Multifamily In Demand: Workforce Housing

As Luxury Market Cools, the Need for Affordable Units Heats Up

By Debra Wood

Even in Florida's softening real estate market, the recent dramatic escalation in prices has caused homes and condominiums to remain out of reach for working-class people in many markets.

Public entities, employers and several developers recognize communities must retain police officers, nurses, teachers and other service professionals within the communities where they work and are launching projects to fill the housing void.

"All vibrant areas need a mix of incomes living in their urban cores," says Oscar A. Rodriguez, senior vice president with The Related Group, the Miami-based developer. "People who do our service jobs and our middle-class workers need the opportunity to work close to where they live."

Related, known for its luxury condominium and mixed-use projects, currently has several Miami workforce-housing projects in the works, including the $50 million, 36-story, 496-unit Loft 2; the $70 million, 32-story, 495-unit Loft 3; and the $200 million, 1,000-unit Civic Center.

The Fort Lauderdale office of Whiting-Turner Contracting Co. is building Loft 2. Related has not yet awarded contracts for the other projects.

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"We believe the market demand is so great for workforce [housing] that the risk is considerably less (than the luxury market) in getting units sold and absorbed," Rodriguez says.

Stephen P. Auger, executive director of the Florida Housing Financing Corp. in Tallahassee, says that businesses and governments are having a difficult time recruiting new people and are losing good employees who are selling their homes and moving to states such as North Carolina with lower housing costs.

"Affordable housing has gone from a social issue to becoming an economic development issue," Auger adds. "We've seen chambers of commerce and local governments waving the banner for affordable housing in ways that are different from ways they have in the past."

Baptist Health South Florida in Coral Gables offers up to $10,000 down payment assistance to first-time homebuyers and is considering building employee housing on land it owns or purchasing distressed properties for workers.

Housing Crisis

John McIlwain, a senior fellow for housing with the Urban Land Institute in Washington, D.C., says that while the need for workforce housing has become a national issue, it is more acute in coastal regions where land costs have escalated faster than inflation.

From 2001 to 2005, the Florida median sales price for an existing home increased about 80 percent, while the statewide median income went up less than 2 percent, Auger says. The corporation's 2005 annual report indicated that, in 1999, 69 percent of Florida households could afford a median-priced home, but by 2005, the number had dropped to 33 percent.

"Incomes have remained stagnant while housing prices have risen sharply," agrees Jaimie Ross, affordable housing director at 1000 Friends of Florida, a growth management advocacy organization, and president of the Florida Housing Coalition, an affordable housing advocacy group. Ross says a person must earn more than $16 per hour to afford a market-rate two-bedroom apartment.

Auger says that in 2004 and 2005, conversions of rental complexes to condominiums removed a substantial number of affordable units off the market, and there are not enough subsidized units to meet demand.

"There's been a dramatic increase in insurance and property taxes," he says. "It adds up to making homeownership or affordable rental a difficult thing."

Miami Developments

Perhaps nowhere in the Southeast have housing needs become more acute than in Miami. The Florida Association of Realtors and the University of Florida Real Estate Research Center report that in November the median price of a home in Miami-Dade County was $372,400, the second highest in the state after Naples at $415,200.

The Related Group came up with several ideas to mitigate costs to successfully build less expensive units. Prime among them, the developer has entered into long-term leases on parking garages owned by the city of Miami, eliminating the need to build additional parking. The city uses the facilities during the day and owners of Related's units park there at night.

The deal enables Related to sell one-bedroom units at Loft 2 for $119,000 and at Loft 3 for $159,000. The projects feature many of the same amenities, such as gyms and pools, as Related's luxury buildings.

"Through the parking mitigation and through having purchased all three parcels at the same time and secured a favorable land price, we are able to make the numbers work and offer affordable prices," Rodriguez says.

As with many others involved in workforce housing, Rodriguez considers such public-private partnerships essential. Related's 1,000-unit Civic Center project will rise on 12 acres of public land. Prices will start at $130,000 for a one-bedroom unit. Half of the units will have deed restrictions limiting sales to people earning up to 150 percent of the county's median income. The balance will be sold to anyone, but they will carry deed restrictions in respect to resales.

Wood Partners of Atlanta and ARKS LLC of Miami have teamed up to build the $60 million Urbanice, four different workforce housing projects in the Miami metro area. Units are priced from the high $100,000s to the mid-$300,000s.

