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Converting Market Rate Housing to Serve Middle-Income Households

Affordable Housing for the "Missing Middle"

September 16, 2021

By Mark Sawicki, Director

Many more communities are signing on to a relatively new program that converts market rate residential buildings into affordable housing for the “missing middle,” those households with incomes between 80% and 120% of the area median income (AMI) who often cannot afford market rate housing but earn too much to qualify for most affordable housing programs. The program is made feasible because the reduction in rental revenue is offset by a property tax exemption that the properties receive. The acquisition and conversion is also made possible through the use of tax-exempt bond financing issued by one of three governmental Joint Powers Authorities (JPAs): California Community Housing Agency (CalCHA), the California State Community Development Authority (CSCDA), and the California Municipal Finance Authority (CMFA). There is no upfront cost to a City that participates and, through a Project Benefit Agreement with the sponsor, the City is granted a long-term right to acquire the property for the amount of outstanding debt which allows the City to retain all upside value.

RSG has advised several cities that have been approached by sponsors looking to acquire and convert buildings in their community. While the general parameters of the JPA programs are similar, every transaction should be evaluated on its own terms and in the context of the local market. The city should also negotiate to ensure that the public benefits outweigh both the foregone tax revenue and the significant transaction and financing fees.

If your jurisdiction wants to learn more about the JPA programs, or you need assistance evaluating a proposal to join in and approve a conversion, please contact Mark Sawicki at [email protected].