Conflict among market rate and affordable owners in condo developments

Replies to This Discussion

Permalink Reply by Doug Kleine on January 7, 2011 at 9:51am

There are at least three examples of mixing in the DC area that have history. Colonial Village in Arlington VA was a 1940s townhouse rental of several hundred units. It converted to market rate condo in the 70's. The County required some units to be affordable and the converter carved off one section of about 70 units for a shared equity co-op. 

In DC, the former Ellen Wilson Dwellings (public housing) was converted to a mix of a few fee simple townhouses and mixed income co-op of less than 100 units. The fee simple subsidy was one time--profits from initial sale covered a mortgage gap for the co-op. The co-op, Townhomes on Capitol Hill, has won awards and is doing well more than 10 years later. Corcoran Jameson from Boston and former HUD Asst secy Marilyn Melkonian handled the conversion and significnt rehab.

 

Also in DC, an elevator building converted to market rate condo. 30 apts in the condo constituted a cooperative, and the co-op was one unit in the condo (with a vote proportionate to sq footage). The co-op apts were reserved for elderly and low income residents. Despite initial fears, the legal structure has worked well 

Permalink Reply by Rebecca Cohen on January 27, 2011 at 4:38pm

I know that there is lots of interest in how condo developments handle increases in condo or HOA fees and/or special assessments that low-income homeowners may be unable to afford -- this question has been addressed elsewhere on the Forum, namely at http://forum.housingpolicy.org/group/inclusionaryzoning/forum/topic... and http://forum.housingpolicy.org/group/inclusionaryzoning/forum/topic....

Doug: Do you have any insight into how this works in the developments described above?  Does the co-op structure help to avoid these issues?

Loryn: How are you planning to handle the fee issue in Chapel Hill

Permalink Reply by Loryn Clark on January 28, 2011 at 4:09pm

Thanks, Rebecca.

To address rising condo fees, developers of two projects have agreed to charge a 'transfer fee' on market rate units. A fee of around 1% is required for each initial and subsequent sale of the market rate units.  The funds collected from the fee are held by the local housing agency responsible for oversight of the affordable units. There is an Agreement between the agency and the developer that requres the funds to be used to keep the condo association fees affordable. The transfer fee requirement is also included in the Special Use Permit approved by the Town Council and recorded with the Register of Deeds.

 

There have been some legal issues raised about the use of a transfer fee in the past year or so. Lenders have also stated that they would not approve financing on properties that have a transfer fee requirement. We continue to look into this issue and search for other ideas for keeping condo fees affordable. .

 

Thanks, Loryn

 

Permalink Reply by David Cristeal on February 4, 2011 at 10:43am

Update on Arlington VA -

1. Most of the affordable units in the Arlington Village complex are income-restricted apartments - currently owned by 2 non-profit corporations (AHC, Inc and Wesley Housing).

2. AHC Inc purchased 60 condominiums in a similar garden-style condominium complex called Arlington Oaks (total of 372 condominiums).  I believe all those units were sold to income eligible households.

3.  Re: condo fees in new construction/market rate/high cost locations.  Yes, condo fees could be issue for affordable units acheived through an inclusionary or comparable method (adding a monthly $400 or more condo fee to PITI is an significant burden and was a factor in County decision to sell the affordable units at market prices and use the cash else where.  Do you sell the affordable units to households with higher income (i.e. at 80% of the AMI or higher or otherwise subsidize the condo fees for lower income purchasers?).  The other factor to sell the affordable condominiums was just the huge apparent subsidy between the market price and affordable price (in some cases, the unit prices were $500k to $600k and the affordable sales prices would have been approx $150k).  Complicated issue that is currently moot in today's struggle for affordable ownership (market here in Arlington is building apartments; any new infill single-family homes or townhouses are untouchable for low or moderate income purchasers).    

 

  

Permalink Reply by Doug Kleine on February 4, 2011 at 10:02am

In the spin off co-op, it is not an issue, since the market rate condos are in a different assn. In the co-op within a condo building, the market rate units are not high end, so you are talking about condo owners at maybe 120% AMI and co-op owners at 80%AMI. In the Ellen Wilson conversion, an internal subsidy was build in, and the marketrate people know this before buying.

 

Other commenters have implied, and I will be more specific, that condo and HOA fees have to be part of the credit analysis for purchasers.

For condos, state condo law does not allow internal subsidy. The only way you can do it is by creating a "par value" condo from the start, basing condo fees on an artificial unit valuation that is low for income restricted units and high for market units. It is a zero sum game, and those values would also be used to distribute insurance proceeds and condemnation proceeds, which means low income owners will get less than the reconstruction cost or the mortgage payoff, and market rate unit owners will get a windfall.

A co-op or fee simple HOA structure gives you more flexibility. 

Permalink Reply by Keith Henderson on March 25, 2011 at 9:03am

In New Jersey, we've had experience with many of these issues for 25 years.  Initially, we allowed a reduced HOA fee for deed restricted units to assist with affordability.  However, this does create some ill feelings socially within the development as market-rate unit owners are in fact subsidizing affordable unit owners.  We changed our regulations in 2001 to require that all units be assessed HOA fees uniformly.  Generally, setting fees on a square foot basis appears to be the best practice since it both treats everyone uniformly and also, to the extent that affordable units are slightly smaller, results in slightly lower fees for the affordable units.

 

A key factor in safeguarding against the disproportionately high impact of future fee increases on affordable unit owners is to carefully scrutinize the association budget as initially prepared.  When the developer prepares such a budget, it is typically short because routine issues can easily be handled by subs that are on site during the construction process.  Developers also have an incentive to keep HOA  fees low (artificially if need be) since lower fees can result in higher sales prices.  An independent analysis of the initially proposed budget should be made part of the process.  This issue is important whether the development includes affordable units or not.

Permalink Reply by Doug Kleine on October 21, 2011 at 8:54am

If you have control in setting up the association, and there is sufficient size (1000 units or more), then setting fees as a percentage of property tax valuation can create equity among different housing types (SF, TH, condo) and relieve pressure, assuming the tax assessment recognizes the deed restriction creating affordability. Alternatively, and this will work for smaller assns, set the maximum assessment not in "dollars plus CPI" terms but in terms of assessed value of the unit.