ARKS will build the seven-story, 45-unit El Colonial development in Little Havana; the nine-story, 98-unit Puerto Nuevo on N.W. South River Drive; the nine-story 57-unit Aqua Briza on N.W. First Street; and the eight-story, 94-unit Los Jardines in Coral Gables.

"They are not flashy, but they get the job done and give a neighborhood feel," says Arnaud Karsenti, a principal of Urbanice. Karsenti and Charlie Morris, development associate with Wood Partners, say Urbanice is building mid-rise buildings of less than 75 ft tall to avoid costs associated with the high-rise building code. It will employ post-tensioned concrete slabs and concrete block construction. Buyers may be eligible for housing assistance.

The Canyon-Johnson Urban Fund of Los Angeles and mFm Construction Corp. of Miami recently announced plans to build the Morrison, a $125 million, mixed-use project in Little Havana, with dual 19-story towers and 395 residential units priced from the mid-$200,000s to the mid $300,000s.

"The mayor [Manny Diaz] sold us on the merits of the Miami market," says Bobby Turner, managing partner of the Canyon-Johnson Urban Fund, explaining that the project received bonus density, fast-track approvals and a loan program to help city employees purchase units.

Incentives

Florida has several programs to help move people into homes. They include the State Housing Initiatives Partnership, and the State Apartment Incentive Loan program, which helps build more apartment inventory.

State Sen. James King, R.-Jacksonville, has proposed a bill to lift the cap on certain funds distributed through the State Housing Trust Fund to free up more money for programs.

In 2006, the state Legislature created the $50 million Community Workforce Housing Innovation Pilot Program, designed to foster public-private innovation to build new workforce-housing projects in areas with high population growth. Selected projects will receive $5 million.

The Florida Housing Coalition's Ross says requiring public participation may expedite permitting, a prime concern of contractors and developers.

"When it takes 18 months from the time you get a piece of property until you can get permits, that's very difficult for developers with carrying cost on the property," Ross adds.

Andre Shepard, managing partner with Global Link Homebuilders Inc. of Smyrna, Ga., is not waiting for incentives. He is building 22 three-bedroom town homes, starting in the $170s, and a 25-unit, single-family home subdivision, with prices starting around $229,000 in the metro Atlanta area.

Shepard says acquiring inexpensive land is key to creating successful workforce housing projects.

Palm Beach County has enacted a mandatory workforce-housing program that requires any development in the unincorporated county with 10 or more units to include a percentage of workforce units, says Patrick Rutter, chief planner for the county.

The percent varies from 6 percent in a standard development to 20 percent in a planned unit development. In return, the county will grant density bonuses of up to 100 percent, depending on the location and planned density.

"The issue of housing affordability is not going to get better," McIlwain says. "If you can figure out how to build in a way that is not super expensive, you will have a nice bit of business."

Apartment conversions leaves room in market for new projects

Apartment complexes converting to condominiums have created opportunities for rental developers.

"In 2007, the apartment market should be strong," says Bill Anderson, president of Associated Builders and Contractors of Georgia in Atlanta. "(ABC) members in that segment of the market have been going strong the past couple of years."

"The conversions left some holes in the apartment market," says Paul Sowders, chief operating officer for Summit Contractors Inc. of Jacksonville, Fla., which is building rental units in Jacksonville, Tampa, Georgia and the Carolinas.

Brett Fortune, principal of Fortune-Johnson General Contractors of Atlanta, says he has seen condominium construction taper off but apartment construction has remained strong. Fortune-Johnson had three Southeast projects under way in January, including 240 Highlands Ave. in Atlanta, a mixed-use project with retail as well as 239 rental and 24 for-sale units; Westchester at Buckhead, in Atlanta, a 250-unit rental project; and Park Springs in Stone Mountain, Ga., a 96-unit addition to a retirement center.

In Tampa, Post Properties of Atlanta is adding 84 new units to its Post Hyde Park complex. The $18.6 million expansion is scheduled for completion in early 2008.

Useful sources

Florida Housing Finance Corporation
www.floridahousing.org

Florida Housing Coalition Inc.
http://www.flhousing.org/

Urbanice
http://www.urbanicemiami.com

Loft 2
http://www.relatedgroup.com/properties/properties.aspx?condoType=1&condoID=49