units,” continued McKae and Charlesworth. “Because a building or project with multiple buildings is constructed at one time, the different Unit owners and each of their respective lenders and investors had to enter into agreements pursuant to which they collaboratively manage approving construction draws and other construction understandings.”
According to McKae and Charlesworth, in many cases municipalities and counties are providing additional financing sources in the form of grants or loans for projects. They may also be donating land.
“We are often negotiating with such governmental organizations as other ‘creditors’ to a development project meaning there are intercreditor and subordination agreements, which outline the various lending parties and their respective rights and remedies against the other parties and the project,” continued McKae and Charlesworth.
McKae and Charlesworth hope that all of the stakeholders in the state can continue to be creative about solutions that impact all affordable needs, from small families to large families, especially in the rising interest rate environment.
“We have an unprecedented need for affordable housing, and we need effort from all parties involved to get more of these projects across the finish line in an efficient manner,” added McKae and Charlesworth.
Sherman & Howard L.L.C
“Sherman & Howard has a team of nearly a dozen lawyers with experience in various aspects of affordable housing, including tax-exempt private activity bond financing in connection with low-income housing tax credits, middle-income housing, and real estate matters,” wrote public finance attorney Cory Kalanick to Law Week via email.
The firm’s public finance group has served as multifamily housing bond counsel to the Colorado Housing and Finance Authority and other local housing authorities across the state for more than 35 years, explained Kalanick.
“In the last five years, we have been involved in over 75 multifamily housing transactions totaling more than $1.2 billion, which have resulted in more than 5,700 new or preserved affordable housing units for families, seniors, veterans, at-risk youth, and other homeless populations across Colorado,” added Kalanick.
The team works with governmental officials, housing developers, underwriters and lenders throughout the financing process, with the end goal of constructing new affordable housing or acquiring and rehabilitating current affordable housing stock, explained Kalanick.
“Our services ensure compliance with state statutes as well as federal securities and tax laws relating to governmental obligations,” noted Kalanick.
In terms of novel issues the firm tackles, Kalanick named three: volume cap limitations, adaptive reuse and middle-income housing.
Volume cap effectively limits the number of projects that can be financed and is becoming an increasingly scarce resource, continued Kalanick. The team assists issuers in managing volume cap resources and often facilitates assignments and delegations between local and state governments and respective housing authorities.
“As Denver looks at novel ways to address its affordable housing crisis, adaptive reuse of historic facilities, such as old hotels and dormitories or repurposing vacant office buildings, has come front and center,” added Kalanick. “We assist issuers in navigating the tax rules related to acquisition/rehabilitation projects.”
According to Kalanick, local governments have the ability to finance, own and operate affordable housing through governmental purpose bonds. The first step to analyzing the powers of a municipality is to review the applicable authorizing statute and/or home rule charter. Throughout this process, local elected officials and community advocates ultimately have the power to determine the level of affordability and the duration of the low-income set-aside restrictions to encumber the property.
While affordable housing financing has traditionally focused on those earning 80% or less in area median income, the Colorado Legislature recently created a new special purpose authority known as the Middle-Income Housing Authority, continued Kalanick.
“I have the honor of serving as counsel to MIHA in its startup phase,” noted Kalanick. “I am thrilled to be a part of this evolving solution and I know how important it is for residents of Colorado to be able to live and work in their communities.”
Kalanick told Law Week there has never been more attention on affordable housing in Denver than right now.
“Mayor Johnston has made affordable housing his top priority, and for good reason! More than 50% of Denverites are cost-burdened,” added Kalanick “Denver and Denver Housing Authority are laser-focused on developing solutions to house 2,000 people experiencing homelessness over the next two years and rapidly increase affordable housing by implementing permanent supportive wrap-around services such as mental health, job training, child care, and more.”
Kalanick hopes this momentum continues.
Boesenecker thinks the community needs to continue to look at zoning and land use, particularly in the way that housing dovetails with climate goals. For example, this might mean building more dense units along transit-oriented districts, ensuring that accessory dwelling units are allowable by rights.
“And then certainly taking a look at what affordability looks like across the state,” added Boesenecker. “So as we contemplate policy, I think it’s really incumbent upon us to ensure that what we put in place serves the needs of individual communities.”